India’s expanding classrooms in the sky
Domestic edtech companies are thinking and aiming global as a massive consolidation plays out
Cherry-picking usually has pretty specific seasons in most countries that grow the much-loved fruit. In India, there’s been an extended season for cherry-picking for edtech firms that began during the pandemic and continues to date. Almost everyone is scouting for the right picks and companies are getting gobbled up overnight.
As the race to form the “largest school in the sky” and to offer their courses and teachings to students in every corner of the globe picks up, many contenders are gearing up. The frenzy that India is witnessing is happening in the US too where more recently MIT’S not-for-profit online platform edx was acquired by a listed educational technology company 2U, and giants like Coursera listed on the bourses. For a change, many Indian companies bought American ones. Not only are Indian players eyeing companies in India but also acquiring companies globally that have the right fit.
Five clear trends can be discerned in India’s edtech space. Almost everyone is raising funds (see chart: Teachable moments in edtech) and jumping into many new segments. Estimates vary but the sector has raked in over $10 billion in venture capital globally, with Indian companies raising $ 2.2 billion, up from $553 million in 2019, according to a report by Indian Private Equity and Venture Capital Association. Shreyasi Singh, CEO of Harappa and one of the few women leaders in the sector, said everyone appears to be raising money but “there are hundreds of edtech start-ups right now closing down or getting acquired because they can’t raise meaningful funds to grow and build”.
Several companies are moving into previously unexplored territory. In a flash of a second, edtech giant Byju’s entered higher education by acquiring Great Learning for $600 million. It has also bought up a clutch of other companies both in India and overseas that help it fill certain gaps or enter niches inorganically with the aim of emerging as the world’s largest school in the sky. Mumbai-headquartered upgrad announced the buyout of Knowledgehut last week and is exploring a few others. “It’s a sell or die kind of situation for smaller players. For the bigger ones, it’s making the right strategic choice,” Sandeep Aneja, CEO of Kaizen Private Equity, argued.
Perhaps the most exciting news is that many Indian players are thinking global: Be it companies to acquire or merge with or learner acquisition, the Indian lens has got a lot wider. In two of the bigger deals, higher-ed player Eruditus recently acquired Silicon Valley start-up id Tech for $200 million while Byju’s bought US digital reading platform Epic for $500 million.
Several companies — Byju’s, Simplilearn, Eruditus — have a majority of their learners in the rest of the world (ROW) and almost all the players are locationagnostic as far as learner profile goes. Simplilearn, for instance, has 40 per cent of its revenue from learners in the US. Singh pointed out that the fact that delivery can happen online, unlike, say, a food delivery start-up or a cab hailing app, makes it ideal for homegrown edtech companies to think and go global.
If global is one lens, small town India is another. An interesting trend that industry players have noticed is that edtech usage and its awareness is slowly trickling down. Gouri Gupta, Central
Square Foundation director for edtech, said Indian households with per capita income of less than $3,000 have become more aware and savvy, which could be a game-changer for the industry as its forges ahead.
Some players are worrying about factors that could topple over this nascent edifice. Almost no one can pinpoint how the valuations at which players are being bought or sold are derived. Companies are usually valued based on multiples of revenue as these are “growth” companies unlike traditional established ones that are measured by profitability. But aberrations abound since revenue numbers are not always transparent. Several buyers therefore may eventually be stuck with expensive “lemons” as there are many unethical players and those looking to make a “quick buck” jumping in. Great Learning’s CEO Mohan Lakhamraju said valuations are being driven by a mix of factors: High global liquidity and cheap capital, investor FOMO (fear of missing out), demand versus supply of successful companies, the early bird advantage among others. Although a few Indian edtech companies can be expected to list, almost everyone expects the failures to outnumber the successes. So, many investors can expect to burn their fingers and take haircuts.
As edtech takes off, there are many anxieties for the more committed players. Simplilearn’s Krishna Kumar said his biggest worry is a Chinese-style government crackdown or overregulation by regulators who may not fully understand the industry. “This can very easily hinder the growth or natural evolution of the sector,” he said.
The other factor that worries existing company leaders and founders is the sheer number of uncertainties that surround the sector. What happens to remote working and learning post-pandemic? Will there be a major throwback at some point? Will learners be fickle or steadfast? The list of uncertainties remains long and daunting.
But in a world where uncertainty is the only certainty, the industry can console itself with a few. Some great ideas with poor execution, some not-so-great ideas but well executed and some good ideas with good execution will win. As a result, we will see some companies listing on the bourses, leaving their founders and employees a lot richer, many of the names we hear today will vanish into oblivion and plenty of marquee, institutional and small investors will be left poorer than they are today.