Is it the end of the road for Edtech companies in India?

Edtech or the amalgam of Education and Technology is nothing new in the Indian context. Nearly 15 years back, the first signs of Edtech came in the form of names like Educomp, Everonn and later Treehouse.

Eventually all of the just took on too much debt and almost ended up bankrupting their business just repaying the debt. The wager was that as the business expanded exponentially, the high debt levels would be taken care of. The exponential growth never came, but debtors came back with claims.

In the last few years, several Edtech companies that create and delivery content over the web, have ended up being Unicorns. In India Vedantu and Unacademy are already Unicorns and the Big Daddy, Byju’s, is the most valuable Edtech company by a margin. Unlike the situation 15 years ago, these Edtech companies of today are not too deep into debt. Instead, they have relied on equity participation from VCs and PE Funds in a big way.

It was pandemic that changed the Edtech story

Why did the pandemic make such a big difference? The pandemic forced millions of workers and students to the confines of their homes for close to 2 years. Students had to opt for online classes where learning and examinations were all online.

Obviously, the traditional teaching methods not attuned to this shift. Most students needed the helping hand of a coach who would guide them through these times. That is where most of the Edtech companies saw a huge opportunity. Subscriptions and valuations grew exponentially.

It was not just the students. The pandemic also brought about tremendous job and career uncertainty. People were looking at learning new skills and at re-skilling themselves.

The answer once again came in the form of Edtech where specialized portals sprung up which would help people in the middle of their careers widen their choices. The combination of supplementing classroom teaching and re-skilling of managers opened up the really huge opportunity for the Edtech companies. We are still seeing that effect.

What has gone wrong now with Edtech?

To be fair, it is not just about Edtech, but about the entire digital space. For starters, the return to normal activity meant that children were back in school and men and women were back at their work stations. The result was a sudden drop in demand for online courses.

That is rubbing off. More importantly, in many cases, the standard complaint was that the product delivered was never at par with what the customers had expected.

The second problem was overinvestment. Most of the Edtech plays invested heavily in creating course content putting money into manpower and other resources.

When the situation changed, it was becoming impossible for the Edtech players to manage these costs and they had not choice but to downsize operations and let people go. Players like Unacademy and Vedantu have let people go in recent months to conserve capital.

The third big issue is the PE funding drying up. It is not that there are no deals happening. It is just that PE funds are not insisting that promoters reduce cash burn and have a quicker visibility towards operating profits.

If companies had a runway of 5-6 years in the past, it is now down to just about 2-3 years. Financers want to see results much earlier. That has also had a deep negative impact on the Edtech sector in India.

But it is not exactly a doomsday scenario

The bad news is that Edtech is struggling. However, the good news is that it is not yet a doomsday scenario, just a temporary hiccup. Aggressive marketing works up to a point, but if the core product does not delivery value, then you have a problem. For Edtech companies, there has to be more focus on value delivery. 

Industry insiders aver, and rightly so, that the pain in Edtech and digital is not just in India but globally. In China Edtech is under strict supervision. Even in the US, layoffs are not common and it is nothing unique to India. Above all, the NASDAQ itself is down 30% from the peak, so the tech meltdown is for real.

Another big trend is selling directly to parents and students. Till now, the model entailed selling via school and colleges. That obviously has its own limitations.

The path of selling via schools was chosen as it was simpler, but that has outlived its utility. The positive trend is that more teachers are willing to shift out of traditional teaching to Edtech and that will go a long way in bridging the skills gap. 

The smarter Edtech companies will cut down on cash burn, focus on domain abilities and recruit quality teachers to fill the content and the pedagogic gaps. Edtech is a trend that is here to stay. It is just set to become leaner and meaner.