The Signal - The Great Indian Edtech Reckoning
The Great Indian Edtech ReckoningA pull versus push approach will determine who survives India’s edtech bloodbathAmidst all this, there was a deal that got tongues wagging in VC, founder, and analyst circles. Each saw value in India’s oldest and largest edtech unicorn, Byju’s, doling out nearly $1 billion for a 33-year-old West Delhi-based test prep chain named Aakash Educational Services. A reductive take on the current state of edtech pinpoints the return of the “new new normal”, where schools have opened up and edtech solutions have now become complementary rather than fundamental to education. “And since a lot of the customer acquisition cost has been funded through investor money, these companies have no choice except to get close to being profitable,” he adds. But few considered the post-pandemic world. “It was a lot like Coca-Cola re-entering India in the early ‘90s. They identified a middle-class market of 400 million to 500 million Indians, and yet, it took them more than two decades to crack it,” says an analyst who follows the edtech industry. He requests anonymity due to his nature of work. Pull versus pushThe brunt of this reckoning will be borne by K-12 edtech startups. Not merely because schools are reopening, but because this is a “push” product, with heavy monthly burn, primarily on customer acquisition costs (marketing). K-12 products and services require hard selling to a customer (parent), who is not the end user (child). The founder is Byju Raveendran, whose “DNA defines the sector. You can have multiple e-commerce winners in China, but it is Jack Ma who defines e-commerce there. It is the same with Byju’s here,” he adds. But what also awaits these companies in the “pull” sector, is the rise of hyper-local, traditional offline test prep institutes with a strong peer-to-peer name ID and market reputation. These companies were long biding their time, oftentimes rebuffed approaches from the Byjus and the Unacademy of the world, while becoming profitable. Now, these institutes are going online, and inevitably, they’ll end up chipping away at the big boys. In fact, some Kota-based institutes, sources say, are actively hiring engineers laid off from some of these edtech unicorns. Even cracking offline with customer behaviour shifting there, won’t be easy. Valuation conundrumWas this an anomaly? Not for Akshay Chaturvedi. Chaturvedi is the founder and CEO of LeverageEDU, a New Delhi and London-based edtech company. But the VC quoted above says the froth is long gone; not just in edtech, but even beyond. “You are now looking at de-growth because things have been slowly trickling back offline over the last 6-7 months. It’s also harder to raise [funding] at this time.” “Unless it's a hand-to-mouth situation, you swallow your pride and end up raising a down round [smaller valuation than the previous round]. Indian founders tend to avoid this unless it’s a distress situation,” he points out. In a down market cycle, investors look at a company’s ability to survive winters. You are a safe bet if you’re already profitable. Creative destructionIn the chaotic short-term, founders will have to pick between survival or growth. Whether they will rise from the ashes or succumb to it depends on the stark choice they make. A lot of this will hinge on considering tech-led hybrid models, or one where outcomes are prioritised over growth. “I think there is a bull case for edtech, but it will have to be a more long-term view, a ten-year horizon. I can see an export market coming out of India, where there is a global market for educators,” says another VC on condition of anonymity. “Education, on the other hand, is a slow process. You can’t solve it by compressing two years. But I am confident that something good will come out of this.” Education is a difficult challenge to solve. As LeverageEDU’s Akshay Chaturvedi says, “It’s a trust business after all.” ICYMIBite-sized delights: No country for cats: Porn, power and profit: Algo-play: Reality check: Seeds of distrust: If you liked this post from The Signal, why not share it? |
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