EdTech will see more firms maturing, attracting larger investments: experts

The country's education technology (EdTech) industry is seeing a higher level of interest from investors, paving the way for some start-ups in the sectors to emerge as large players in future, owing to various factors such as increasing accessibility, better regulatory support and better quality content. PE/VC investments in education and edtech has grown to $759 million in 33 deals in 2018, from $189 million in 24 deals the previous year.

According to data from research firm Venture Intelligence, the growth in 2018 was basically driven by the $540 million investment by Naspers, CPPIB and General Atlantic in Byju's, and the $75 million investment by Banyan Tree Growht Capital and Morgan Stanley in NSPIRA. The investment into the sector in 2016 was around $296 million in 38 deals, it added.

The Indian education sector is at an inflexion point, especially in the higher education and lifelong learning segments. India always had big numbers and significant quality gaps, but is now witnessing wide adoption of digital and online learning driven by fast changing skills, according to investors.

"On the demand side, India has about 12 million students passing out from college and a 40-million strong white-collar workforce, most of which is struggling to remain relevant in the evolving data, tech and cyber skills. Our traditional educational ecosystem has always been weak in terms of quality, falling short of providing job-relevant skills, and forcing students and employers to increasingly rely on alternate education," said Pranjal Kumar, Head of Education Fund & CFO, Bertelsmann India Investments. 

"On the supply side, things have drastically improved on three counts. With bandwidth availability and prices having significantly dropped the past two years, accessibility has increased manifold. Regulatory tailwinds allowing high-quality institutes to provide online courses is another. Thirdly, we have seen EdTech companies rightfully building the market-relevant business models led by strong founders," he added.

Sequoia India, which has been following the evolution of the education sector in India over the past decade, said that EdTech companies are able to use the power of technology and media to provide high quality education that is both scalable and affordable. This, coupled with the rapid growth in smartphone penetration and access to low cost internet, has allowed Edtech companies to scale rapidly. Sequoia India has been investing in market leaders in the space across both K12 and higher education, including Eruditus, BYJUs, Unacademy, Cuemath and K12 Techno Services. 

"We expect several valuable companies will be built in this sector over the next few years and are always open to partnering with companies that are making high quality education available at affordable prices through use of technology," said G V Ravishankar, Managing Director, Sequoia Capital India Advisors. 

Both the investors participated in the latest Series-C fund infusion of $40 million into EdTech firm Eruditus Group, which focuses in the $280 billion global professional education market.

The ecosystem at present is supportive to the growth of the EdTech companies, including the digitisation, higher penetration of smeart phones and others. Some of the companies matured and started showing scale, monetisation and growth. Before that probably Byju's was the only one with a scale showing a coming of age kind of growth. But now Byju's, Toppr, Eruditus and some others have raised reasonable amount of funds.

"India is a large education system with 260 million K12 enrolments, greater than even China, which has 180 million. Technology is the answer to address the challenge of accessibility," said Pankaj Naik, co-head of Digital and Technology Investment Banking at Avendus Capital, a financial advisor. Some of the large companies in the sector are growing at 2-3x year on year, so one or two more $30-40 million range fund raising could happen in 2019. By 2022-23 or even before that, EdTech will be a $2 billion revenue opportunity. 

While the K12 supplement EdTech segment is growing faster, he expects that the test prep, which has been historically physical coaching, will see more action. Also higher education or upskilling, reskilling models will also see traction, he added.

Eruditus Group expects the market to see some of the large players in the segment, in the range of around Rs 1,000 crore revenue size already or in the near future, the sector will see fund raising to the tune of around $100 million plus in a single deal happening in the near future. 

"We have already seen that in Byju's raising this and we will see more. Besides, there will be emergence of newer categories - given the demographic size. We will start seeing specialised players in the education, even as the larger players will cover a larger segment. For instance, there could be players in the local language, which could be a size of $300 million and not larger, but investors will start looking at specialised models which will see series A, B type of investments," said Ashwin Damera, co-founder and Director at Emeritus, the online division of the Eruditus Group.

Fusion Klassroom Edutech Pvt. Ltd, a branded network of coaching classes catering to students from grade 8th to 12th across all streams and boards, which raised USD $250K in December 2017, said that there is a huge market opportunity existing in the segment. 

"The industry in which we are making an attempt already exists and the biggest opportunity lies in tier II and III cities. At present, 36 per cent of the students are taking coaching and the remaining 74 per cent are yet to be tapped, where you can get enrolled into a professional coaching, since we have hyper local model. There is an opportunity of a lot of strategic investments in this sector," said Dhruv Javeri, co-founder of the company. It is in talks with investors to raise around $2 million for expansion.

However, the sector has to overcome challenges including that of the high cost of acquisition and others in future, they say.

"While we believe the sector will continue to see interest as consumers get more comfortable with using technology for serious learning, it’s also true that companies have to work hard to overcome challenges linked to maintaining quality at scale, along with the high cost of student acquisition," Ravishankar.

While the government has taken exciting steps to catalyse digital adoption, more can be done in this regard. We would like to see more seasoned and strong entrepreneurs starting EdTech ventures. Also, currently not many early stage investors / funds understand education sector fully and deeply, said Kumar.

Apart from customer acquisition cost, another aspect these companies has to look at include the focus on various aspects such as the technology, content, quality and others, at the same time, said Naik.