Edtech start-ups go astray


Many smaller edtech firms are expected to either close their stores or merge with larger competitors at cut prices as students return to schools and colleges and demand for online classes declines. According to venture capitalists, this could result in early-stage investors and business angels losing money on their previously placed bets.

As Mohamad Faraz, managing partner at early-stage venture fund Upsparks, told FE, by now most of these startups may have burned 50-70% of capital, and so they may either lay off employees or sign up for strategic acquisitions with larger competitors.

“Due to low barriers to entry, several founders have been able to effortlessly raise seed and seed capital over the past two years. These projectiles usually do not last more than 15-20 months on the runway,” he added.

Akshay Munjal, founder and CEO of Hero Vired, makes it clear that 10,000 education professionals are not needed. “There will be shake-ups, mergers and acquisitions, some companies will collapse and burn, others will get stronger, and the space will stabilize,” he said.

The edtech co-founder told FE that capital has become more expensive. “We can’t grow at this rate anymore and we’ve had to cut our sales and marketing spend and get people to focus more on the unit economy and profitability. Investors are now basically demanding at least 24 months of runway. We had to lay off employees to extend our 18-month runway to reach the 24-month threshold,” he said.

Another co-founder of the firm, which recently laid off employees, said demand for online courses has increased by at least 5 to 10 times during the pandemic. However, customer acquisition cost (CAC) has skyrocketed, and serving existing customers has become more expensive.

Vikram Gupta, founder and managing partner of IvyCap Ventures, said that most of the current active education technologies are still in their early stages, although at least 200-250 of them have already received Series A investments. “There are 70,000 startups in India, of which about 25,000 are funded by seeds or angels. Only about 1200-1500 startups have raised Series A. And there are at least 200-250 educational technologies in it,” Gupta added.

Sunita Viswanathan, a partner at Kae Capital, said the nationwide lockdown has helped many educational techs struggle to attract enough demand for online classes. After 2020, digital adoption by wealthy and poor students alike has skyrocketed overnight, and venture capitalists have become more optimistic about this segment.

“The capital invested in educational technology was much more than required. When there was a lot of capital, the hiring process also sped up, and with edtech, much of that was focused on technology, sales, and marketing. The edtech sales process drives the majority of user conversions, and as demand drops, companies are resorting to layoffs as many hire far more than they need to,” Viswanathan said.

Even the most funded edtech firms, including Byju’s, Unacademy and Vedantu, have cut costs and laid off thousands of employees. FE reported this week that Byju’s has laid off about 600-650 employees at its subsidiaries, including Toppr and WhiteHatJr, to “streamline teams and accelerate growth.” Toppr and WhiteHatJr are one of 12 companies acquired by Byju in 2020 and 2021.

On June 19, SoftBank-backed Unacademy also reportedly laid off about 2.6% of its workforce, or about 150 employees, in a bid to save money. In addition, 600 workers were laid off in April. Unacademy is the only edtech unicorn — after Vedantu — to lay off employees twice in just a few months between April and June.

Indian edtech startups raised about $4.7 billion in 165 deals in 2021 and became the third most funded sector in the same year, according to a study by Inc42 online publication. Byju alone has raised some of that capital, about $1.9 billion in 2021. In 2020, as the pandemic swept the country, edtech raised about $1.4 billion through 103 deals, according to Inc42 analysis. Even in 2019, edtech startups haven’t seen much investor activity, and collective funding has always remained below $1 billion.

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