PhysicsWallah Product Gambling Continues

Edtech has taught us all a lesson in the last four years. One could say that it is easier to do one thing than to do everything at once. However, the painful experience of BYJU’S, Unacademy, Vedantu and others has not deterred the relatively newer PhysicsWallah from following the older guard.

What started as a YouTube channel has evolved into an umbrella company for all things edtech and science. With each passing year, PhysicsWallah (PW) becomes the very rival it sought to dethrone.

In fact, we said something similar last year. But the universe of PW products has expanded since then. The latest addition is School Of Startups or SOS, where PhysicsWallah is investing over INR 100 Cr.

Is PW spreading itself too thin? Or is it trying to take advantage of the fact that it’s pretty much the only game in town for investors? But before we get there, here’s a look at the biggest stories from our newsroom this week:

Key members of OYO: CEO Ritesh Agarwal has apparently assembled a 14-member leadership team that can take the company to an IPO and beyond, after turning things around and driving the company to profit in FY24 from heavy losses. Here’s a look at who’s running the show
India’s Future in Space Technology: As India celebrated National Space Day last week, Lightspeed partner Hemant Mohapatra said he believes space technology will benefit from investor interest in the next few years, not only because most other sectors are maturing faster but also because of the high rate of innovation. Read this special Q&A
To the district: Taking inspiration from Blinkit’s success story, Zomato plans to revive the outing business with a major acquisition from Paytm and cross-selling opportunities. Could District become the third weapon in Zomato’s arsenal?

PW turns away from profits

It’s not often that a company raises money after a year of profits only to fall into losses two years later. Such is the case with PhysicsWallah, which became a unicorn after its first institutional round in June 2022.

When the company raised $100 million, the startup had just finished its fiscal year 2022 and had posted a profit of INR 98 million. However, soon after, PW followed the path of every startup that has raised a large round of funding.

For example, PhysicsWallah acquired four companies in less than a year, made a significant investment in a fifth, and also signed a joint venture with Utkarsh Classes to provide offline learning.

Even before most people knew about PhysicsWallah, or PW as it was named after its funding round, it was looking to compete with BYJU’S and Unacademy, two of the most heavily capitalized test prep players at the time.

As is typical, these investments led to a 91% decline in profit and revenue, which was below the earlier guidance given by co-founder Alakh Pandey. While Pandey was earlier optimistic about achieving INR 1200 Cr in revenue in FY23, the company managed to earn only INR 770 Cr this year.

Even taking into account the numbers for fiscal year 2024, there is a slight decline compared to what PW expected before the end of the year and where it ended.

In an earlier interaction with Inc42, co-founder Prateek Maheshwari had claimed that the company was on track to hit INR 2000 Cr in revenue in fiscal 2024, but reports now indicate that the startup could have earned INR 1800 Cr in revenue in fiscal 2024. More importantly, PW incurred losses in fiscal 2024, as per a report by The Captable.

So, essentially, PW has lost what differentiated it from the rest of the edtech players in the prep and aptitude testing segment. Despite this, the company is speculated to raise a large round in 2024 to fuel its multiple products.

New products, big promises?

In the company’s favor, it has admitted that it is investing in multiple products up front and laying the groundwork for future growth. But those investments add up to a huge number.

In fiscal 2024 alone, PW invested $10 million in Vidyapeeth’s offline learning vertical and launched 50 new centres for the business. It also said it would invest INR 100 Cr to scale its UPSC test preparation vertical and another INR 120 Cr over three years in its technical skills product.

In addition, a $61 million (INR 490 Cr) deal was struck to acquire 50% stake in Xylem as the company looked to enter the southern states of India. As a result, PhysicsWallah committed or spent close to INR 700 Cr on new products in FY24 alone. This is slightly less than the revenue it earned in FY23.

Moreover, in February 2024, a new school for primary school students was launched, and in August, a Startup School.

