Physics Wallah ropes in Hornbill Capital for a lesson in IPOs

India-focused hedge fund Hornbill Capital Advisers and Lightspeed Venture Partners led a $210 million investment in Physics Wallah at a valuation of $2.8 billion, up from $1.1 billion earlier. Existing investors GSV Ventures and WestBridge Capital also participated in the fundraise.

Hornbill Capital is led by founder and managing partner Manoj Thakur, whose inclusion on Physics Wallah’s capitalisation table indicates comes as the online tutor gears up for its next major milestone—a public market listing. While no specific timeline has been set, both the company and its investors believe Physics Wallah is well-positioned for a initial public offering.

“Manoj has taken a lot of companies public, which attracted us towards Hornbill, and Manoj as an individual, because they are the right advisors for us to make us IPO-ready and take us public," Prateek Maheshwari, co-founder of Physics Wallah, told Mint. “We are strengthening our finance team and our governance processes," he added.

India’s edtech sector has hardly registered any IPOs, while other sectors including food-delivery (Zomato), fintech (Paytm) and mobility (Ola Electric) are riding an IPO boom. Several other tech companies including MobiKwik and Swiggy are also eyeing a public market listing.

While there is not much trace of an edtech company joining the queue, some like upGrad and Jaro Education have shared plans to hit the bourses in about two years. In fact, for a brief period, troubled edtech company Byju’s had also attempted to take its test-prep subsidiary, Aakash, public.

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Maheshwari and chief executive Alakh Pandey had started Physics Wallah as a YouTube channel in 2016, making a formal beginning as an edtech startup only in 2020. While India’s edtech sector has been struggling recently—headlined by Byju’s mounting legal woes—Physics Wallah has managed to navigate the choppy waters with a series of acquisitions and an aggressive expansion into hybrid models and offline tutoring centres.

In fact, Physics Wallah plans to use the proceeds from its latest fund raise to expand its offline centres, branded as Vidyapeeth. “We also want to use it in case of a large opportunity for M&A. We want to have some treasury with us for that," Maheshwari said.

“The challenges for edtech are within very specific business model-related issues. PW has proven that only with the right student-led strategy, high quality content, affordability for a wider student population, and use of technology, it is possible," Hornbill Capital’s Thakur told Mint. “Therefore, to us, this is a big opportunity."

Hornbill Capital was an anchor investor in Indiamart Intermesh Ltd’s 2019 IPO, while Hornbill Orchid Fund was a part of Affle (India) Ltd’s public market listing that same year. In 2021, IPO-bound gaming company Nazaara Technologies Ltd raised ₹100 crore from Instant Growth Limited, the investment vehicle of Hornbill Orchid India Fund’s US-based investors.

Also read | Will raise more capital if an interesting acquisition comes up: Physics Wallah

War chest for expansion

Physics Wallah has been on an aggressive growth spree the past two years, entering new business segments and investing in acquisitions to boost growth.

The company has so far spent about ₹400 crore on Vidyapeeth, its purely offline teaching model, and Pathshala, its hybrid model. “It is likely that we will invest another ₹70-100 crore in capital expenditure in the upcoming year (for offline expansion)," Maheshwari said.

Physics Wallah plans to add 40 centres over the next 12 months across major cities including Nashik, Pune, Dehradun, Coimbatore, Hyderabad and Chennai, apart from widening its presence in its existing markets.

The company is also scouting for acquisitions. According to Maheshwari, Physics Wallah has spent about 60% of the capital raised from its previous funding round on mergers and acquisitions.

“Now 40% is unutilised with us from the last funding round and post this round, we will be sitting on a treasury of more than ₹2,500 crore," he added.

Physics Wallah had secured $100 million (more than ₹800 crore) in its first funding round from Westbridge and GSV. So far, the company has acquired six startups, including FreeCo, iNeuron, Only IAS, and Utkarsh Classes.

Physics Wallah is hunting for companies that could help increase its presence in southern India. It is also looking to acquire content-rich companies with potential for accelerating its business.

Physics Wallah plans to focus on Curious Junior, a small cohort-based classroom programme for students from kindergarten to grade 10, and PW Skills, its skilling business, as growth drivers.

“The Indian startup ecosystem hasn’t adequately addressed the K-10 segment, hence Curious Junior is a major focus for the company," said Maheshwari. “But we are also committed to addressing the country’s skilling problem through PW Skills."

Optimistic outlook

The latest investment in Physics Wallah marks a positive development for the Indian edtech sector, which has faced declining demand and waning investor interest.

Funding into Indian edtech companies had surged from $599 million in 2019 to $4 billion in 2021 as covid-19 forced students to learn from within their homes, show data from Tracxn. But investments in the sector dropped to about $312 million last year. 

So far this year, Indian edtech firms have raised $325 million, including Physics Wallah’s $210 million fundraise. That’s 53% higher than the $212 million edtech companies had raised in the same period last year, as per Tracxn data.

Also read | Bankrupt Byju’s: Is the edtech crisis deepening?

Even for Physics Wallah, growth has come at a cost. The company, once feted as the only highly valued and profitable edtech startup in India, is said to have slipped into a loss in 2023-24, mainly because of its unprofitable offline business. To be sure, the company is yet to officially announce its FY24 financials.

An edtech industry executive told Mint that there was a perception that Physics Wallah might be overextending itself with its rapid expansion.

“As a VC-backed company, one of the few in edtech doing well, it was expected that it would need to drive growth aggressively to secure its next funding round," the executive said on condition of anonymity.

Also read | Alakh sir, can Physics Wallah ace the profit test?

Maheshwari expects Physics Wallah to turn profitable next year as its offline business starts generating gains. So far in 2024-25, he said, the company has already started generating cash in the first and second quarters, from a negative 18% cashflow.

“In the current market, I am coming out as a dominant player. Now this is the time you should go and capture the maximum market," Maheshwari said. “You should not stress too much on profitability. If you see the numbers from last year also, we haven’t stepped very deep in losses. It was a careful decision to focus more on experience and growth as a number."

As for Physics Wallah’s IPO ambitions, Karthik Reddy, co-founder and managing partner at Blume Ventures, said the company’s public listing could pave the way for more edtech firms with a clear path to profitability to hit the bourses

“It’s not as much about edtech as it is about a company being able to grow and do it profitably—that’s very commendable and sets up a company on a “listable" path," said Reddy, who has invested in several Indian edtech startups. “Any company that gives that comfort today is eminently fundable."