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Will Ed-tech startups be the new normal in the post covid world?

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The novel coronavirus pandemic has put forward new challenges in front of our society which no one expected. The biggest of these being in the field of education. With lockdowns imposed all across the world, it has become near to impossible for children to pursue knowledge from the traditional and conventional methods of education. Physical access to schools or colleges is now limited while the need for education still remains the same. But when the natural dynamics create a problem for the human race, Anthropos has evolved quite much to figure out a way to either restore the prior services or transform a new channel of provision. A right example of “when life throws lemons at you, make a lemonade”.

The human race has already curated means to compensate, if not replace, the conventional educations means. The pandemic has given a vast opportunity for the tech geniuses to dwell their minds in the education sector by creating a large addressable market for start-ups in education technology or ed-tech. These initiatives have received profound love from all the users, be it school or college going students pursuing their regular studies or working professionals trying to gain finesse in their existing skills or acquire new skills by using these online education resources.

The ed-tech start-ups have also seen significant interest and support from private equity and venture capitalist investors over the last six months. India has seen eight funding rounds of $100 million and above in its start-ups during April-September. Surprisingly, five out of these eight funding rounds involved ed-tech companies like Vedantu, Unacademy Byju’s and Eruditus. The data sourced from Venture Intelligence reveals that one-third of the $1.5 billion raised in these eight investment rounds was by only one firm, which is Byju’s.


Let’s talk numbers and facts now.

  1. Byju’s Classes has raised $500 million from investors in two rounds of funding organized in the months of June and September. Its major investors included Tiger Global, General Silver Lake, Atlantic, DST Global.
  2. Unacademy has raised $153 million from multiple investors such as SoftBank, IIFL VC, Sequoia Capital, General Atlantic and Nexus Venture Partners in the month of September alone.
  3. Eruditus, a higher education platform, has raised $113 million from Naspers, Chan Zuckerberg Initiative, Sequoia Capital and other investors in the month of August alone
  4. Vedantu, a remote tutoring start-up, has raised $100 million in July 2020. The amount has been raised from Omidyar Network, Tiger Global, Coatue Management and others.

Let’s dig deeper into the problem and its solution

India Brand Equity Foundation says that there are more than 250 million school-going students in the country. To cater to the literacy needs of these young aspirers there is an estimated additional requirement of 200,000 schools, 35,000 colleges, 700 universities and 40 million seats in vocational training centres. This has created a huge demand-supply gap in the education sector.

But, the solution to this major hindrance in growth comes in the form of the internet. With an increasing level of internet penetration in the country, people are slowly shifting towards online education. Moreover, in the backdrop of Covid-19 pandemic, ed-tech companies and start-ups are expected to grow further.

Telecom Regulatory Authority of India (TRAI) data has released reports which reveal that India had 734.19 million Internet users as of March 2020 while another report by Cisco estimates that the country will have over 900 million users by the year 2023.

Narayanan Ramaswamy, National Leader, Education and Skill Development, KPMG in India, says that the two key factors leading to the investment in the ed-tech sector are the big demand-supply mismatch in the Indian subcontinent and the availability of technology to educate countrymen. He also highlighted the fact that the existing ratio of seats to students who are eager to study is not apt and is not going to accommodate all of them to colleges and now, the only alternative left to educate the masses is online media, which is very well gaining traction.

RedSeer, a popular consultancy firm, has highlighted that the online higher education market is expected to grow to $5 billion over the next five years. This 10-fold increase in the market size would be possible with the introduction of/alteration in factors such as relaxation in regulations governing degrees.

What are the companies planning to do with the huge amounts of funds raised?

A major chunk of the funds raised by ed-tech companies have already gone or will most probably go into marketing or inorganic expansion activities.

In 2019, as a part of its plan to expand globally, Byju’s took over a US-based learning platform, Osmo, for an amount totalling to $120 million. After some time, the ed-tech start-up cracked another deal, reportedly, the biggest deal in the Indian sector, with online coding platform WhiteHatJr. The deal was finalized for $300 million. The firm was also reported of being in the race for the title sponsorship of Indian Premier League. However, presently, it sponsors the pre-match and post-match shows.

Unacademy, another leading player in the online education industry, has picked up other smaller start-ups such as PrepLadder, Kreatryx, CodeChef and Mastree. Moreover, Unacademy is also one of the official partners of the Indian Premier League.

Saiju Aravind, the founder of Kochi-based online education platform EduBrisk, says that several investors are coming with a profit motive but many others are coming forward to create an impact, i.e., to make education more equitable and his firm is supported by “investors who want to make education affordable and provide quality education to people in general”.

What’s coming next?

Greater importance and focal shift towards online education are expected in the coming few years, which, moreover, will not be fragile or temporary. Online education technology is here to stay.  

The pandemic has also highlighted the need for continuous learning and skill development with several macro trends such as skills becoming redundant, high unemployment rates and a gap in deployable skills.

Indian education sector has received $3.29 billion as foreign direct investment (FDI) during April 2000-June 2020. Out of this, $2.12 billion was raised between June 2015-June 2020 alone. The government, too, has recognised the opportunity, by proposing setting up of a “degree level full-fledged online education programme” in the Budget speech for 2020-21.

To quote Naushad Forbes, past CII president, and co-chairman of Forbes Marshall: “If you have good school infra then technology investment adds some value but in a country like ours where there are issues of teacher absenteeism and variable quality, it can lead to a huge jump”.

The novel coronavirus has already taken care of initial scepticism on how online education will work and how impactful will it be. Now, even when normalcy returns after the virus is contained, the online education sector will continue to flourish and attract investments on account of massive demand-supply mismatch, especially in the Indian economy.

 

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