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As education heads back to classrooms, edtech companies show employees the door

As education heads back to classrooms, edtech companies show employees the door

Flush with funds in the pandemic, online education is facing a test of survival. With edtech firms downsizing by the hour, is the future of remote learning at stake?

Flush with funds in the pandemic, online education is facing a test of survival. With edtech firms downsizing by the hour, is the future of remote learning at stake? Flush with funds in the pandemic, online education is facing a test of survival. With edtech firms downsizing by the hour, is the future of remote learning at stake?

Edtech was one of the biggest beneficiaries of the pandemic-induced lockdowns, managing to grow at breakneck speed through 2020 and 2021. With schools and offline coaching centres shut due to Covid-19-related restrictions, India’s 260-million-odd student population took to online learning by the hordes. But come 2022, things would change dramatically.

Without the cushion of venture capital and the screen time of locked-down learners, the plans of India’s edtech start-ups have gone haywire. From mass layoffs to suspension of marketing spends to other cost-cutting exercises—one start-up, a unicorn no less, has even stopped providing complimentary snacks and meals in its offices—online education firms are clutching at the last straws for survival.

What’s worse is that students also seem to be losing interest in remote learning.

In the first three months of the lockdown in 2020, education apps witnessed a 30 per cent increase in time spent, per a report by BARC India and Nielsen. Two years on, this has translated into “screen fatigue”. A survey by the Ministry of Education reveals that 80 per cent of students found remote learning “burdensome” and unenjoyable.

“Covid-19 brought tremendous growth for edtech. A lot of artificial PMF [product-market fit] was created; in fact, what many start-ups found was ‘pandemic-market fit’ and not the real ‘product-market fit’ because of the forced high online usage,” says Sajith Pai, Member of the Investment Team at Blume Ventures. “When the pandemic waned and real life invaded, a lot of audiences moved away. This has impacted a certain number of early-stage and growth-stage edtech start-ups.”

The edtech sector has been worst hit by the funding winter. It has also notched up the notorious distinction of firing the most employees in 2022. Cumulatively, 11 of India’s top edtech start-ups have laid off nearly 7,000 employees (until the first week of November), per Tracxn. These include layoffs due to changing business models, shifting focus from non-core verticals, and complete shutdowns.

BYJU’S has fired the most people, laying off more than 2,500 employees (5 per cent of its workforce). However, industry reports suggest the number could be as high as 4,000, including 650 people dismissed in its group companies, Toppr and WhiteHat Jr. After its last round of firings, where 2,500 employees were handed pink slips, BYJU’S Founder and CEO Byju Raveendran wrote in an internal email that the decision was taken “to pay heed to the constraints imposed by external macroeconomic conditions. These have compelled tech companies around the world to focus on sustainability and capital-efficient growth. BYJU’S is no exception to this trend”.

Unacademy isn’t far behind, having reportedly fired 1,000 employees in April (including hundreds of contractual educators). In its latest round of layoffs in early November, it dismissed 350 employees (10 per cent of its workforce). Co-founder and CEO Gaurav Munjal attributing it to the funding slowdown. “Market challenges have forced us to re-evaluate our decisions. Funding has significantly slowed down and a large portion of our core business has moved offline,” he wrote in an internal memo. The layoffs “would be across the Unacademy Group from verticals where we have to take a difficult decision either to scale down or shut down,” said Munjal.

Then there’s Vedantu, one of the top three players in the K-12 space. It has laid off 624 full-time and contractual employees (industry sources put the number at 724) amidst a restructuring exercise. “Currently, the external environment is tough. The war in Europe, impending recession fears, and [US] Fed interest rate hikes have led to inflationary pressures with massive correction in stocks globally and in India as well. Given this environment, capital will be scarce for upcoming quarters,” Vedantu Co-founder and CEO Vamsi Krishna wrote in a company blog post.

Start-ups like Lido Learning, Udayy, Crejo.Fun, SuperLearn, etc., have wound up operations due to capital crunch and changing consumer preferences. Udayy Co-founder Saumya Yadav shared that parents demanded refunds as their kids stepped away from online learning and went back to school. Another K-12 start-up, Practically, has reportedly laid off 190 employees, and is looking to close its B2C business as student interest dries up.

The funding scarcity in edtech is all the more apparent given the dizzying heights it had reached last year, with the sector becoming the third-most-funded (after fintech and e-commerce). Edtech funding, which hit a record high of $4.7 billion in 2021, has declined to $2.43 billion this year (until October), with VCs revoking term sheets, doing mark-down deals at lower valuations, and focussing more on unit economics than mindless growth.

Blume’s Pai elaborates, “Many growth-stage firms saw a large bump-up in valuations during the pandemic. This happened not just in edtech but across the industry. Now that it’s not easy to raise growth capital at larger mark-ups, these start-ups are rethinking their ambitious growth plans, focussing on the core business, and reigning in their expenses, which is what you are seeing in the job cuts.”

How long could this potentially continue? According to the email Unacademy’s Munjal sent, “We are looking at a time where funding will dry up at least for 12-18 months. Some people are predicting that this might last for 24 months. We must adapt.”

For the edtech space, the question to ponder is: while funding will be back, would the students return? 

@mittermaniac

Published on: Nov 25, 2022, 2:22 PM IST
Posted by: Arnav Das Sharma, Nov 25, 2022, 2:01 PM IST
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