India’s Top 13 Edtech Startups Spent $675 Mn On Employee Benefits In FY22

After two years of Covid-19 shutdowns, offline education in India resumed in late 2021, hitting edtech startups hard. The edtech ecosystem faced two challenges: differentiating itself from established players and downsizing its businesses after massive overhiring during the pandemic. This was especially important due to weak macroeconomic conditions, rising interest rates, and a funding winter for startups worldwide.

The rest of the edtech narrative is predictable, to some extent. To shed the burden of heavy expenditure and extend the runway for a bit longer in a cash-strapped environment, many edtechs cancelled office leases and housing deals (meant for employees), and all of them handed out thousands of pink slips. According to Inc42’s Indian Startup Layoff Tracker, edtech startups in India have laid off more than 9,000 employees since March 2022. 

Interestingly, industry leaders such as Byju Raveendran and Gaurav Munjal cited staff redundancies due to multiple acquisitions. Others, which had spread themselves too thin in trying to cope with the huge demand for online delivery models and omnichannel expansions, also rolled back operations and fired their employees.

Although many of the macro triggers (like funding slowdown or the drop in business in post-Covid times) leading to layoffs were beyond the immediate control of the edtech ecosystem, the vicious cycle of overhiring, overspending (on employee benefits and operations) and unprecedented job cuts played out in the past two years as never before, according to an Inc42 analysis. 

Consider this. Flush with massive VC funding in the previous year (January-December 2021), the country’s top 13 edtech startups (six unicorns and seven other major edtechs) spent INR 5,538.47 Cr (around $675.16 Mn) in employee expenses in FY22. 

The sector raised $4.73 Bn in that year, minting three unicorns in the process. Currently, India is home to seven edtech unicorns, eight soonicorns and several other edtech startups on a similar scale to some of the soonicorns. 

While India’s largest edtech startup BYJU’S is yet to report its FY22 figures and thus pinpoint what its employee benefit expenses meant for the company’s balance sheet, Unacademy and Eruditus led that financial year’s list in terms of revenue and employee expenditure, given their equivalent scale. 

Together, these two edtech unicorns spent around INR 3,839.57 Cr on employee benefits, which was more than two-thirds of the total amount spent by the top 13 Indian edtechs in FY22.

However, excluding these two as outliers (due to the magnitude of their expenses) from this study would not iron out the issue of bloated expenses. The average employee expenses at a top edtech startup in India still amounted to around INR 188.77 Cr (around $23.01 Mn) in FY22. It was 146.15% more than FY21, giving us a time frame of just when the overhiring started – at a time when startups were flush with cash.

More importantly, none of these edtech majors was in the black that year although they were spending liberally on employees. The lone exception was PhysicsWallah, which clocked a profit of INR 98 Cr in FY22.  

Many edtech founders and CEOs also received hefty remuneration packages, adding to these costs. For instance, PhysicsWallah founders, Alakh Pandey and Prateek Maheshwari, bagged INR 9.6 Cr and INR 1 Cr, respectively. Unacademy’s three founders got INR 4.6 Cr, while Vedantu’s two founders took home a total of INR 3.98 Cr.

In all, India’s six edtech unicorns posted a cumulative loss of INR 7,521.70 Cr ($916.93 Mn) in FY22 against total revenue of INR 3,846.57 Cr ($468.91 Mn). 

The financial year that followed was further fraught with a business slowdown and funding crunch. Unsurprisingly, nearly all edtech startups have resorted to huge layoffs since the beginning of FY23 (April 2022) to cut the large wage bills initiated in the previous fiscal.

Out of the 13 edtechs discussed here, six organisations have fired 3,514 employees since January 2022.

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Edtech Unicorns Eruditus, Unacademy Flexed The Money Muscles

Before we analyse the spending of other edtech companies under the scanner here, let us consider the outliers – edtech unicorns Unacademy and Eruditus – which were way ahead in terms of the money spent on employees despite the difference in scale.

However, three more startups, including Vedantu (INR 489.29 Cr), upGrad (INR 383.17 Cr) and LEAD (INR 258.70 Cr), also spent above the average of INR 188.77 Cr, as calculated by Inc42.

Interestingly, Eruditus, Unacademy, Vedantu and LEAD spent more on employee benefits than their revenue from operations in FY22, again, a telling sign of overhiring. 

Also, there’s more to it than a routine expense entry on the balance sheet. By calculating the ratio of employee benefits to total expenses, one can gain insights into a startup’s spending pattern and how these expenses impact the overall company expenditure.

