Unacademy's lessons on frugality: Pay cut for founders, no biz class travel

Frugality hasn’t been its core value, focused as it has been on growth. But now Unacademy is starting a new chapter with an eye on profitability and the aim to go public in two years. So the founders have taken a salary cut; complimentary meals and snacks across offices have been done away with; and “certain businesses” are being shut down.

“…the goal has changed,” said Unacademy's Co-founder and Chief Executive Officer Gaurav Munjal in an internal note to the employees. “We have to do an IPO (initial public offering) in the next two years. And we have (to) turn cash flow positive. For that, we must embrace frugality as a core value.”

Last August, edtech firm Unacademy 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. The group’s valuation grew almost 10 times in 18 months, which, analysts say, is one of the fastest growth rates by a mid-stage consumer internet startup in India.

“Even though we have more than Rs 2,800 crore in the bank (as of this morning), we are not efficient at all,” said Munjal in the note, which Business Standard has reviewed. “We spent crores on travel for employees and educators. We must cut all these expenses. We must turn profitable as soon as possible.”

Munjal said meals and snacks will not be complimentary across all its offices. And that the edtech company is putting out a strong guideline for travel, which includes no business travel for anyone, including its chief experience officers (CXOs) and founders. Employees and educators can pay from their own pocket if they want an upgrade. Certain privileges like dedicated drivers for CXOs will be removed.

Founders have already taken salary cuts and this would be applied to the management as well. The firm will be shutting down certain businesses, such as Global Test Prep, that have failed to find PMF (product-market fit).

Munjal clarified that making these changes doesn’t mean the company is in a bad state. But profitability is the last frontier that the firm needs to conquer, he added.

“We are well capitalised but still want our businesses to be profitable,” said Munjal. "And it would take the Unacademy Group to a different league."

Munjal had recently said that Unacademy may see a funding dry spell for at least the next 12-18 months, which may last till 24 months, and that the company would cut costs to weather the lean period. Earlier this year, the firm had laid off more than 1,000 employees.

Munjal wrote that cost-cutting would be the company’s key focus now. The firm has reduced its brand marketing budget and will focus on organic growth instead. He said every test prep that the edtech runs must become profitable in the next three months. Unacademy centres, he said, should be profitable in FY23.

The edtech firm saw its loss widen by 494 per cent for the March ending 2021. It clocked a loss of Rs 1,537.4 crore in FY21 in comparison to Rs 258.6 crore in FY20. And it posted total expenses of Rs 2,029.9 crore in FY21 as compared to Rs 452 crore in FY20.

A major reason for Unacademy’s rise in expenses is the significant rise in its employee benefit expense. The startup posted Rs 748.4 crore in employee benefit expenses in FY21 against Rs 119.7 crore in FY20.

Top investors such as Sequoia and SoftBank have raised concerns about profitability and may tighten their purse strings.

Sequoia is one of the most active investors in India and has backed top unicorns such as Byju’s, Oyo, Ola, Zomato, Meesho, Car24, BlackBuck, Pine Labs, Freshworks and Razorpay. Sequoia Capital recently told the founders and CEOs of its portfolio companies that the era of being rewarded for hypergrowth at any cost is quickly coming to an end, with investors shifting focus to companies that can demonstrate current profitability.

Path to profitability

• No complimentary meals and snacks across offices
• No business class travel for anyone
• Dedicated drivers to CXOs removed
• Founders have taken salary cuts
• Salary cuts for management, too, on the cards
• Some businesses being shut