In the last few weeks, you must have heard about mass layoffs by EdTech startups and a few EdTech startups shutting down their operation. Well to give you a little background, a few years back EdTech was one of the booming sectors in India. We have more than 9000 small and big EdTech startups as of now.
In 2020, this industry was valued at 750 million dollars and was expected to grow to a 4 billion dollar industry by 2025. In 2021, the EdTech industry was the 3rd most funded sector.
But all of a sudden Vedantu laid off 600 employees, Unacademy had to let go 1000 employees, and more than 800 people had to resign from Byju’s.
Not just that, but a couple of EdTech startups which had raised millions of dollars in funding had to shut down its operation.
If this sector was booming like never before, why did it start crashing down?
Why did Investors stop investing?
To understand all of this, we first need to understand the pillars of this industry and what happened to these pillars over time.
The EdTech industry started booming when internet accessibility got easier. Anyone could just record a video course and start selling it online.
The online model (recording, editing and selling) required very minimal capital, whereas physical coaching centers as usual needed more capital to operate. That’s why the online model was way more economical than having physical coaching centers. People adopted this online model quickly. As a result, the entry barrier became very low and more players came into the picture.
It became economical not just for the EdTech companies but for the consumers & parents too. While a physical coaching center might charge you Rs 1-2 Lakhs for an 11th and 12th standard course, online coaching could provide you with a similar course at one-fourth of the price.
The cherry on the cake was the lockdown. Schools and coachings had to close due to covid. In India, 580 million people fall in the age bracket of 5-24 years, which is technically the education market of India. And these 580 million people were left with this alternate online model.
From competitive exams to K12, these EdTech startups started providing all of it. They did not stop there and started building and selling skills development courses at very affordable prices.
BYJU’s registered around 115 million students. Vedantu has 2 lakh paying students. EduKart allows you to earn degrees and diplomas from the world’s topmost institutions like NMIMS, London School of Business and many more. And the best part about it is that UGC provides recognition for these degrees. In light of these facts, India became one of the biggest online educational consumers.
This is where the investors saw an opportunity and started investing mindlessly. In 2021, the EdTech market was India’s third-most funded sector, receiving $4.7 billion in VC funding.
Byju’s alone had raised 1.9 billion dollars. In this fundraising race, EdTech startups like BYJU’S, Unacademy, Emeritus, upGrad, Lead School, and Vedantu became unicorns.
The problem with these EdTech players was they had to spend a hell lot of money on marketing to acquire and retain a customer.
On the other hand, EdTech startups like Apni Kaksha and Physics Wallah were doing quite well. These startups were doing good because they had a brand value behind them. Aman Dhattarwal who is behind Apni Kaksha has been creating content for a long time. People knew him and he had a trust factor involved. Similarly, Alakh Pandey who is the founder of Physics Wallah has been creating educational videos on YouTube for 6 years now.
One of the good things about creating content consistently is people start admiring & believing you. This worked well for both of these people. This is the reason Apni Kaksha and Physics Wallah don’t need to spend a lot of money on marketing to acquire or retain a customer.
If everything was going well What exactly happened that India’s EdTech market, which is estimated to be the EdTech capital of the world, saw a sudden downfall? And why is the boom in the EdTech market coming to an end?
Since the entry barrier to the online model was quite low, more players came into play. The competition got higher and acquiring and retaining new customers became expensive. Investors started looking at it from the angle of profitability.
Y combinator recently issued a letter and advised the founders to survive the global downturn in public markets. Due to the economic downturn, Investors had slowed down investing in startups. Y combinator suggests startup founders reach default alive.
Let me tell you what Default alive means in the startup space. It means a condition in which the business can achieve profitability with its current resources before running out of money.
Now, these funded startups had nowhere to go for more funding. Therefore they are cutting the overall expenses and laying off the surplus employees.
Due to this global downturn, Lido and Udayy couldn’t raise more funding in time and ran out of money. Ultimately they had to close the operations. Although EdTech startups did well in the early stages, they seem to be failing as a business now. From all of this, one thing becomes evident.
Models like Hyper-Growth and high fund burning are not sustainable in the EdTech sector. Neither is risky bets like burn-till-you-raise, as in the case of Lido Learning.
From growth plans, these companies are now ensuring their survival in an unanticipated situation like this.
Do you think the EdTech bubble has started bursting? Share your thoughts in the comments.
I don’t know if the EdTech industry is going to end or not but what I do think is that they need to find a sustainable solution.
One of the solutions could be a Hybrid model, where there are physical coaching classes along with online support. Similar to Physics Wallah and Unacademy setting up their learning centers.
India’s new National Education Policy (NEP) 2020 lays out a comprehensive framework that spans elementary through higher, vocational and technical education, and a new paradigm of internet-based E-Learning. To design this digital curriculum, five foundation pillars of this strategy have been acknowledged:
When the above-mentioned parameters will be successfully implemented, India’s educational system would see a considerable structural change.
Internet connectivity should be enhanced, students should be provided with better technological facilities, teachers should be very practical and well-trained, and most important education should be light and affordable. These all need to be worked upon diligently to achieve success. And lastly, we need to think out of the box for unique resolutions instead of common ones.
Let’s see how many EdTech startups comprehend the lesson, work on the objectives, overcome the issues and conquer.
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