India’s Edtech Startups – The Changing Landscape
India has been among the frontrunners in the global startup fraternity
ranking fourth behind the USA, UK, and China.
According to the Union Minister of Science and Technology, the number of
startups in India has grown from around 350 in 2014 to more than 90000 in 2023
with over 100 unicorns. A large number of the startups are in the services
sector comprising, among others, Education, Finance, Gaming, BFSI,
Pharmaceutical, Food Delivery, etc. with many of them being unicorns.
The Unicorn tag made fundraising a not-so-difficult proposition in the initial years with investors, PE/VCs being rather generous in opening their purse strings and infusing funds based on the good valuation and hoping for a decent ROI, ROE, etc.
The recession in the US/EU/China has given way to the initial euphoria with 2023 witnessing a slowdown in startup funding in India. Total funding dropped to $7bn till Dec 2023 from $25bn of the previous year. Another factor contributing to the freeze in funding has been the inability of a large number of Indian startups to achieve profitability and ROI within the projected timelines.
Edtech unicorns like ByJu’s, Vedantu, Unacademy, Eruditus, and UpGrad
continue to be in the red. The sole exception in this sector is PhysicsWallah,
which was founded in 2021 and has posted operating profit during FY22.
As per CB Insights, the New York-based business analytics firm,
ByJu’s was the 13th most valuable startup in the world with a
valuation of $21bn as of Dec 2021. No other Indian startup figured in the top
50.
However, within two years, ByJus’ valuation has dropped to
$225mn as of Dec 2023, a fall of 99%
What led to this fall?
Founded in 2011 the Bengaluru-based company managed to keep its losses
at manageable levels till 2019.
The transition from “In Person/Offline” learning to “Online Learning”
during Covid19 pandemic coupled with ByJu’s brand name helped them in tapping and
increasing their customer base.
They went on to acquire White Hat Junior ($300mn), Aakash ($950mn),
Great Learning ($600mn), and Epic ($500mn) during this period, involving fund
outflow to the tune of $2.3bn.
Additionally, they also went into overdrive on ad spend.
All these led to a major resource crunch.
Things started turning sour post-pandemic when “Online Learning” gave
way initially to a hybrid system of learning (Online + Offline/In Person) and
thereafter, majorly, to “In Person learning”.
However, ByJu’s appeared to have lost the plot due to the inability to
carry their stakeholders along. Some of the factors that contributed to this
were:
Ø Customer Satisfaction – Decline in the quality of services provided and adopting unfair trade
practices by forcing customers to buy certain products/programs leading to loss
of customers.
Ø Shareholders –
(i) Adopting wrong accounting policies, especially relating to revenue recognition
(ii) Going overdrive on ad spend and employee cost without matching returns, leading to ballooning losses and massive resource crunch.
Ø Investors/Lenders
(i) Abnormal delays in publishing the audited financials and laxity in corporate governance.
(ii) Loan default and non-payment of creditors dues, resulting in a few of the creditors approaching the National Company Law Tribunal for initiating insolvency proceedings.
(iii) Some of the majority shareholders have called for an Extraordinary General Meeting for removing the promoters from the Board.
Ø Compliances – The audited financials for FY22 were filed with MCA only after Dec
2023; far beyond the due date.
Overall, it could be inferred that in an extremely competitive
environment, the promoters failed to strike a balance between cost, stakeholders’
needs, and governance.
However, it may not be all doom and gloom in the ed-tech sector as one
of the latest startups, PhsicsWallah, founded in 2021, did manage to post operating
profits in FY22. Being small in scale and size, their business model has kept
the focus on cost, execution, and resilience in turning their dreams and ideas into
reality. It remains to be seen whether they can sustain this trend in the future.
The Indian ed-tech sector has a long way to go before they can justify their unicorn tag.
