24 highlights
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This is Unacademy’s seventh acquisition in less than two years. Byju’s fourth.
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I can’t remember the last time a sector consolidated so quickly. Perhaps consolidation isn’t even the right word here because it suggests, in a sense, maturing of a business. Edtech, on the other hand, is still very much in the cradle.
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Online travel took more than a decade to achieve some sort of rationality and maturity. Online commerce has been around for seven years and counting, with fresh challengers cropping up every now and then. Ordering food online took a good six years for everyone else to die and leave us with Zomato and Swiggy, with neither company yet to turn in a dollar as profit. That’s as close we’ve got to the last man standing theory, served with poor business economics.
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Over the last year, we have asked everyone—edtech founders, educationists, experts who have tracked the sector—this question: How does one put the edtech frenzy in context? Their answer: Make hay while the sun shines. There is cash on the table today. Tomorrow, who knows?
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Expert opinion on TapChief swings between decent and worthless. It is too early for any sort of efficacy evaluation but they all agree that it would have become challenging for the company to raise further capital in the future and that the deal comes as a lucky break.
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There is also the Blume angle, since Sanjay Nath, Blume’s co-founder, sits on TapChief’s board. “The deal looks investor driven,” says an edtech expert, requesting anonymity. “The only people who would be overjoyed with this are folks at Blume. The deal gives them a good exit, which has been one of their top priorities.”
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It seems like Blume’s edtech hypothesis has Unacademy at its core. While the fund has invested in adjacencies, none of those companies have raised significant rounds so far. Their future has two paths. A) Get sucked into the core Unacademy umbrella; and B) raise capital, grow big, and get sucked into the core Unacademy umbrella.
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There’s an explanation for this. While in other businesses, say e-commerce, market leaders use capital to discount and add more users, it is not something that one can do in edtech. Adding a preferred line of new business seems to be the most popular growth strategy.
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What we do know is that Blume is comfortable bringing its smaller edtech bets like Mastree and now TapChief under the Unacademy umbrella. What Unacademy is trying to get at by acquiring so many tiny companies is a good subject for a future discussion.
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The very fact that a seven-year-old company hasn’t been able to raise even $50 million in its lifetime, is another distressing factor.
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It also points to the issue of overfunding, i.e. when one company in a sector draws a lot of funding, the others find it very difficult to raise money. Toppr is a perfect example.
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There is little money to be made in India. “Most companies are expanding overseas. Why do you think so many short-term credit companies are making a killing here?”
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To be sure, some of the deals made a lot of sense. Byju’s acquisition of WhiteHat Jr last year for $300 million, or its $1 billion bet on Aakash Educational Services last month, and Unacademy picking up Mastree and PrepLadder last year are some examples.
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In the deal with Byju’s, the Chaudhrys of Aakash Educational Services got an exit after a long, and probably tiring, innings in the business and Blackstone secured a 2x return inside 18 months. Byju’s got hold of clean revenue to the tune of Rs 1,200 crore, which is, like we have argued earlier, critical if you are a brand on steroids, eyeing a public offering in the near term.
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WhiteHat Jr got $300 million when it was in the market for raising a mere $50 million. Byju’s, in turn, got A) handsome revenue, B) a firm footing in the US market where it had been struggling to make a mark, and C) live tutoring capability.
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What we have been doing so far is bringing coaching classes online. With a few exceptions, there has hardly been any innovation beyond that. And therein lies the problem. There’s only so much you can do with that model.
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If you look at different niches separately, they are small and lack depth. It is only when you start bringing them all together that the whole becomes much more valuable than the sum of all the parts. That is exactly what Byju’s is trying to do.
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“Acquisitions happen for three reasons,” says Kapal. “One, the buyer wants the intellectual property of the target company; two, they want the talent running the target company and not necessarily the IP (a lot of founders moved on after their companies were acquired by Facebook, but with Byju’s acquisitions, this doesn’t seem to be the case yet); and three, if they believe that the target company can be a credible threat in the future.”
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Reliance acquired Embibe and then another company called Funtoot. It is also developing a greenfield university of eminence. History is evidence that Reliance doesn’t like competition, so there is the fear that when it gets down to play, it could decimate the entire sector like what happened in telecom with the entry of Reliance Jio Infocomm.
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upGrad also entered the test-prep segment with the acquisition of The Gate Academy in November. And the segment just got the biggest push with Byju’s deal with Aakash Educational Services.
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Towards the start of the lockdown, everyone wrote an epitaph for the coaching hub. But less than a year later, Kota is slowly opening up.
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There are several reasons for this. Internet penetration is one. Sure, things have improved in the last couple of years. Awareness around edtech and its adoption has improved, especially in the wake of the lockdown, but we are miles away from the optimal stage. Then there is the larger problem of English comprehension and motivation, which is difficult in an online environment.
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Aakash’s infrastructure will come in handy for Byju’s when that happens. And wherever Byju’s goes, Unacademy will follow.
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“I won’t be surprised if, in the next couple of years, internet fatigue starts playing on the minds of the students and parents,” says Kapal. “If and when it happens, it will bring back physical tuitions.”