Edtech startup Physics Wallah has secured Rs. 200-230 crore ($22-26 million) in a secondary funding round led by its existing investor, WestBridge Capital, Mint Reported this week. This transaction values the company at $3.7 billion, a significant increase from its $2.8 billion valuation just six months ago.
Additionally, Physics Wallah is expected to initiate a buyback of stock options granted to approximately 1,000 employees, as per the report. In simple terms, a buyback of stock options means that Physics Wallah will offer to purchase the stock options it had previously given to around 1,000 employees.
Stock options are like special rights that allow employees to buy shares of the company at a fixed price in the future. By initiating a buyback, the company is offering to buy these rights back from employees, often at a favourable price.
In the context of Physics Wallah, this move could be a way to reward employees for their contributions, especially as the company prepares for its IPO (public listing). It also helps the company consolidate ownership and manage its equity structure before going public.
Essentially, it’s a win-win: employees get a chance to cash in on their stock options, and the company can streamline its shares before the IPO. The deal was finalized last month.
A secondary transaction involves the sale of existing shares by investors or employees to new or existing investors, without the company issuing new shares or raising fresh capital. This move comes as the Noida-based firm prepares for its anticipated public listing later this year, with draft papers likely to be filed next month, as reported by Mint.
This follows the company’s $210 million funding round in September, led by Hornbill Capital Advisors and Lightspeed Venture Partners, which marked its second fundraising effort during a challenging period for India’s edtech sector. That round not only more than doubled its valuation but also signalled its IPO ambitions.
Over the past two years, Physics Wallah has pursued aggressive growth, venturing into new business segments and making acquisitions to expand its market presence. Its consolidated revenue nearly tripled to Rs. 2,015 crores in the fiscal year ending 31 March, 2024, although losses surged due to increased expenses.
Founded in 2016 as a YouTube channel by Alakh Pandey and Prateek Maheshwari, Physics Wallah formally became an edtech startup in 2020. It achieved unicorn status, or a billion-dollar valuation, with its first funding round two years ago. To date, the startup has raised over $300 million. Pandey and Maheshwari collectively own 77.4% of the company, with WestBridge Capital holding a significant stake as well.
In preparation for its public listing, Physics Wallah has been strengthening its leadership team. Last November, it appointed Amit Sachdeva, former finance chief of Blinkit, as its chief financial officer. Last month, Ajinkya Jain joined as the group general counsel, company secretary, and compliance officer. The company has also enlisted Axis Capital, Kotak Mahindra Capital, Goldman Sachs, and JPMorgan as bankers and is set to file its draft red herring prospectus soon.
This development comes at a time when several edtech startups, including Imarticus, Classplus, and Jaro Education, are preparing for public listings after a two-year slowdown in funding and valuation mismatches in private markets.
However, Physics Wallah’s IPO journey faces challenges, including a post-COVID-19 slowdown in the edtech industry as students return to offline classes. The sector is also under heightened scrutiny regarding sustainability, profitability, and governance. The IPO will serve as a critical test of Physics Wallah’s ability to address financial losses and sustain growth. Key to its post-IPO success will be its strategies to expand into hybrid learning, international markets, and upskilling programs.
According to reports from 5paisa.com, Physics Wallah is actively diversifying beyond its core test preparation business by exploring opportunities in skill development, professional training, and K-12 education. This strategy aims to reduce reliance on a single revenue stream and tap into new market segments.
The company is also investing in technology to enhance its learning platform, integrating AI-powered tools, personalized learning pathways, and interactive teaching methods to improve student engagement and outcomes. These efforts could help Physics Wallah maintain its competitive edge and attract more users.
This funding round is particularly significant as it demonstrates strong investor confidence in Physics Wallah’s business model, especially amid financial and operational challenges faced by other edtech firms like Byju’s and Unacademy. The funds will enable Physics Wallah to expand its offerings, including hiring 1,000 new employees, acquiring companies with robust content and academic resources, and growing its offline coaching centers (PW Pathshala). The investment will also enhance its ability to reach more students, particularly in South India and underserved regions, making quality education more accessible.
India’s edtech market, valued at USD 5.13 billion, is on a robust growth trajectory driven by increasing internet penetration, widespread smartphone adoption, and the digitization of education spurred by initiatives like the National Education Policy (NEP).
While the sector’s stock market performance has been mixed, with some companies falling short of investor expectations, Physics Wallah’s lean operational model and strong brand equity could make it an attractive investment. Its focus on underserved markets and low-cost structure are key advantages.
If successful, its IPO could set a precedent for other edtech startups and help restore confidence in the sector, which has faced skepticism due to financial mismanagement and declining valuations among other companies.
