Edtech unicorn Vedantu has laid-off 424 employees or 7 percent of its 5,900-strong workforce, expecting scarcity of capital in the upcoming quarters due to a tough external environment.
This is the edtech unicorn's second successive round of layoffs, with 200 employees let go of earlier in May.
Vedantu co-founder and CEO Vamsi Krishna offered an explanation for this "gut-wrenching" and "difficult" decision through a blog post, in which he said, "There is no easy way to say this but I am truly sorry ... Also remember, this is not your fault and it's not happening because of anything you did or didn't do."
Vamsi Krishna blamed the ongoing war in Europe among other factors for "one of the toughest decisions" he has had to make in the past many years.
On Thursday, IPO-bound automobile marketplace Cars24 fired close to 600 employees citing poor performance, and not owing to any cost cuts, and said it is a "business-as-usual, performance-linked decision that happens every year".
"War in Europe, impending recession fears, and Fed rate interest 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," said Vamsi Krishna.
"With COVID tailwinds receding, schools and offline models opening up, the hyper-growth of 9X, Vedantu experienced during the last two years will also get moderated," Krishna told employees in the blog post.
Given the uncertainties of the outside world and tightening of capital availability, Krishna justified the layoffs by explaining that it is important to build a capital runway for at least 30 months.
"The result is, that a few teams and projects will have to be deprioritized and in the process, a few of our Vedans will be let go as well," said Krishna in the blog post.
He also sought to assure his employees that no more layoffs are in the offing. "Please note that this is a one-time activity with no further cycles. From now on, we focus on growth and efficiency," he added.
However, that doesn't change the fact that these layoffs appear to be an industry-wide trend, in which many edtech startups have fired hundreds of their employees just this year. On the other side of the coin, employees of some company have quit in the hundreds over policy decisions.
Tough Lessons For India's Edtech Startups In Post-Pandemic Era
Vedantu was the third edtech startup that entered the unicorn club in 2021 along with Eruditus and UpGrad. The company also has plans of launching its initial public offering (IPO) in 2023-24.
In two rounds of retrenchment in a single month, Vedantu has fired over 600 employees, which is equivalent to the layoffs at rival edtech startup Unacademy, which cut its workforce by 10 percent in April.
"Based on the outcome of several assessments, a small subset of employee, contractor, and educator roles were re-evaluated due to role redundancy and performance," an Unacademy spokesperson had said at the time, adding, "The vast majority of roles impacted has been a result of that process, and the efficiency we aim to drive in the broader business."
Softbank-backed Unacademy said its focus is now on becoming profitable by the end of 2022 with tighter running of its core business with investments for growth in group companies — Relevel, PrepLadder and Graphy.
In line with the cost-cutting exercise, Unacademy recently shut its K-12 tuition unit saying it was due to changing market dynamics, company’s evolution and business plans. It is planning to go for an initial public offering (IPO) in two years.
Edtech Goes Back To The Classroom
It's important to note that edtech giants are adopting a capital-heavy shift to a hybrid model with physical and online presence, as schools and offline tuitions are opening up.
First, the decacorn BYJU's made the foray into offline learning with a $200 million investment to have 500 study centres across 190 cities in India by the end of 2022. Last year, Byju's acquired test-prep company Aakash Educational Services for $1 billion.
To compete with BYJU's, Unacademy is fast expanding its offline presence with plans to open the first such centre in Kota in June. That will be followed by similar touchpoints in Jaipur, Bengaluru, Chandigarh, Ahmedabad, Patna, Pune and Delhi.
In response to a Twitter user who asked if the foray into offline while carrying out lay offs is a sign of the edtech bubble bursting, Unacademy's Gaurav Munjal said, "How? Edtech is here to stay."
How?EdTech is here to stay.We are doing 1000+ crores in our Core Online Test Prep Business. Growing 30-40% YoY with Unit Economics getting better.In some categories Learners and Parents prefer a Hybrid approach. So we are also opening Centres.Correlation is not causation.— Gaurav Munjal (@gauravmunjal) May 18, 2022
Mass Resignations At BYJU's-owned White Hat Jr
CNBC-TV18 had reported last week that nearly 250 employees at White Hat Jr, which offers coding lessons, have resigned en masse in the past two months after they were asked to report to offices. Media reports had put this number at over 800 employees.
A WhiteHat Jr spokesperson confirmed that as part of its back-to-work drive, most sales and support employees were asked to report to Gurgaon and Mumbai offices from April 18. However, employees said they suspect this was a ploy by the company to force them to resign without tarnishing its brand.
“The company was clearly running in losses. This was a cost-cutting exercise to reduce its expenses without ruining their name in the market,” an employee told media outlet Inc42.
In the past few months, it is not just several growth and late-stage edtech companies that have trimmed their workforce. While the surge in demand for remote learning has benefited the edtech sector over the last two years, it has also led to intense competition, hitting the prospects of some smaller companies.
In March, Lido Learning asked over 1,200 of its employees to resign before the company shut its operations after a funding deal collapsed.
On February 7, Sahil Sheth — the founder of the three-year old edtech startup — told employees in a virtual meeting that the company would cease operations for a lack of funds.
"Consider today as the last working day," the company informed its employees and asked for 90 days to settle their dues, including unpaid salaries for January. Tutors too received an email with a plea for patience and loyalty.
Over the last two years, several sectors besides edtech received funding with investments largely influenced by the pandemic-led digital shift. However, with a tough global markets scenario, a host of startups from Meesho and Furlenco to Trell and OkCredit are rejigging their businesses for the post-pandemic era.