K-12 edtech firm Practically lays off staffers, holds salaries citing funds crunch

Indian edtech companies have fired over 7,000 workers so far this year, citing financial difficulties.

K–12 (kindergarten–grade 12) immersive edtech platform People with knowledge of the situation told Moneycontrol that Practically has terminated permanent staff members across departments and has failed to pay salaries to mainly many of its contractual and permanent workers over the past three to four months, citing a liquidity crisis and an upcoming fundraise.

The company informed its staff in an email that it was having financial difficulties at a time when many online edtech startups, particularly in the K–12 market, were finding it difficult to stay afloat as also demand for online learning had decreased and offline classes and coaching facilities had started to reopen.

Our next round of investors were unable to wire the critical growth capital due to market dynamics. The delay in salaries is primarily caused by the crunch we have been experiencing for a few months, according to Practically in an internal email sent to staff on September 15. Copies of the email have been examined by Moneycontrol.

In the email, the business also disclosed plans to restructure its business model, which would result in Practically’s layoffs. “After carefully weighing all of the available options, we have chosen to concentrate on the soon-to-be profitable business lines, including B2B (business-to-business) in India, international markets, and partnerships, and we will significantly reduce our B2C (business-to-consumer) operations. We will need to restructure the business in order to adapt to this change, which will have an impact on teams that will eventually become redundant, according to the K–12 edtech startup.

Early in October, emails terminating employees with the same justification started to arrive. The number of laid-off workers could not be immediately ascertained. It was also impossible to determine how many workers still owed money.

In response to questions from Moneycontrol, Practically stated that it is “days away from the main signing multi-year large B2B deals” and that it is working with current investors to secure a bridge round that will help the business get back on track and pay employee debts.

“Like any startup, our operations have been struggling as a result of the extremely difficult external environment. Starting in mid-November, Practically’s current investors have also stepped in with bridge funding to stabilize the business and fulfill immediate financial obligations to partners, employees, and others. According to Charu Noheria, Co-Founder and COO, “Practically is fully committed to also fulfilling its obligations to all stakeholders, particularly to its current and past employees.”

“Practically closed a term sheet for $5 million in May to support operations and growth strategies. Unfortunately, the slowdown in the financial markets caused both of the investors who were listed on the term sheet to postpone their payments. Due to the severe cash shortage, we were forced to reevaluate our business verticals, which had an impact on cash-intensive operations like B2C sales and related verticals.

In order to stabilize our operations, the B2C business’ headcount has been reduced by about 190 employees since mid-August 2022. We have refocused our efforts on significant B2B transactions in both domestic and foreign markets, launched new product lines, and are currently on track to reach healthy sales volumes by April 2023, according to Noheria.

Practically, a company founded in 2018 by Subbarao Siddabattula, Noheria, and also Ilangovel Thulasimani, teaches STEM (science, technology, engineering, and also mathematics) to K–12 students using interactive techniques like AR (augmented reality), simulations, and 3D videos.

Practically has between 200 and 500 employees, according to LinkedIn, a professional networking site, and business review sites like Ambition box and Glassdoor.

Although many of Practically’s permanent employees from its educator, sales and human resource, and other departments were let go, some of its contractual educators’ salaries are still owed.

Since the day I began working for them, I have not received a single penny. They use the same justification—that we lack funds—every month. They promise to pay you once we have the necessary funds. But how long will this last?” inquired a contract educator who started working for the business in July 2022.

The company was supposed to announce its current series B also funding at the beginning of 2022, but that date was postponed, according to media reports. More recently, in response to questions from employees about their pay, the company said it would clear a portion of employees’ salaries by the end of October because it anticipates its investors will send the funding amount by November-end.

“We have a term sheet in the place and a firm commitment from investors based in Malaysia that the money will be transferred to the company by the end of month November, by which time we will be able to pay the outstanding salaries in full. In an email sent to staff on October 11 that included information on their specific obligations, the company stated, “We will also try to secure funds through revenues and also will try our best to mainly clear part of the salaries in October.

The company, according to the workers, has not yet paid them. Employee inquiries remain unanswered as of November 3.

NB Ventures (UAE), Earlsfield Capital (UK), the Almoe Group of Companies (UAE), Ncubate Capital (the investment arm of the SAR group), YourNest Venture Capital, Exfinity Ventures, and Siana Capital have all announced that Practically has raised $14 million in funding to date. The company stated its intentions to broaden its sales verticals and also consider tactical hiring in additional departments in its most recent investment round of $5 million, which was announced in December 2021.

In March 2022, the immersive edtech platform paid an undisclosed sum to acquire Fedena, a school management software platform.

Practically is the most recent edtech startup to reduce employee pay and lay off workers, citing macroeconomic headwinds.

Over 7,000 workers have been let go by Indian edtech companies so far this year, including some of the biggest ones like Byju’s and Unacademy. Byju’s, the most valuable edtech company in the world, reportedly sent performance reviews to about 5,000 of its employees earlier this week, according to a Moneycontrol report (about 10 percent of its staff).

Edtech had a fantastic autumn! Can they put it back together?

The K–12 edtech boat is rockier than higher education, but there is light at the end of the tunnel.
For a while now, the K–12 edtech companies have been flourishing. But as major players cut expenses and concentrate on profitability, a U-turn from the last two years’ path of profitless and almost desperate growth, hardly a day goes by without the announcement of layoffs.