Interestingly, PW’s latest product is taking on startups like Masters’ Union, where the average price is significantly higher than a test prep course, given that PW is targeting entrepreneurs, offering mentoring, fundraising, and incubation opportunities through the School of Startups. In a sense, it’s also competing with accelerators and incubators aimed at early-stage entrepreneurs.

In addition, Physics Wallah will collaborate with companies such as Stoa, which offers management courses in partnership with the PW Institute of Innovation, another product launched in recent months.

Having multiple verticals is good enough if the revenue contribution is significant. School of Startups is clearly a revenue play, but growing that vertical and attracting entrepreneurs won’t be easy, given that PW needs to consistently show results.

In a conversation with Inc42, co-founder Maheshwari claimed that Utkarsh Classes, acquired in February 2023, was expected to end FY24 with a revenue of INR 150 Cr. UAE-based Knowledge Planet, acquired in March 2023, was expected to bring in around INR 30 Cr in revenue.

The co-founder said that the other subsidiaries were expected to contribute INR 20 Cr in revenue, however, this was done assuming an overall revenue of INR 2000 Cr, which is yet to be verified as PW is yet to file its financial statements for the year.

We know the company has scaled back some of its offline operations in Kota and also laid off over 150 employees over the past year to cut costs.

It also moved some teachers to new regions that were closer to profitability. This led to some dissatisfaction among educators. Naturally, with so many products under its umbrella, PhysicsWallah would have to balance the student and educator sides of the value chain if it wanted these products to grow from experiments to revenue-generating verticals.

PhysicsWallah is waiting for a refueling

Investing in new products without external funding meant PW used some of the revenue to expand into new vertical markets.

This approach has its advantages, as companies can more tightly control product development schedules and also vertically integrate elements. Most famously, companies like Amazon have been losing money for years due to constant investment in expansion and new product lines.

But given how quickly things are moving in India, startups can’t completely shut out funding. Perhaps that’s why PW is in talks with Lightspeed and existing investors Westbridge and GSV Ventures for a $150 million funding round.

PW has not raised an external round of funding since 2022. In 2023, there was talk of an infusion of $250 million at a valuation of $3.3 billion. However, this did not materialize.

Now, sources within the company indicate that PhysicsWallah’s management and board are in talks with investors, including Lightspeed, about a new round of funding.

Reports of the deal have been circulating since March, with the latest speculation being that some investors have provided PW with a term sheet. However, sources close to Lightspeed and PW told Inc42 this week that the deal is not yet close to being finalized.

Edtech sources say valuation is a major bottleneck in discussions between founders and investors. That could explain why a deal that has been circulating for nearly six months is nowhere near closing.

Valuation talks have certainly been influenced by the value destruction in BYJU’S, as well as the slow growth in Unacademy and Vedantu. While the latter two are unicorns, they are yet to reach their valuations and both suffered heavy losses in FY24.

Unacademy is said to be considering a possible acquisition, but discussions, like previous ones, will focus on Unacademy’s valuation and revenue issues.

In this climate, PW wants to essentially do what these companies have been trying to do for years. What could work in PW’s favor is its heavy focus on offline learning, as opposed to online products.

The majority of the company’s investments last year were in offline verticals, indicating that the company is on track to becoming a giant in the offline multidisciplinary coaching space, aided, of course, by technologies such as personalized learning, AI tools, and automation.

While its rivals have tried to build edtech around online learning for various verticals, adoption has been slow and product-market fit has been poor. Will PhysicsWallah’s offline-first gambit yield the right results?

Our Founding Payout Tracker is Back

Let’s face it: all startups have had to cut costs in some way to cope with the lack of access to easy VC money. Some have had to take drastic measures like laying off thousands of employees to feed their skin, while others have cut verticals.

But what about founders? Did startup founders take a pay cut in fiscal 2024, or did founder-CEO and founder-CXO salaries increase?

Inc42 analyzed the salaries of 21 founders of 12 startups to see how things stand. Overall, these individuals took home Rs 168.1 Cr in cumulative salary for the year, but is that better or worse than last year?

Find out in our Founder Salary Tracker

Sunday Wrap-Up: Tech Stocks, Startup Funding, and More

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