Edtech gets new lease of life as Byju's becomes a unicorn, investments grow

This was a strange year. The lessons of the past were learnt and then promptly forgotten. But there were bright spots -- Swiggy became a unicorn, Oyo went international, a few Chinese companies came to India and then left, Sharechat became one of India's biggest social networks and Byju's raised a lot of money, a lot. 

It raised funds to grow its international footprint in August 2017. In December 2018, it raised money once again to grow its Indian market. Either because of Byju's or independently, education technology (edtech) saw a new lease of life. According to data research firm Tracxn, the sector raised $576 million in 2018. Indian edtech start-ups raised $176.95 million in 2017, while they raised $191.32 million in 2016. Either 2018 is an outlier, thanks to Byju's, or there was a watershed moment and it passed us all by.    

In either case, it is important to evaluate edtech as a sector and understand whether we are looking at the eye of the storm or the start of a new chapter in education. 

It could just be Byju's, as one Mumbai-based investor says. But then there are others as well. In July, Unacademy raised over $20 million, taking its lifetime capital raised to almost $40 million, according to Tracxn. Just last week, Mumbai-based Toppr raised $35 million. There is some interest. But what has changed now? 

"Education is broken, and I mean this with no disrespect, but we have a British legacy when it comes to education and we need to change it," says Ronnie Screwvala, co-founder of edtech company Upgrad and founder of Unilazer Ventures. But this legacy isn't new. Edtech didn't work in India because it didn't have a way to make quality education affordable, accessible, recognised by employers, and there was little money that could be made.

"The revenue earned per user has increased exponentially and most of it is because of the availability of cheap data," says Anirudh Damani, managing partner, Artha Venture Fund. A quick check across the various edtech companies in India shows the revenue numbers are indeed big. Coursera commands $30-$200 per course. Toppr asks for Rs 10,000-Rs 70,000 per year. The likes of Upgrad draw in average revenues of Rs 300,000 per user, per course. But then, expenses are high as well. 

"The biggest challenge in edtech is customer acquisition," says a Mumbai-based investor who pushed capital into an Indian edtech company and then wrote it off a few years later. He argues that convincing customers that there is a value-add in this sector is difficult and most of the times, customers don't like to pay because content on the internet is usually free. "In the most basic sense, paying cash for videos is a difficult sell because most of them are free on YouTube. Can you really compete with YouTube?" he says. 

Indians have for years relied on coaching classes to fix the gaps in the education system, and edtech has traditionally been a bridge between these two. But that seems to be changing. 

"We have noticed that students spend three hours a day on Toppr. This means they are relying just on Toppr and not on tuition or coaching classes," says Zishaan Hayath, founder, Toppr.  When the app starts replacing coaching classes, there is going to be a domino effect on companies and their balance sheet. That is what many believe one would start seeing in the sector. Mayank Kumar, co-founder, Upgrad, says, "This is not like e-commerce where you will have two big companies and that's it. Here, you will see several Rs 1-billion companies doing well." Upgrad, for the record, plans to hit Rs 1 billion in revenue in the next financial year. 

These statements have been made before. It is only realised once business models reflect these changes. And there have been changes in business models. Coursera, for example, went behind a paywall as opposed to being free just a few years ago. "You can learn for free but when you have to get the certification and finish the course, learners need to pay," says Raghav Gupta, director, India and APAC, Coursera. But there is still the age-old problem to contend with: What's the value-add for a Coursera certificate? "I can give you an answer through data. Coursera has the second most certificates after Microsoft on LinkedIn," Gupta says. 

Some customers of Coursera have deemed it advertisement worthy to show off their Coursera certificate. Apart from that, Coursera has also tied up with companies to upskill their employees. Upgrad has courses that aim to replace formal college education. It has partnerships with technology companies and corporate business houses, which absorb students once the course is complete. The better the placements, the more popular Upgrad gets. The proof for both, Upgrad and Coursera, is in the pudding. 

For Toppr, the changes are more nuanced. Toppr, which focuses on grade-five to K12 education, has gamified test taking. Students compete with other students in a game, which tests their knowledge. Competition makes people learn faster. But while this is flashy and visible, Hayath says a lot of machine and adaptive learning has gone into the product and it has now started to adjust to the speed and style of students. 

This industry has a lot of room to grow. From school education, entrance tests and alternatives to degrees and upskilling while working, there is enough room to grow. "Right now, edtech is still an urban phenomenon. It hasn't reached anywhere close to the bottom of the pyramid yet," says Kumar of Upgrad.

But there will be exits too. "You'll always find a Pearson," says Damani of Artha. Pearson acquired TutorVista for over $130 million in 2011. In 2018, Reliance Industries made a strategic investment in Embibe, which cost almost $180 million. Both these acquisitions were done for about the same money. These companies were also reasonably priced.

"When you are valued at a few hundred million dollars, the pool of companies that can acquire you is large, when you cross a billion, there are probably four," says the Mumbai-based investor. So what happens to the $3.2 billion Byju's? "Maybe Softbank, maybe it will do an IPO," says Damani. Maybe, it has been a strange year.    

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