Money poured like water into the industry after 2020, when schools all over India began to lower their shutters, and the more aggressive players expanded and went on spending binges like there was no tomorrow. However, the bubble had to pop, and many now hold the opinion that it has and that worse is yet to come.

One of the major players, Unacademy, recently announced 350 additional job cuts on top of the 1000 or so it had already made as it scaled back or shut down some verticals. The platform’s CEO expressed sadness in a statement, but he omitted to mention the internal or self-created causes of this while harping on external factors.

Prior to Unacademy’s announcement, Byju’s also stated that it planned to fire about 2500 workers from a variety of departments, including product, content, media, and technology. Around 7000 layoffs are thought to have taken place in this industry overall in 2022, with several more anticipated.

While those with an interest in the industry should be worried about this, there are a few issues worth looking into. To start, one must determine how much of this disaster is one’s own fault and how much is beyond anyone’s control. Two, it’s important to consider why K-12 edtech companies seem to be floundering while higher education edtech companies seem to be cruising along, even raising money and buying businesses.

In 2020, as the pandemic’s hold on India and the rest of the world grew tighter, many K12 companies faced a previously unexplored opportunity. A nation with approximately 250 million school-age children was facing a future devoid of any opportunities for education or entertainment. No matter what market a company had previously served, this was a chance that was too good to pass up. Because it was so easy to obtain cheap money, practically everyone jumped into every niche and industry that was open.

For example, companies that specialized in tutoring dove headfirst and almost unprepared into test prep. Those with an interest in math and science honed their skills in coding and other areas. Additionally, since there is a lot of free content available on both public and private platforms, the value proposition for this market has always been lower.

It’s fair to say that these forays were made with very little planning or thought, and they were motivated more by FOMO or even greed than by any strategic considerations. When they were unable to add a new vertical, these companies purchased smaller businesses to fill any gaps that might exist, frequently at exorbitant prices.

These inexperienced and occasionally brash operators are only responsible for holding themselves accountable for this. A few of them received encouragement from investors who were only interested in finding the fastest way to quadruple their investment. Many people in the area warned that the good times might not last even as this frenzy was in full swing, but those who could only see dollar bills ignored or brushed these warnings aside.

Even though one may feel some sympathy for fired workers, industry representatives and others point out that they too share some of the blame because many of them left their more secure and possibly lower paying jobs for the lure of better pay packages and also ESOPs even though they were aware that the boats they were currently boarding were rockier and in some cases far less ethical in their conduct.

The struggles facing the K–12 edtech sector have also been exacerbated by some outside factors. To start, going back to the regular world of physical education and social interaction has made many parents more conscious of the value of social and peer interaction for learning.

The same is true for test preparation and tutoring. As a result, physical classes have been reinstated in all segments, and many purely online players have finally taken the plunge into them. Two: It appears that funding has dried up across sectors, with edtech bearing the brunt of it like other sectors. All businesses have been impacted by the post-pandemic macroeconomic environment and the war in Ukraine.

To answer the second question, the value proposition and/or the mode of delivery haven’t changed significantly between the pandemic and now, which is why higher education edtech companies like UpGrad, Emeritus, SimpliLearn, and Great Learning seem much more insulated.

The majority of these businesses provide upskilling or skill acquisition that increases employability. Although many of these players have also expanded into related fields, they have done so in a much more deliberate and cautious way.

The majority of their purchases have been to close gaps that already existed, but most of the time, rather than hiring a senior manager to start from scratch, they chose to harness and unleash the energy of the new founder or promoter of the businesses they had purchased. Rarely can a high paid hiring replace the drive, passion, and vision that the founder brings.

Higher ed edtech players’ market reach and accessibility are additional reasons why they don’t face the same issues as K-12. Due to significantly lower language or curriculum barriers, many of the players are able to easily offer their programs and courses all over the world. 60% and 75% of the learners on platforms like Simplilearn and Emeritus are currently located abroad. Since children typically adhere to national curricula and pedagogies, which differ greatly between nations, K12 does not have the luxury of doing so.

Although profitability remains elusive for the majority, many Indian higher education edtech players have reported their highest growth and also in many cases, profits in 2022. Many of them assert that becoming profitable and making money are still very much within their reach, possibly as soon as the following fiscal year, but analysts and observers warn that they may be counting their eggs before they have even begun to hatch. But regardless of how one looks at it, it does seem like this space is looking toward a more promising future than their K12 counterparts.

Last but not least, there is a factor that makes kids harder to deal with than adults. Compared to the age groups that the higher-ed players are aiming for, children are by nature more rebellious and difficult to discipline. Any parent will attest that it takes a herculean effort to keep a child interested and hooked. Word of mouth only gets you so far, as opposed to an adult who, after completing an upskilling course or learning a new skill, sees his contemporary in a better light and understands his situation.

Children are not as concerned with keeping up with their peers, especially when it comes to learning math, and they are not as troubled by worries about the future. As a result, the K12 market will have much higher acquisition and retention costs. Only 30% of parents say they are likely to renew their subscriptions to such content, according to a recent survey by LEK and DC Advisory, a consultancy. Let’s just say that this is the way things are, which helps to explain why this particular segment is in a rougher sea.

In the end, many believe that the current atmosphere of gloom and doom for K–12 players will eventually result in the separation of the wheat from the chaff, even if it does so temporarily. The fittest of the fit are likely to survive this churn.

edited and proofread by nikita sharma