Is Edtech Still a Money Magnet for Investors?

The Indian industries pivoted to digitisation, and Edtech was no exception. Edtech startups were triumphant in scaling themselves and providing top-notch education at a minimal cost. Market players like Byju’s, Unacademy, upGrad, etc were not only successful in bagging customers but also managed to claim a large chunk of Venture Capital funding. These Edtech companies seemed to operate well until they suddenly started binge-firing the staff. The revenue decline of these companies created a domino effect that knocked down investor confidence. So let’s take a step back to see what went wrong and learn more about the nuts and bolts of Edtech’s status quo. 

Why was Edtech hit by a Funding Slowdown? 

While the Edtech sector seemed to be booming and at the pink of its health, its losses had a different story to tell. Edtech giant, Byju’s, bid goodbye to 2,500 employees this year and incurred a ballooning loss of ₹4,588 crore in FY21. Another Edtech startup, Frontrow, jumped on the bandwagon by firing 130 employees that embodied 75% of its workforce. Vedantu’s losses quadrupled to ₹604.3 crores in FY21 as compared to ₹150.1 crores in FY20. While most companies justified their mass-firing as a way to cut costs, the depressing revenue numbers ended up disenchanting the investors. End result? Edtech witnessed a funding winter as the investments plummeted to $2.1 billion in the first half of 2022, a whopping 41% decline.

Another reason for the revenue decline might be the post-pandemic normalcy. During the Covid-19 pandemic, students herded to online educational platforms that took the Edtech user base to the next level. However, after the severity of the pandemic subsided, offline coaching centres started reopening again, and the user base of digital education companies took a hit. Only a few resilient companies with impressive USPs could retain their learners. 

The ‘Tech’ in Edtech

Edtech is continuously advancing in tandem with the latest technologies. Recently, it has integrated Artificial Intelligence to take the learning experience to the next phase. Artificial Intelligence can help curate customised learning plans that suit the needs of individual learners. Edtech companies have realised that an education syllabus is more than just a one-size-fits-all curriculum. Hence, many startups are aggressively working towards revamping the future of education. This has made Edtech even more lucrative as an investment avenue. 

A perfect example of this is Invact Metaversity, a Bengaluru and San Francisco-based Edtech company that raised $5 million in funding in February 2022. The platform aims to leverage virtual reality to imitate a university-level experience at a minimal cost. 

How does Edtech operate in terms of business model?

KG-12 education encompasses the highest share in the digital education sector, followed by test preparation, online certification and skill development. Online learning platforms are still the go-to avenues for many students preparing for competitive exams like CAT, GRE, GMAT, etc. Coming to skill development, Edtechs have been in the front row for upskilling the gig-economy workers. Some startups also came up with doubt-solving services, which was earlier a major untapped field. In fact, unicorns like Vedantu and PhysicsWallah recently acquired companies that specialised in doubt-solving, giving their business model a one-upmanship against other companies. Many companies have even adapted gamification in learning to make it fun for young users.

Is Sales and Marketing led-approach the right gateway to growth?

Byju’s shook hands with Lionel Messi to be their brand ambassador, and the internet had a lot of opinions on it. Many empathized with the employees that Byju’s sacked,  some agreed that the company could have made better use of the endorsement funding by retaining its personnel and improving the business model. If companies followed a product-led approach with a ‘show — don’t tell’ policy, their debts and losses wouldn’t have swelled up to that extent. While some Edtechs are ready to spend millions for customer acquisition and might even be successful in doing so, their product seldom matches the customer’s expectations. Sales and marketing should only constitute a small portion of the business model, and the rest of the focus should be on providing value. 

Is Edtech still a good investment?

Edtech is not synonymous with e-learning, only inclusive of it. The overall purpose of Edtech is to enhance the learning experience using technological advancements. Hence, the scope of Edtech is much wider than digital courses and learning plans. Indeed, a handful of companies were marred by burdening debt. However, it still does not change the fact that Edtech is a $2.8 billion industry and is projected to touch $10.4 billion by 2025 and $30 billion by the next decade. The New Education Policy of 2020 has given abundant significance to Edtech. This makes it a multi-billion dollar opportunity, not just for domestic VCs but also for foreign investment. 

Edtech, as an industry, is certainly a lucrative investment option for endless reasons. However, it depends upon the investee company and the profitability of their business models for one to decide whether or not it is an investment material.