PhysicsWallah’s Product Gamble Continues

Dear reader, 

Edtech has taught us all a lesson in the past four years. It’s arguably easier to do one thing than everything at once. But the painful experience of BYJU’S, Unacademy, Vedantu and others has not stopped the relatively fresher PhysicsWallah from following the older guard.

What started as a YouTube channel has morphed into an umbrella company for everything to do with edtech and learning. With each passing year, PhysicsWallah (PW) is becoming the rival it looked to dethrone. 

In fact, we said something similar last year. But PW’s product universe has expanded further since then. The latest piece is the School Of Startups or SOS, where PhysicsWallah would be investing more than INR 100 Cr.  

Is PW stretching itself too thin? Or is it looking 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 top stories from our newsroom this week: 

• The OYO Top Brass: CEO Ritesh Agarwal seems to have assembled a 14-member leadership team that can take the company to an IPO and beyond, after turning things around and bringing the company to profits in FY24 from major losses. Here’s a peek at who’s running the show
• India’s Spacetech Future: As India celebrated the National Space Day this past week, Lightspeed partner Hemant Mohapatra said he believes spacetech is set to benefit from investor interest over the next few years not only because most other sectors are maturing faster but also because of the high innovation quotient. Read this special Q&A 
• Into The District: Taking inspiration from Blinkit’s success story, Zomato plans to revitalise the going out business with a major acquisition from Paytm and cross-selling opportunities. Can District become the third weapon in Zomato’s armoury? 

PW Turns Away From Profits 

Not often does a company raise funds on the back of a profitable year just to slip into losses two years later. That’s the case with PhysicsWallah, which became a unicorn with its first institutional round in June 2022. 

When it raised that $100 Mn, the startup was just stepping out of FY22 and reported a profit of INR 98 Cr. But soon after that, PW went the way of any startup that had raised a large round. 

For instance, PhysicsWallah acquired four companies in less than a year, made a significant investment in a fifth, and also signed a JV deal with Utkarsh Classes for offline learning. 

Even before most people knew about PhysicsWallah or PW as it christened itself after the funding round, the company was looking to go toe-to-toe with BYJU’S and Unacademy, two of the most capitalised test prep players at the time. 

As it usually happens, these investments led to a 91% dip in profit and revenue falling short of previous guidance given by cofounder Alakh Pandey. While earlier Pandey was optimistic about reaching INR 1,200 Cr in revenue in FY23, the company only managed to bring in INR 770 Cr in the year. 

Even in terms of the FY24 numbers, there is a bit of a drop in what PW had expected before the year closed and what it ended on. 

In an earlier interaction with Inc42, cofounder Prateek Maheshwari claimed the company was on track to hit INR 2,000 Cr in revenue in FY24, but reports now indicate, the startup may have raked in INR 1,800 Cr in revenue for the fiscal year. More importantly, PW slipped into losses for FY24, according to a report by The Captable. 

So essentially, PW has lost the one thing that set it apart from the rest of the edtech players in the test prep and skilling segment. Despite this, there is speculation of the company raising a large round in 2024 to fuel its many products. 

New Products, Big Promises?

To the company’s credit, it has admitted that it is investing in a bunch of products ahead of time, and creating the foundation for future growth. However, these investments do add up to a massive number. 

In FY24 alone, PW invested $10 Mn in offline learning vertical Vidyapeeth, and launched 50 new centres for this business. It also said it would invest INR 100 Cr to scale up the UPSC test prep vertical, and another INR 120 Cr over three years for the tech skilling product.  

Further, there was a $61 Mn (INR 490 Cr) deal for a 50% stake acquisition in Xylem as the company looked to make inroads into southern Indian states. In effect, PhysicsWallah allocated or spent close to INR 700 Cr for new products in FY24 alone. That’s just shy of the revenue it earned in FY23.

To add to this, it also launched a new school for elementary education in February 2024, and now the School of Startups in August. 

Interestingly, with the latest product, PW is taking on startups such as Masters’ Union, where the average pricing is far higher than something like a test prep course, given that PW is targeting entrepreneurs with mentorship, fundraising and incubation opportunities with the School of Startups. In some ways, it is also competing with accelerators and incubators targeting early-stage entrepreneurs. 

In addition, Physics Wallah will be overlapping with the likes of Stoa, which offer management courses with the PW Institute of Innovation, another product introduced in recent months. 

Having multiple verticals is fine enough, if the revenue contribution is significant. School of Startups is clearly a revenue-led play, but growing this vertical and attracting entrepreneurs will not be easy given and PW has to show results consistently. 