According to Inc42’s analysis, Vedantu’s employee benefits expenses accounted for nearly 55% of its total expenses in FY22. The edtech unicorn was followed by LEAD (48.08%), Unacademy (47.85%) and PhysicsWallah (40.89%). Eruditus, on the other hand, spent only about 37% of its total expenditure despite being the single highest spender on employees.

Ronnie Screwvala’s upGrad also managed to keep its employee expenses under a third of the total expenses incurred in FY22. The same goes for PhysicsWallah, which built a profitable business despite significant employee expenses compared to its total expenses.

For the top three spenders – Vedantu, LEAD and Unacademy – the high employee expenditure in FY22 could be a root cause for trimming their workforce in the next financial year. Vedantu and Unacademy, for instance, fired more than 3,000 employees between them. Even though the scale was smaller, LEAD and Eruditus also laid off around 200 employees between them in FY23.

Higher spending on employees in FY22 led to the startup doing retrenchments in FY23 – a trend similar to what was observed in edtech unicorns as well.

Deep Dive Into India's Edtech Future

Other Major Edtechs: Simplilearn Topped Employee Benefits Costs

Among the seven other major edtech startups selected for this analysis, only Simplilearn spent above the average on its employees. The organisation, led by Krishna Kumar, saw its employee benefits expenses reach INR 190.80 Cr in FY22 against the revenue from operations at INR 479.70 Cr. 

It was followed by ClassPlus (INR 103.89 Cr), Teachmint (INR 73.10 Cr), BrightCHAMPS (INR 55.50 Cr) and Leap Scholar (INR 41.66 Cr), which spent more on their employees than what they earned in FY22. 

These seven non-unicorns spent a total of INR 525.54 Cr on employee benefits and had a cumulative loss of INR 800.02 Cr in FY22 against their revenues from operations at INR 653.94 Cr in FY22. 

However, their revenue-to-loss ratio of 81.74% was worse than the 51.14% posted by the edtech unicorns covered here.

Out of these seven edtechs, five organisations, including ClassPlus, Teachmint, BrightCHAMPS, Leap Scholar and Leverage Edu, spent more than 40% of their total expenses on employee benefits, much like the edtech unicorns covered here. Again, this is a sure sign of overhiring. 

On the other hand, Simplilearn and Adda247 spent 30% and 13.5% of their total expenses on employee benefits, respectively.

Interestingly, the story differed a lot in these cases when it came to layoffs. Although Teachmint fired 45 employees in FY23, the other six startups have not resorted to pink slips yet. At least, such incidents have not been reported so far.

However, Teachmint had the highest ratio of employee expenses to total expenses in FY22, and firing employees might have been a knee-jerk reaction to overhiring, as in many other cases.

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What Will FY23 Data Reveal?

Employee expenses are a significant expense item in the P&L statement of every edtech startup. Therefore, mass layoffs and hiring freezes might have rationalised the costs under this head, and the same should be validated when the financial statements for FY23 (ended March 2023) are published. In simple terms, we should expect less cash burn and more streamlined business models, with a focus on profitability instead of all-out growth.

But the retention and addition of star teachers at exorbitant cost may overturn the simple maths.

Last June, Inc42 published an in-depth story on how Unacademy and Allen engaged in poaching star teachers from each other and how these teachers were making INR 1-10 Cr in annual salaries. Earlier this year, Adda247 and PhysicsWallah were also involved in a similar controversy, with reports of teachers being paid up to INR 5 Cr to jump ship.  

Both these incidents indicate that no-holds-barred talent wars were taking place in FY23, even as thousands of low-paying, non-teaching jobs were eliminated by most edtech startups. Teachers, who can bring in thousands of paying students with them, are still in high demand across the ecosystem.

Given that a typical edtech salesperson’s annual compensation varies between INR 4-7 Lakh, per estimates from AmbitionBox, hiring a top-rated teacher could be equivalent to onboarding 140+ sales executives at an edtech company. Therefore, firing thousands of employees in FY23 might not have trimmed employee expenses, as hiring star teachers would have offset such cost-cutting initiatives.

Moreover, with the return of brick-and-mortar institutions, most edtech startups focussed on going hybrid in FY23 to enhance their value proposition. It would have further accelerated star hiring and operational expenses, which may reflect in balance sheets.

According to Inc42’s latest report titled Inside India’s $29 Bn+ Edtech Opportunity, the sector’s total addressable market is projected to reach $29 Bn by 2030, growing at a CAGR of 25.87% between 2022 and 2030. While this is an undeniable opportunity for edtechs in India, rediscovering the product-market fit will be critical for many to survive in a post-Covid edtech landscape.

Watch this space to find out how Indian edtechs performed in FY23, a year of reduced startup funding and increased stress on profitability, and how they could be pivoting to cope with the new normal.