Unacademy’s Downward Spiral: Product Fumbles & Failed Acquisitions Take Heavy Toll

Unacademy’s Downward Spiral: Product Fumbles & Failed Acquisitions Take Heavy Toll


If the funding winter had had an outsized impact on the edtech sector in India, then Unacademy is in many ways the poster child of this bruising

The startup is shutting the US medical licensing test prep platform, revoking employee benefits and cutting pay for senior management

Is Unacademy straying too far away from its B2C edtech roots with a bigger focus on Relevel, Cohesive and other B2B products?

An exit from the K-12 segment, a trickle of layoffs numbering nearly 1,000 employees, allegations of toxic culture, a developer-centric SaaS experiment, fighting off major competition in offline coaching, winding down US operations in a matter of months, pay cuts for the leadership, revoking perks and employee benefits — the past six months have been the shakiest in Unacademy’s journey.

If the funding winter and the global economic slowdown have had an outsized impact on the edtech sector in India, then Unacademy is fast becoming the poster child of this bruising.

The Bengaluru-based unicorn was one of the first companies to publicly speak about the so-called ‘funding winter’ and through the past few months, founder and CEO Gaurav Munjal has written to employees on more than one occasion to apprise them of the turmoil and Unacademy’s focus in 2022 on eking out a sustainable revenue model.

In his latest missive, Munjal said the company will be shutting the US medical licensing test prep platform (USMLE), five months after launch. He added that Unacademy is looking to go for an IPO within the next two years and wants to turn cash flow positive before that.

As per his email, a copy of which was reviewed by Inc42, the company claims to have cash reserves of INR 2,800 Cr in the bank, but nevertheless, it will be rationalising expenses such as drivers for vehicles allotted to CXOs, business class travel, removal of free food and beverages for employees.

While the company’s founders Munjal, Hemesh Singh, and Roman Saini have already taken a pay cut, other CXOs in the company will also see a reduction in pay. Incidentally, as per official filings, in FY21, Munjal’s gross salary was INR 1.58 Cr, Singh’s gross remuneration was INR 1.19 Cr, while Saini’s gross salary was INR 88 Lakh. It is not yet known whether this remuneration changed in FY22 and how much of a pay cut the founders have taken.

Sources in the company told Inc42 that cost-cutting directives also include reducing reliance on paid software such as Notion or Zoom. These measures come after months of aggressive promotions and marketing campaigns run by Unacademy for the Indian Premier League (IPL) 2022.

Now, the company has decided to halt all such sponsorship engagements as it looks to conserve cash across its operations.

Edtech Unicorn Mired In Losses

As it looked to restructure, cut expenses and rationalise its operations, Unacademy laid off around 1,000 employees (including teachers) over three phases. While the edtech unicorn is yet to file its FY22 financials, its expenses had shot up significantly in FY21. Overall expenditure rose to INR 2,029.9 Cr with employee benefit expenses growing over 6X to INR 748.4 Cr from INR 119.7 Cr in FY20.

Salaries and wages accounted for INR 196.3 Cr of the employee benefit expenses. Net loss rose 5X to INR 1,537.4 Cr in FY21 from INR 258.6 Cr. The company spent INR 5.1 to earn every rupee in income in FY21, whereas it spent INR 5.96 to earn a single rupee of operating revenue in FY20.

Unacademy's Losses Surged 6X in FY21

The primary challenge for Unacademy is that since 2020, it has acquired a bevy of companies and YouTube channels, all of which either served as a funnel for its online learning product or as extensions to its core test prep product. In the past couple of years, Unacademy had increasingly positioned itself as a super app for edtech with a number of offerings.

But marketing, driving traction and retaining users in each of these verticals had resulted in Unacademy over-leveraging some of these product experiments.

As per sources in the company, it had ramped up hiring significantly in the past year as it looked to drive each of its many products, and till last year, the relative ease of access to capital made such expansion seem like a winning move.

Since March 2021, the edtech giant has raised over $450 Mn in its Series H round from the likes of Temasek, Dragoneer, SoftBank, General Atlantic, Tiger Global, Ritesh Agarwal’s Aroa Ventures, Zeta’s Bhavin Turakhia, and Zomato’s Deepinder Goyal at a valuation of $3.44 Bn.

Untangling Unacademy’s Product Jumble 

Since 2020, the Bengaluru-based giant acquired over ten startups including Rheo TV, PrepLadder, Mastree, Spayee, CodeChef, SwifLearn, Kreatryx and TapChief. Many of these acquisitions led to the launch of new products under the Unacademy Group.

It is the flagship Unacademy learning product that is the face of the company and also the vertical that would have accounted for the bulk of the expenses. Besides this, Unacademy Group also has Graphy, Relevel and most recently, Cohesive under its umbrella. While it has expanded the non-edtech categories, Unacademy has also made operational changes in acquired companies such as PrepLadder.

Unacademy's Dozen: A Timeline of Acquisitions

Graphy, the creator-focussed SaaS tool, was born out of an internal product created for Unacademy teachers. Currently, it allows anyone to launch and distribute their own online course and manage the operations around these courses. It also lets brands and experts launch a native mobile app for learning or other purposes.

TapChief and Rheo TV’s teams developed Relevel, which is a product for test assessment and placements. Last year, the Unacademy Group made an infusion of $20 Mn in Relevel, and it claims to be clocking $12 Mn in annual revenue as per Munjal.

With the core edtech products facing a slowdown, Relevel seems to be the big bet towards profitability for Unacademy, something that could also be said about Cohesive.

