The Rise Of A Unicorn, Or Many

Remember that ad by a telecom company featuring a grumpy dad and his nervous son working in a bakery? Even as the dad thinks his son is a no good bumpkin, the kid manages to “invent” a drone that wins global recognition and awards. How did the kid manage the feat without going to school or college? Well, he used his mobile phone and the Internet to chase and discover new frontiers of e-learning.

This humongous scope and magic of edtech is attracting a generation of brave new entrepreneurs. Just look at some numbers. More than 250 million school students that comprise what is popularly called the K-12 market. More than 5 million students appearing for “competitive” exams every year; many willing to spend lakhs on coaching classes and institutes. More than 10 million young Indians entering the workforce every year who desperately need 21st century skills. More than 750 million smartphone and Internet users by 2020. To top it all, surging aspirations are breaking down shackles of limited livelihood opportunities.

No wonder, it is estimated that the edtech market will double in size from $20 billion at the moment to $40 billion by the end of 2017. When this kind of opportunity beckons, can investors, entrepreneurs and dreamers possibly stay away? “The advent of new age and progressive, live and interactive learning empowers anytime, anywhere learning. Direct-to-device technology is enabling a social collaborative learning experience by recreating classroom-like interactions in the virtual world,” says Aditya Malik, chief executive officer and managing director of ed-tech firm Talentedge.

According to CB Insights, India witnessed a new high of over 50 edtech deals in 2015, with the volume of deals up 315 per cent from 2011. The report also says that India is on track to break last year’s record with over 18 deals so far, implying more than 60 by year-end 2016. While the funding to edtech startups primarily remains concentrated in the US, which accounted for 67 per cent of all deals from 2011 to 2016, outside the US, India ranked second in deals with 6 per cent or roughly 130 deals, and China third with 5 per cent or just over 100 deals. According to VCCEdge, a research platform for the Indian investment ecosystem, the angel, private equity and venture capital deals in the education sector rose from 27 (valued at $187 million) in 2010 to 49 ($248 million) in 2014. In 2015, there were 51 deals valued at $155 million. The largest was the $40 million invested by Sequoia and Aarin in Byju’s Classes. Recently, Byju’s raised another $75 million from Sequoia and Sofina in the biggest 2016 deal in edtech in India. There are already hushed talks about the emergence of a unicorn in the edtech space in the near future.

But success and glory will not be as rapid as experienced by some startups in other markets. “Unlike the e-commerce industry that gives its buyers instant gratification; in the edtech industry, users go through a longer cycle of getting to know the company, verifying, learning and validating. However, once users see the value that online education provides, they are hooked on it,” says Krishna Kumar, founder and CEO of Simplilearn, an online education provider of professional certification training, based in San Francisco. But it takes time because parents, students and institutions are wary of radical changes. Says Subrata Ghosh, founder and CEO of professional learning company Redstone Learning, “While the technology exists for disruptive approaches like personalised curriculum and assessments, students and their sponsors (e.g. parents) in schools and colleges still prefer the one-size-fits-all curriculum — there is a strong perceived risk in deviating too far from the norm.”

But change is happening, albeit not at a dizzying pace. The primary driver is the hunger in students and skill seekers to go beyond the quality limitations imposed by classrooms and often poorly trained teachers and instructors. “Technology reach and easy access will bring about a socio-economic difference in the lives of students. It will enable them to save time, by having more freedom to move at their own pace. We are already witnessing, great acceptance for digital learning,” says Kabir Chadha, India Country Manager of Coursera, which has over 20 million registered learners around the world, taking courses from over 140 university partners including Yale, Duke, Stanford, and Johns Hopkins among others. Coursera has 1.6 million registered learners in India, now our second largest market only after the US, adds Chadha.

India is the largest K-12 education system, with over 250 million enrollments. Seventy per cent of the K- 12 segment has access to smartphones, and this percentage is fast increasing. “This gives us an opportunity to use smartphones as a learning device, and app as a medium to reach millions of students. This can solve the problem of access,” says Ashish Sirohi, co-founder and CEO of online tutoring company Eduwizards. However, government policy and regulations don’t allow much innovation to flourish in the huge K-12 market. So in the meantime, entrepreneurs will continue to focus on under-served peripheral markets and the overall market size will remain small despite the huge demographic count.

Long Way To Go
In India, edtech startups have seen some form of success in only a few segments that include test prep, professional courses and learning management system. Barring these, majority of segments such as pre-school, K-10 and higher-education are yet to see their success stories. Many factors are responsible for the low success rate of edtech startups. “Funding issues have troubled the sector which has not been able to demonstrate scalable growth models. Companies that have been able to successfully grow have had no dearth of funding. The edtech sector has huge potential in a country like India but companies need to crack the right revenue model,” says Byju Raveendran, founder and CEO of the Bangalore-based company. Byju’s Classes is an example of why it is so difficult to get a fix on the pre-college market. The company, which was started in 2011, entered the primary and secondary education segment in 2014. But it is not restricted to teaching kids how to go through school; it has coaching classes for competitive exams — the joint entrance examination (JEE) for the Indian Institutes of Technology (IITs), for instance.

Convincing those who use free content to pay for value-added material is hard; according to industry estimates barely 2-3 per cent make this switch while the rest elude the grasp of edtech companies. “Unlike other segments, education ventures need time to incubate and grow organically,” says Vamsi Krishna, co-founder and CEO of edtech startup Vedantu.

Despite a plethora of opportunities and the excitement, many edtech startups are inevitably going bust. Recently, Purple Squirrel Eduventures, an education-technology company, wound up its operations after massive cash burns. There are funding challenges gripping the industry. “The biggest challenge is finding your niche and evolving the model from there on. The need has to be deep rooted as well as rampant. An education startup has to be able to tackle the problem at the micro level and then have the market size big enough to replicate it to the next level,” says Malik of Talentedge.

Also, the most important aspect of the Indian education system, is the need for a unique and customised solution. “A clone of an offshore model does not work in Indian education, as every geography has its own nuances, and needs the new concept to be served in the very same old bottle. Innovation befitting the ecosystem, without ruffling the stakeholders, is the secret,” says Coursera’s Chadha.

This Is The Future
Having said that, one in every five fundings in India is in the education sector. With focussed edtech accelerators, incubators and funds coming in, this is just the right time for edtech entrepreneurs to flex their muscles and stand out just by the merit of the execution. Globally, more than $3 billion has been invested in education since 2015. “This is the biggest funding cycle one has seen in the last decade. I think, if your business metrics are smoothened, there is no dearth of investor money,” says Krishna of Bangalore-based Vedantu.

The Indian edtech market, pegged at over $100 billion, has become the second largest market for e-learning after the US. Sixty per cent of the education sector comprising colleges and competitions goes unnoticed and unserviced by the organised sector. The education sector in India is poised to witness major growth in the years to come. Indian education sector has been on the center stage for the last few months. Various government initiatives are being adopted to boost the growth of distance education market, besides focusing on new education techniques, such as e-learning and m-learning.

New players will continue to emerge in the edtech space, but their success will depend on their ability to solve a real problem. Like all disruptions, the one sweeping the edtech market too will see a cluster of failed dreams. But make no mistake. It is a matter of time before a unicorn is born here!

monica@businessworld.in,
ayushman@businessworld.in;
@MonicaBehura, @ayushmanb