Start-ups see funding winter, layoffs

The funding in the edtech sector has witnessed a significant drop, about 39%, in 2022 compared to last year.

Published: 25th December 2022 08:02 AM  |   Last Updated: 25th December 2022 08:02 AM   |  A+A-


For representational purpose only.

Express News Service

BENGALURU: With funding winter, geo political tensions and challenging macroeconomic conditions, only 22 start-ups have joined the coveted unicorn club in 2022, compared to 47 in 2021.“Winter will get worse. Get to profitability asap. And then grow from there. Stop all unnecessary spends,” Unacademy co-founder Gaurav Munjal tweeted in November. His tweet sums up the whole year. As schools and colleges reopened after the pandemic, many online edtech companies witnessed massive layoffs and job cuts to reduce operational costs.

The funding in the edtech sector has witnessed a significant drop, about 39%, in 2022 compared to last year. According to market intelligence firm Tracxn report, about 70% of funding is made up of five $100+ million rounds raised by edtech firms Byju’s, Upgrad, LEAD School and PhysicsWallah.

Catching cold in funding winter  

The report also says that in 2022, Indian start-ups have raised a total of $24.7 billion in funds, which is 40% lower compared to $40.8 billion in the previous year. The significant drop in funding is attributed to a decline in late-stage investments, which fell by 45% from $29.3 billion in Jan-Nov 2021 to $16.1 billion for the same period in 2022. Seed stage rounds are currently also experiencing a contraction and have dropped by 38% as compared to the previous year.

“Post-Covid, 2022 was the first year where the world opened up completely for trade, pleasure, business but the slowing economies across the global markets impacted the enthusiasm which was carried forward from 2021. The funding scenario however is not the same as what we saw in 2021, in fact it has slowed down a bit,” says Anil Joshi, Managing Partner, Unicorn India Ventures.

He adds that the larger deals are few but the early-stage segment hasn’t shown any sign of slowdown except some correction on valuation. “The correction in valuation did slow the funding space but certainly allowed founders to work on sustainability and making themselves ready for funding in 2023. Though 2022 went a bit dull, 2023 is expected to pick up pace on the funding sentiment,” Joshi adds. Investors are now more cautious and delve more into profitability along with scale, says Ashutosh Singh, co-founder and COO of Ayekart.

From edtech companies Byju’s, Unacademy, Vedantu to Google, Meta and Twitter, many companies fired employees citing restructuring, macroeconomic conditions, among others. In 2022 alone, edtech unicorn Vedantu fired 1,000 employees.  Its co-founder and CEO Vamsi Krishna told employees that currently, the external environment is tough. “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,” he had said.

While Byju’s fired 2,500 employees, edtech major Unacademy said it will lay off 10% of its workforce- close to 350 employees. Edtech platform Practically and B2B ecommerce start-up Udaan too laid off many employees in 2022.Though edtech start-ups have been witnessing slowdown, Software as a Service (SaaS) start-ups are continuing to see momentum.

“End-to-end manufacturing cloud solutions will be a major trend in 2023, with cloud technology at the forefront, as new capabilities that enable the securely connecting of people, assets, workflow, and business processes will enable businesses to be more resilient,” says Anjan Kalyani, Country Head and Area Vice President, Anaplan India.

No light at the end of the tunnel yet

Will start-ups gain momentum in 2023? “Considering the sustainability and robustness of the Indian economy, 2023 seems to be good and may see some action on funding space. Overall, 2023 would be better compared to 2022,” says Anil Joshi of Unicorn India Ventures.

However, experts caution that the first half of 2023 might be difficult in terms of fundraising. Neha Singh, co-founder, Tracxn, says, “The funding winter, which began in Q4 of 2021, will persist in 2023 as well. In order to survive the drought, start-ups are taking unit economics more seriously. Although we are currently experiencing a slump, the situation is prompting start-ups to establish clearer and more sustainable paths to growth, as investors’ evaluation metrics begin to emphasise good profitability over growth at all costs.”

India Matters


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