As we reported last month, Cohesive is an “experiment by the in-house R&D team” according to Unacademy. With this product, Unacademy is straying further from its edtech roots, but as a B2B product targetted at developers, Cohesive does have the potential to be a more sustainable revenue stream than a B2C edtech product.

However, this ‘experiment’ also comes at a time when the company is reducing burn in every way possible. So is dedicating resources for a developer-centric experiment justified in such a situation?

Scaling Up Offline Play Amid Funding Crunch

Besides the funding crunch, market conditions have also not favoured online learning giants in 2022. With schools and colleges reopening, a lot of the online learning base has moved back to the traditional way of learning. Even as edtech players look to cut costs, they are also betting big on offline or hybrid learning.

Unacademy has looked to supplement its online learning product with a foray into offline test prep centres as well as the Unacademy Experience Centres for demos and counselling. Hybrid learning has become the buzzword within the test prep and K-12 space in 2022.

Here it has been met with stiff competition from some of the legacy players including Allen Career Institute in Kota as well as BYJU’S-owned Aakash, Vedantu, PhysicsWallah and others. To beat this competition, Unacademy is looking to get the best teachers from offline players to establish a foothold.

As we reported last month, getting these well-regarded teachers is not just about one-upping the competition, but also attracting the thousands of students that all but worship these teachers.

However, this approach is likely to be a capital-intensive play given that poaching teachers from established players such as Allen Career Institute involve 2x-3x pay hikes with annual income in the range of INR 1 Cr – INR 10 Cr, as reported by Inc42 last month.

Unacademy has recently brought on board 40 such star teachers from Allen for its Kota and other centres. Besides this, it has shown an inclination to splurge on popular YouTube channels and teachers that have a massive online presence.

The most recent pay cuts have followed allegations about Munjal and other Unacademy cofounders leading lavish lifestyles and spending exorbitantly on private jets and other indulgences. It also reportedly spent up to INR 20 Cr to poach a teacher from a rival platform in 2021.

Investors in the edtech space contend most edtech players that have forayed into offline learning are overburdened with costs or have their hands in various pies with mixed results. Operational, executional and financial challenges abound, and the plans to expand into offline coaching will be expensive to say the least.

Sources told us that Unacademy was in talks with investors to raise up to $150 Mn – $200 Mn in funding, a deal which now seems to have stalled given that the company is in complete cash conservation mode. The lack of access to funds right now could complicate Unacademy’s push to expand offline.

One just has to look at the trickle of funding in edtech this year to understand just how severe the situation is. In H1 2022, the edtech sector raised a total of $2.1 Bn, which is less than half of what was raised in the preceding six-month period or H2 2021, when over $4.73 Bn was raised. In fact, excluding the $800 Mn outlier round for BYJU’S, the total funding is significantly low for the edtech sector at just $1.3 Bn in the first six months of 2022.

When you look at the data for edtech sub-sectors, the gloom and doom being talked about is very real for test prep startups such as Unacademy, Vedantu, BYJU’S and others. In terms of funding, from $830 Mn in Q1 2022, funding for test prep startups has plunged to $6.1 Mn in Q2 2022 — an incredible decline of 99%.

Waiting For Edtech 2.0

One major problem that is yet to be solved by any of the smaller players is the innovation in the teaching and learning methodologies, even as they veer towards the hybrid model.

So far, most players have resorted to the same model of scheduled live courses and learning material through an app, combined with traditional offline coaching centres. This makes it rather tedious for startups to establish a distinct competitive advantage in the test prep segment.

As we have seen in the Allen-Unacademy fracas in Kota, the USP in offline coaching is the lineup of teachers. While Unacademy might have poached some already — it will have to arguably pay a lot more to expand this pool given that Allen & Co are wizening up to these moves.

Investors and analysts we spoke to believe that this is Edtech v1.5, where companies are yet to find a way to shed their traditional roots while also forging ahead through tech. The ‘Edtech 2.0’ moment will come when these two seemingly disparate pieces of the learning pie can seamlessly fit into each other.

In the past, startups have also admitted that sustainable hybrid models will only emerge after a period of forced blending and experimentation. The consensus is wait and watch as hybrid learning behavioural patterns become clearer. But for many companies caught in edtech’s current maelstrom, waiting and watching is a bridge too far.

Unacademy’s Litmus Test

Ultimately, the edtech giant has to respond to the sticky situation that it has created with its rapid expansion into various verticals.

In many cases, this has resulted in a less-than-clear product-market fit, highlighted by the shutting down of the USMLE test prep product in just five months or its exit from the K-12 space.

And with its acquisition blitz, Unacademy was looking to extend its core product to become a super app. That approach has seemingly backfired and many of these acquisitions have now been sidelined. The focus is purely on test prep and hybrid operations.

The unanswered question so far is what might happen to the core edtech offering if B2B products such as Relevel and Cohesive become the main source of profits for the company. After all, the challenges of scaling up test prep will not disappear overnight. Is Unacademy straying too far away from its edtech roots and will this change the company altogether?

Even though it is in conservation mode, Unacademy cannot afford to step off the pedal in the test prep space. It has too much at stake there and has already spent millions just this year to acquire teachers. In many ways, this is a tricky balance to achieve and this is why we are calling this moment a litmus test for Unacademy.

Correction Note | July 13, 13:50

  • An earlier version of this story erroneously mentioned that PrepLadder had shut down and that TapChief had been spun off into Relevel by Unacademy Group. Both these errors have been corrected.
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