Funding into edtech sector plunges 48% in 2023 due to decreased demand

Experts said that the demand-supply mismatch between teachers and course availability in offline education is expected to fuel the growth in the sector in the coming years

The global education technology (edtech) market has been facing challenges attributed to decreasing demand for online education, ongoing funding constraints, rising interest rates aimed at controlling inflation and economic uncertainties.

The Indian edtech space too has been experiencing a declining trend in funding, similar to its global counterparts. Total funding into the Indian edtech space plunged 48 per cent to $971 million in 2023 year-to-date (January 1, 2023, to August 7, 2023) from $1.87 billion in the same period in 2022 and declined by 50 per cent as against the same period in 2021, according to a report by market research platform Tracxn.
 

The number of funding rounds in 2023 year-to-date experienced a drop of 77 per cent and 82 per cent compared with the same period in 2022 and 2021 respectively.

The impact of the funding winter and macroeconomic uncertainty could be seen in some of the top edtech companies such as Byju's, Unacademy, Skill-Lync, Extramarks and Cuemath. Byju's recently handed the pink slip to 100 employees in a fresh round of layoffs, post a performance review. However, according to a media report, the edtech company has sacked about 400 people. Earlier this year, Byju's handed the pink slip to 900-1,000 employees in another round of layoffs, according to media reports.
 

According to the latest available financial report, Byju's booked losses of Rs 4,588 crore in FY21. The losses were 19 times more than the preceding year. The firm earned Rs 2,428 crore revenue in FY21.
 

In March this year, SoftBank-backed Unacademy announced another round of job cuts — the fourth in the last one year — as it was trimming 12 per cent of its workforce or 380 employees in a bid to "meet the goals in current realities". With that round of layoffs, Unacademy's workforce strength was down to under 3,000, compared to 6,000 in the early part of 2022.

In July, Skill-Lync, an Indian startup offering upskilling programmes, laid off about 225 employees or 20 per cent of its workforce to reduce operational costs amid the ongoing global funding crunch for startups.

No new unicorns have so far emerged in this sector this year, as against two new unicorns in the same period last year, according to Tracxn. Late-stage investments worth $879 million have been recorded in 2023 so far, contributing to more than 90 per cent of the total funding, which is also a drop of 23 per cent compared with $1.14 billion raised in the same period in 2022 and a drop of 39 per cent from $1.44 billion raised in the same period in 2021.

Early-stage investments worth $75.7 million were recorded in 2023 year-to-date, an 88 per cent drop from $618 million raised in the same period last year and an 82 per cent drop compared with $414 million raised in the same period in 2021.

Edtech startups raised $15.7 million through seed-stage rounds in 2023 year-to-date, a drop of 85 per cent from $105 million raised in the same period in 2022 and an 83 per cent drop from the same period in 2021.

K-12 Edtech, Test Preparation Tech and Higher Education Tech were the top-performing segments in the EdTech sector based on funding in 2023 year-to-date. K-12 Edtech startups have raised a total of $711 million in 2023 year-to-date, a fall of 45 per cent and 56 per cent compared with the same period in 2022 and 2021 respectively.

Also, 2023 year-to-date witnessed seven acquisitions, a 70 per cent decline compared with 23 acquisitions in the same period in 2022 and 19 acquisitions in the same period in 2021. In June, Xylem Learning, an AI-based platform offering entrance exam preparation solutions, was acquired by Alakh Pandey-led Physics Wallah at a price of $61 million. Veeksha, a platform offering gamified learning solutions to K-12 students, was acquired by Adda247. Tekie, a platform offering online tutoring solutions for coding to K-12 students, was acquired by Uolo for an undisclosed amount.

In the last two years, We Founder Circle, Peak XV Partners and MMPL Trust were the most active investors in this space. We Founder Circle, IPV and LetsVenture were the top seed investors, while Peak XV Partners, Better Capital and AngelList were the top early-stage investors. MMPL Trust, WestBridge Capital and The Chan Zuckerberg Initiative were the top late-stage investors.

Among Indian cities, Bengaluru takes the lead in terms of total funds raised till date, followed by Mumbai and Gurgaon. Edtech startups in Bengaluru have raised a total of over $8 billion as of August 7, 2023, followed by Mumbai ($2.5 billion) and Gurgaon ($497 million).

However, the second quarter has shown signs of recovery. Most of the funding into Indian edtech startups in 2023 so far was secured in the second quarter. This space observed funding worth $713 million in Q2 2023, accounting for 73.43 per cent of the total funding raised this year. This is also an increase of 37 per cent compared with the corresponding quarter last year.

Experts said that despite the current challenges, there are reasons to remain optimistic about the edtech sector's role in transforming education in the country. With the right support and a continued commitment to innovation, it has the potential to drive meaningful change in India's educational landscape.

The space has brought about a significant positive change in the country by making education accessible and bridging the gender gap in terms of education. "With government support, advancements in technologies such as AI and the growing adoption of the internet in Tier-II and Tier-III cities, the sector holds the possibility of substantial growth in the near future," said Tracxn.
 

It said the Indian edtech sector has also been instrumental in addressing gender disparities in education by providing convenient access to quality education at home. It has leveraged rising internet and mobile device penetration in rural areas to overcome cost barriers and make education more inclusive. Moreover, the growth of edtech in India has helped future-proof the country against events like school closures, ensuring continued access to remote learning opportunities for children and young adults.