Unacademy Loses 1678 Cr to Make 907 Cr

What went wrong with Unacademy?

In the 2022-2023 financial year, Unacademy lost 1678 Cr to make 907 Cr in revenue. Unacademy is the 2nd largest ed-tech in India based on valuations. The company was founded in 2015. Unacademy was started to dominate the online education space. Physics Wallah made 779 Crores in revenue in the same financial year with a 9 Crore profit.

The biggest challenge that I see with companies like Unacademy is their target market. Most of their customers are young students who are in school or just completed school. Their products are mostly exam coaching products such as NEET, JEE, and UPSC exams.

In these markets, the customer who uses the product and the customer who pays for it are different. It is estimated that more than 90% of the payments are done by the parents of students and not by the students themselves. No surprises there because the students have no savings or earning capability. This market is also sensitive.

Unacademy’s dream was to disrupt the exam coaching market which was dominated by offline players. The Covid year gave them a boost because no one was able to attend offline coaching and everyone wanted to use their time well by doing online programs. Many ed-tech companies thought this would become the new norm but in the past two years, they have discovered that the demand for offline coaching is coming back.

Students who want to crack competitive exams do not want to sit at home and prepare for them. Adults can take online coaching and upskill themselves because they can induce some self-discipline in themselves and they also have adult responsibilities like taking care of their family which makes it impractical for them to attend offline coaching institutes.

During 2020-2021, Indian startups raised a lot of money, not just the ed-techs. The fundraising was more due to excess liquidity in the financial system induced by lower central bank interest rates than due to the reason that the capitalists saw a huge opportunity with Indian startups.

In August 2021, the firm raised $440 million in a funding round led by Temasek, with General Atlantic, Tiger Global and Softbank Vision Fund pitching in as other participants. The fundraising took the Unacademy Group's valuation to $3.44 billion -- up from a $2-billion valuation in November 2020. - Business Standard

Razorpay, the payments company that I had worked with before as a digital marketing manager also saw multiple funding rounds during the 2020-2022 era, and their valuation ballooned to $7.5 Billion. Other companies that had massive valuations include CRED, BYJU’s, and Vedantu.

The valuation of these companies is based on a revenue multiple and most of them do not care about short-term losses, with the hope that in the future they will become so big and monopoly-like that they will eventually turn profitable. In the past few years, we have also seen many loss-making startups go public and most of the retail investors were exit liquidity for the early investors of these startups who valued these companies at unrealistic valuations.

For example, PayTM has only been going down since it went public. The early investors, founders, and stockholders dumped the stock on retail investors and made money. Only a few companies like Zomato are trading at a higher price than their IPO price.

This is one of the reasons why I hesitate to raise money from investors because these valuations are unrealistic. For a while, there is a good ego boost for the founder when they become a Unicorn company ($1B in valuation or more). If the founder owns 20% of the company, the on-paper net worth of the founder becomes $200m and they will be listed in rich people lists by a bunch of traditional (but mostly useless) publications. They will give talks at startup events and get featured even on TV channels.

Unacademy cannot shrink their valuations again. The value of anything is what people are ready to pay for it. But when it comes to private valuations, the value of the company is valued by the latest investor. Until another investor comes along, no one knows what’s the value of the company and it is marked at the previous funding round. The sheep is revealed in wolf’s clothing when they go public (like PayTM). When retail investors think that a company is not worth that much and they don’t buy the stock, that’s when we see the real valuations.

When market situations change, these companies are forced to do anything necessary to make revenue and maintain or increase their valuations. Unacademy started out as an online education company and is now opening offline institutes to “somehow make revenue” and keep their valuations.

They did an event called Aarambh in 2024 to promote their offline coaching. They also spent a lot of money to get movie and TV stars to create a buzz. I really do not understand what Bollywood has to do with exam coaching marketing.

Before the pivot into offline coaching, Unadacemy went bullish and acquired startups like Graphy, Prepladder, and Relevel. In 2022 alone more than 1,500 employees were laid off because they couldn’t justify the costs and expenses. As far as I know, Graphy tried to compete with TagMango, ClassPlus, and a bunch of other online learning management systems but they haven’t got much traction.

When they tried to dominate the online space they thought that they could leverage the distribution that many individual coaches and teachers had on YouTube. Their personal channels were supposed to be at the top of the funnel. They made agreements and contracts with these teachers but later pressured them to stop posting content on personal channels. That didn’t go well. If you search on YouTube about Unacademy, there are a lot of negative reviews and comments from both students and teachers.

Learnings to Take Home

The purpose of this post is not to criticize Unacademy and how they have failed so far with its scattered and unfocused approach. We have a lesson or two to take from their growth as startup founders.

Here are my learnings:

• Platforms have a supply side and a demand side. You need to take care of both of them. In this case, the demand side is students and the supply side is teachers. They disappointed both teachers and students trying to grow fast.

• They wanted to position themselves as a “premium brand” like Apple but they did not understand their target market very well. Indian market is very price sensitive and because of that Physics Wallah seems to have taken some market share away from them.

• Education is driven by personal brands. Physics Wallah rode on the personal brand of Alakh Pandey. There is no such strong personal brand at Unacademy driving most of the revenues. They started with the personal brand of Roman Saini but that seems to have faded away as the company grew.

• Both BYJU’s and Unacademy tried to “build their brand” through sponsorships in sports events and hiring movie & cricket stars as brand ambassadors. Students and parents just don’t care. Education is a pull product and not a push product. Shah Rukh Khan and Sachin Tendulkar can be great brand ambassadors for FMCG brands but not education brands.

• Lack of focus and trying to do too many things at once can backfire in such markets. FMCG brands can acquire other brands and have a list of products to offer but in education, you cannot have multiple things without focus running at the same time. BYJU’s also made a LOT of acquisitions but most of them were killed later or merged with other internal brands.

• Raising too much money too fast means that you have to keep growing the revenue and show high valuations based on revenue multiples. Losing money now to make money later might not be always the best strategy apart from a few cases that require huge amounts of upfront capital to get things off the ground.

Maybe, just maybe, growing a company slowly is what we need to do. A founder’s vision shouldn’t change due to external pressures.