Simplilearn’s risky game plan
Why the founders of the edtech company chose fundraising over outright sale
Why settle for $400-500 million when you can make a billion or even more? That, in a nutshell, is why Krishna Kumar, 43, and Kashyap Dalal, 40, co-founders of Bengaluru-based edtech firm Simplilearn, one of the big players in the segment, sold a 51 per cent stake to Blackstone instead of selling 100 per cent as close competitor and rival Great Learning chose to do. The duo has a straightforward game plan that they said will leave them and their employees even richer than what rivals have managed in recent times.
Like many edtech players, Simplilearn decided to raise some money in 2020 to fund its expansion plans. The pandemic led to many players seeing unprecedented growth levels as the world moved online and became comfortable with it. Although the company had an offer from a Us-listed firm for a full buy-out, it chose to raise money, parting with a majority stake to Blackstone. The two founders felt that this way they could “extract best value” for what they’ve created over the last decade.
The company’s revenue growth for the last three years has been 45-50 per cent (although some competitors claim 100 per cent revenue growth) and it says it has been profitable in this time. The annual run rate is close to $100 million and it claims to have made a 10 per cent profit last year. The $250 million stake sale to Blackstone places the company’s present valuation at a little over $500 million.
Kumar argues that if he and his team are able to increase the revenue growth to around 100 per cent in three years, they can aim for an annual run rate of $300-400 million, which would take Simplilearn to a valuation of $1.52.0 billion, assuming a multiple of five. Many edtech companies are valued based on multiples of revenue as these are “growth” companies unlike traditional established companies that are measured by profitability. Market leader Byju’s commands a far higher multiple — almost 12-15 times its revenue — on account of its size and leadership claims.
The principal uncertainty with almost all players in the sector is whether they can deliver the kind of growth they promise. Barring some inherent factors that give them confidence, Kumar said certain macro factors are aligned: Lifelong learning is here to stay. “Few can now navigate their career of 35-40 years without upgrading their skills to stay relevant,” he explained. This is a segment that can only grow. Besides, acceptance for digital upskilling and learning has jumped dramatically post-pandemic.
At present, the $100 million run rate is from around 60 products, most of which are aimed at upskilling tech and engineering professionals. With the fresh funding, Simplilearn is aiming to add 140-odd products over the next two years, substantially widening the array of subjects, skills and the depth of programmes and taking revenue to an ambitious $500 million. “We will expand in fintech, supply chain, HR,” said Dalal. Short-term certification will be deepened, too, a competitive advantage it holds over rivals because it has been doing this for 11 years.
A second area where the company has an edge is working with enterprises to upskill employees. Though many rivals are entering this space, Simplilearn already works with 500 corporations, including a few Fortune 500 ones. The idea is to deepen the work with customers rather than add new clients. “The effort will be to focus on quality,” said Dalal. Already 25-30 per cent of revenue comes from this segment while rivals may be in the 5-10 per cent range. Another new driver is the degree programmes. It has launched its first post-graduate programme in management and many more are on the cards but this remains an area where others are far ahead in the game.
If new fields are planned as a driver, so are new geographies. A huge push is planned into the “rest of the world”, or ROW, that constitutes only 20 per cent of revenues. India and the US bring in almost 80 per cent, so there is plenty of scope to grow in other regions. “We will double down on our two primary markets, but we are looking at ~1,000 crore in revenue from each of these three: India, US and ROW,” Dalal said.
Another factor that gives it confidence is that as an early entrant, Simplilearn is one of the few that is making a profit. Repeat and referrals are high, lowering the cost of acquisition of a new learner. This, according to industry observers, is a critical factor in separating the wheat from the chaff in the edtech space. “In the short term, massive investment can create scale, but eventually an education firm has to deliver outcomes for its learner. The more learners get the desired outcome, the more referrals they bring in. This is the reason we are profitable, while the industry norm remains losing a lot of money while scaling,” Kumar said.
It was in 2009-10 that Simplilearn started its journey as a project management blog that evolved into a company with the central goal of providing access to work-ready training to individuals and businesses anywhere in the world. The blog was started by Kumar, and Dalal joined in 2013 as a co-founder. The company slowly developed its approach and began to offer a boot-camp learning environment that is hands-on and immersive, with live virtual classes, integrated labs and projects, and 24x7 support, training over two million professionals and 2,000 corporate training organisations in 150 countries.
Unlike Great Learning and other companies that have chosen a safer path, the founders of Simplilearn have picked a more rewarding, albeit riskier, game plan. Whether they are justified or acted recklessly will be evident in retrospect five years down the line.