K12 is going through some correction, but not whole of edtech: Ronnie Screwvala

Yatti Soni |Venkatesha Babu | | Updated on: Jun 27, 2022
Ronnie Screwvala, Chairperson and co-founder, upGrad

Ronnie Screwvala, Chairperson and co-founder, upGrad

As the number of layoffs in edtech touch 2,000 and smaller players struggle to continue operations, Ronnie Screwvala, Chairperson and co-founder of higher education and upskilling start-up upGrad, believes the impact is limited to start-ups operating in K12 (kindergarten to 12th) segment and the larger edtech space continues to see growth. 

Valued at over a billion dollars, upGrad did around $250 - $300 million in annual revenue run rate last year and expects to do double this year. Till now, upGrad has raised two funding rounds including $185 million in August 2021 and reportedly, a $225 million fresh round earlier this month.  BusinessLine spoke to Screwvala about the state of edtech and upGrad’s growth plans. Excerpt:

Edtech seems to be one of the most impacted sectors in the funding slowdown, with major unicorns laying off employees to even edtech companies shutting down. What could be the some reasons behind this?

My view is exactly the opposite. There was a lot of craziness in the last two years and now the sanity is coming in. Overall, I think there are about 600-700 incredible edtech companies just in India and Asia. A minority 4-5 entities cannot spoil the reputation for all of them. We are seeing demand in every sector of the business that we operate in. One should not judge a sector because some aggressive investors paid aggressive prices and valuations on the basis of FOMO(fear of missing out) for a few companies. And, now these investors are having second thoughts. 

I feel very strongly that edtech sector is growing by leaps and bounds, it has got only growth ahead of it. Having said that, I would agree the K12 segment is going through some sense of correction. We went through a ridiculous hockey stick growth, which is not sustainable now. K12 is is going through bit of a tough time, but you cannot club all of edtech under one umbrella because it has got so many other facets. More people are going abroad to study now than ever before and more people are taking three months short courses in campuses.  

Currently, many edtech companies have seen their customer acquisition costs (CAC) go up. Is it happening to upGrad as well?

We didn’t see that happening. The problem with some of the companies and founders who get heavily funded, is that when you get more money than you need, you use this very philosophical word called brand building. Sponsoring a cricket tournament has never built a brand. It may create some brand awareness but it never builds a brand, especially in education. In edtech, brand is built when you have a customer that comes back to you, a customer who is willing to pay a premium for your product. 

Facebook and Google are also not as effective as they need to be. It does help you in the beginning to get the company some awareness but later it becomes a law of diminishing returns. What one needs is the snowballing effect, which is the word of mouth. There are businesses that can be built on zero CAC. There are businesses that have been built in insurance, fintech and edtech on SEO, it is a choice that businesses make. A lot of that choice comes from abundance of resources or lack of them.

How much of upGrad’s business comes through referrals and repeat customers? What is the average revenue per user (ARPU) for the company?

Broadly, about 40 per cent of our customer base comes from alumni referrals and repeat customers. Overall, we have a learner base of 3 million students including undergrad courses, study abroad, short campus courses, other free and paid courses. For working professionals, we are close to about 100,000 alumni base. When it comes to college learners, our ARPU is ₹40,000 to ₹50,000 and the ARPU in the working professional courses is about ₹2.5 lakh. 

Can you please talk about the company’s international business? How many countries is upGrad present in and how do you see this footprint growing in the future?

Even when we were not advertising, we were getting learners from 50 countries and now that has grown to around 150 countries. But we have feet on the ground in the Southeast Asia, and Middle East and the US, outside of India. Overall in FY 23, we see 25 per cent of our revenue is coming from international space and about 75 per cent coming from India. Over the next 2-3 years, we expect this split to become 50 per cent India and 50 per cent international.

We like emerging countries and Africa is an interesting emerging market for us. The USA is highly competitive and we need to do it at scale. Then we would explore Latin America and South America. But there are a lot of good strong players there, so we have to figure out a model before we enter a new country. We are not interested in being in every single country, just for the sake of it. 

“ It will be a good place to list an IPO at a billion-dollar revenue run rate.”Ronnie ScrewvalaChairperson and co-founder of upGrad

What is upGrad’s gross margin? Is the bulk of your cost goes towards customer acquisition and marketing?

About 70 per cent is our gross margins in the courses offered in partnership with universities. Further, about 20-30 per cent of our business is our own branded programmes where the gross margin is higher. The major cost items for any edtech company are payroll, sales, and marketing. For us, the average sales and marketing cost is about 20 per cent. Our ARPU is a good consistent high, in comparison to the ARPUs of say K12 edtech businesses where ARPUs tend to be much lower. 

You also have a test prep vertical ‘upGrad Jeet’. How is that business doing and what revenue potential do you see in that space?

Just to be clear, upGrad Jeet is government test-prep and not college entrance test-prep. It a very large segment and I think 25 per cent of almost all job hires in most countries, go to the government. So it’s such a large segment. Even though there has been some consolidation, it is still a very fragmented segment. It links the entire college learner into the working professional category for us, which is why it is important. We are also looking for some acquisition in the segment. 

Is upGrad planning to go public? If yes, have you decided on a timeframe for it?

It is a very complicated situation when you take a company public. Basically, three things need to happen, the company needs to be in a mature state, and there has to be a critical mass of revenue, otherwise, we will be relegated to a small-cap or mid-cap, and then it will take years to reach large-cap. One needs to understand the reason for going public. Lastly, you need three years of exponential growth from the time you go public. Most people are peaking when they go public. We do want to be a listed company, however, the timeframe is something I cannot comment on. I think it will be a good place to list at a billion-dollar revenue run rate.

Published on June 27, 2022
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