Speaking to Inc42 earlier, cofounder Maheshwari claimed that Utkarsh Classes, acquired in February 2023, was set to conclude FY24 with INR 150 Cr revenue. The UAE-based Knowledge Planet, acquired in March 2023, was to bring in around INR 30 Cr in revenue. 

The other subsidiaries were expected to bring in INR 20 Cr revenue, according to the cofounder, but this was on an overall revenue guidance of INR 2,000 Cr, which itself has not been verified as PW is yet to file its financial statements for the year. 

We know the company has scaled down some of its offline operations in Kota, and also laid off more than 150 employees in the past year to save costs. 

Further, it also moved some teachers to new regions which were closer to profitability. This has led to some discontent among educators. Naturally, with so many products under its umbrella, PhysicsWallah would need to balance the student and educators side of the value chain if it wants these products to grow from experiments to revenue generating verticals. 

PhysicsWallah Waiting To Refuel

Naturally, investing in new products without external funding means PW dipped into its revenue to expand into new verticals. 

This approach does have its upsides as companies can more tightly control product development timelines as well as vertically integrate pieces. Most famously, the likes of Amazon are said to have carried losses for years due to their continuous investments in expansion and new product lines. 

However, given how rapidly things are moving in India, startups cannot completely cut themselves off from funding. That’s perhaps why PW is said to be in talks with Lightspeed and existing investors Westbridge and GSV Ventures for a $150 Mn round. 

PW has not raised an external round since 2022. In 2023, there was talk of a $250 Mn infusion at a $3.3 Bn valuation. That, however, did not materialise. 

Now, sources in the company indicate that PhysicsWallah’s leadership and management have been in discussions with investors including Lightspeed for a new round. 

Reports on this deal have been going around since March, and most recent speculation is that a term sheet has been given to PW by some investors. But sources close to Lightspeed and PW told Inc42 this week that the deal is not yet close to completion. 

Sources in the edtech industry claim that valuation is a major bottleneck in discussions between founders and investors. This could explain why the deal which has been making the rounds for nearly six months is not close to done. 

Talks over valuation have certainly been influenced by the value destruction at BYJU’S as well as the slow growth at Unacademy and Vedantu. While the latter two are unicorns, they are yet to grow into their valuation and both carried major losses into FY24. 

Unacademy is said to be exploring deals for an acquisition, where once again, the discussions are centred over valuation and Unacademy’s revenue problem. 

It’s in this climate that PW is looking to basically do what these companies have tried for years. What could work in PW’s favour is its big focus on offline learning, as opposed to online products. 

Most of its investments in the past year have been for offline verticals, which indicates that the company is heading towards becoming a multi-discipline offline coaching giant, of course, backed by tech such as personalised learning, AI tools and automation. 

While its rivals attempted building edtech around online learning for various verticals, the adoption was slow and product-market fit was weak. Will PhysicsWallah’s offline-first gambit deliver the right outcomes? 

Our Founder Pay Tracker Is Back

Let’s face it: All startups have had to cut costs in some ways to tackle the lack of access to easy VC money. Some have had to take drastic measures like laying off thousands of employees to sake their skins, and others have trimmed down verticals. 

But what about the founders? Has FY24 seen startups founders take a pay cut or has founder-CEO and founder-CXO pay surged? 

Inc42 has analysed the salaries of 21 founders of 12 startups, to see where things stand. Overall, these individuals took home INR 168.1 Cr in cumulative salary for the year, but is this better or worse off than last year?  

Find out in our Founder Salaries Tracker

Sunday Roundup: Tech Stocks, Startup Funding & More

• This past week, Indian startups raised $265 Mn across 16 deals, with jewellery giant BlueStone leading the charts thanks to its $107 Mn round
• Paytm finally decided to sell its entertainment ticketing business to Zomato in an INR 2,048 Cr all-cash deal, which is definitely one of the most eye-catching acquisitions in Indian startup history
• Zomato rival Swiggy, which was last valued at $10.7 Bn, is reportedly targeting a valuation of $15 Bn for its $1.2 Bn IPO, which is likely to be announced before the end of the year
• Peak XV and BEENEXT-backed Kenko Health has shut shop after failing to find a way out of the investor deadlock that kept it from an insurance licence

• The Open Network for Digital Commerce (ONDC) has launched digital lending services through third-party players along with other fintech products to move beyond ecommerce and mobility

That’s all for this week. We’ll be back next Sunday with another edition of the Weekly Brief. 

Till then,

Nikhil Subramaniam