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How Profitable DNA Can Keep The Funding Winter At Bay

SUMMARY

Edtech startups are the worst hit by the deep and long funding winter brought on by geopolitical conflicts and macroeconomic headwinds

With funding drying up, nearly 8K employees were laid off as edtechs carried out massive organisational restructuring

With 80% of its students coming from Tier 2 and 3 locations, the TAM for Adda247 is huge, and the startup is looking forward to the challenge, said Anil Nagar, founder-CEO of Adda247

Hope for the best but prepare for the worst – this mindset explains how Adda247, the Gurugram-based vernacular test prep platform for government jobs, managed to raise capital in the face of a harsh funding winter. The $35 Mn funding round in October 2022 was led by WestBridge Capital and brought tech giant Google as a new investor to the bustling cap table.

“The answer (to raising funds) lies in the DNA or fundamentals of any business,” pointed out Anil Nagar, founder and CEO of Adda247. “Our tech products, efficient capital utilisation and impact (making education affordable for a large TAM) are the things that differentiate us from other edtech players in India and this excites our investors,” he added.

The edtech platform, with a strong focus on profitability, claims an annual gross revenue rate of $30 Mn and 2 Mn paid users. It conducts more than 10K live classes per month in 12 Indian languages, while more than 80% of its students come from Tier 2 and 3 locations.

Watch Anil Nagar, founder and CEO of Adda247, talk about his key learnings as a founder, fundraising strategy, how early stage edtech startups can navigate these difficult times and the key focus areas for 2023 during an interaction with Inc42’s Tapanjana Rudra.

Unlike the pandemic-hit 2021, when FOMO-driven VC funding saw startup investments peak to $42 Bn, the narrative drastically changed the following year. With the onset of a harsh funding winter brought on by geopolitical conflicts and macroeconomic headwinds, the capital inflow dwindled consistently. The country’s startup ecosystem could only raise $25 Bn in 2022 (data up to 25th Dec), a 40% dip, according to an Inc42 report.

Among all sectors, the edtech space was the worst hit as the online learning boom slumped fast post-pandemic. With funding drying up, many adopted cost-cutting measures, and nearly 8K employees were laid off as edtech startups carried out massive organisational restructuring. Worse still, startups such as Crejo.Fun and Udayy had to shut down due to capital crunch.

“Sometimes the cost of layoffs can be very high, as it leads to a lot of negativity in the market about your company,” he said. “So it’s better to plan and carry out new hires in a controlled manner, as you build a sustainable long-term business,” he emphasised.

Given this scenario, how can up-and-coming early stage edtech startups navigate these turbulent times?

According to Nagar, startups will go through the phases when preferences change from growth to profitability to sustainability.

“If you look at our journey of the last six years, we have not grown 10X YoY, more like 1-2X,” he pointed out. “That’s because the top priority for us at Adda247 is that whatever we build, it has to be both profitable and sustainable,” highlighted Nagar.

When quizzed about the road ahead, Nagar believes that the total addressable market (TAM) for Adda247 will be huge. And as a product built for the masses, the edtech startup is looking forward to the challenge.

Consider this. India has the second-largest population, with more than 1.4 Bn people (and counting), according to a Statista report. More importantly, it has a large youth population – about 25.78% was in the 0-14 age bracket in 2021.

Also, the rising smartphone usage and internet penetration will drive the demand for affordable edtech solutions across the country.

Moreover, in spite of a booming private sector, many Indians still prefer government jobs due to secure employment, good pay, and, most importantly, pensions, perks and other benefits. Interestingly, more than 22 Cr Indians applied for government jobs between 2014 and 2022, but only 0.33% (or 7.22 Lakh) of the candidates were selected, as per government data. It also underlines young Indians’ clear preference for public-sector jobs despite the rigorous selection process.

This augurs well for the likes of Adda247 and their core offerings and further indicates all is not gloom and doom despite the funding winter. There is an overall need for hand-holding and additional support by edtechs to help build the future of a young India.

“We are working on many projects with Google where technology is going to play a major role in solving current educational problems,” he enthused. “This along with vernacular and State exams are going to be our key focus areas in 2023,” Nagar concluded.

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