For What Reasons Are Indian EdTech Startups Becoming Less Remarkable?

For What Reasons Are Indian EdTech Startups Becoming Less Remarkable?
For What Reasons Are Indian Edtech Startups Becoming Less Remarkable?

Funding for India's education technology sector fell 48% between January 1 and August 7, 2023, as compared to the same period the year before. 

To date, Bengaluru has raised more capital than any other city in the sector. The information was published in a study by Tracxn, a platform for market intelligence. 

As of August 7, 2023, EdTech startups in Bengaluru had raised over $8 billion, with Mumbai coming in second with $2.5 billion and Gurgaon with $497 million, according to the EdTech India - Feed Geo Report.

Factors such as rising interest rates to rein in inflation, economic uncertainty, falling demand for online education, and persistent funding limits have put pressure on the worldwide EdTech business. However, the report highlights that the Indian EdTech sector has potential because there is a disparity between the number of teachers and the number of offline courses available. This could lead to the sector's growth in the future.

Most of the investment in Indian EdTech startups in 2023 has reportedly happened in the second quarter, according to different media reports. In the second quarter of 2023, the space saw $713 million in funding or 73.43% of the total funding for the year. Not only that, but this is a 37% rise over the same quarter last year. 

The most well-funded areas of education technology so far have been those dealing with K-12, test preparation, and higher education. As of this writing, K-12 education technology startups have raised $711 million, down 45 percent from the same period in 2022 and 56 percent from the same period in 2021.

So far this year, there have been no new unicorns in this area, compared to two in the same period last year. The number of acquisitions in 2023 has been seven, a decrease of 70% from the twenty-three acquisitions in 2022 and the nineteen acquisitions in 2021.

Investing Tycoons
Soaring Costs of Acquiring New Customers
An Illusory Approach to Pricing in the Indian Market
Falling of a Big Tree

Investing Tycoons

Over the past two years, We Founder Circle, Peak XV Partners, and MMPL Trust have been the leaders among EdTech investors. 

Seed investors included We Founder Circle, IPV, and LetsVenture; early-stage investors included AngelList, Better Capital, and Peak XV Partners. Several prominent late-stage investors were The Chan Zuckerberg Initiative, WestBridge Capital, and MMPL Trust.

After school was canceled due to the pandemic, the Indian EdTech industry rode the wave of online learning to great success. Increasing access to the internet and mobile devices in rural regions was a key factor.

There are grounds to be positive about the role of the EdTech sector in reforming education in the country, the research observes, despite the current challenges.

Top 10 Venture Capital firms in India | Active VC Firms in 2023
VC investments are currently recorded at $14.4 bn. Here’s a list of Top 10 venture capital firms in India that actively invests in Indian startups

Soaring Costs of Acquiring New Customers

During the peak of the EdTech industry in early 2020, the cost of acquiring customers skyrocketed from a meagre 20-25% of revenue for EdTech platforms to 70-80%. There is a basic dynamic at work here: all business-to-consumer EdTech platforms engage in digital marketing and branding. They all used digital-only channels to create leads, and then they paid high-priced salespeople to turn those leads into customers by setting goals and offering incentives. It was no longer feasible to explain the unit economics due to the exorbitant cost of acquiring a single customer, which encompasses the entire lead generation and acquisition cycle. The CAC for an EdTech company in India's K-12 market ranges from INR 10,000 to 60,000 (USD 137-821) per student, according to an article in Kr. Asia. B2C EdTech companies in India will simply not generate enough revenue from their models, even after pouring a tonne of money into marketing and customer retention. The larger companies could afford to pour money into advertising and marketing, but the smaller ones had to cut costs or go out of business.

Indian Edtech Industry (2020-25)
Indian Edtech Industry (2020-25)

An Illusory Approach to Pricing in the Indian Market

Another concern is the exorbitant price models that B2C EdTech companies in India attempt to impose on parents. Repeatedly high CAC forces EdTech companies to raise prices, even though the parents, who are the ultimate consumers, have no more money to spend. About 95% of the 7.9 crore students enrolled in India's more than 400,000 low-cost or budget private schools pay yearly tuition of less than 30,000 Indian rupees (INR), according to the Central Square Foundation, a nonprofit organization that focuses on education. Typically, the monthly cost for the subscribing or paying user exceeds the cost of tuition by more than two thousand rupees. Additionally, many EdTech companies pressure parents into signing up for long-term subscription models that they may not understand or be able to cancel, as well as into taking out loans to buy the gadgets they suggest for accessing their courses (e.g., tablets). A research on EdTech (2020) by RedSeer Consulting and Omdiyar Network brought attention to this problem by discussing the disparity between the prices offered by different business-to-consumer EdTechs and the average price that consumers are ready to pay. Unfortunately, EdTechs have not yet addressed that the cost of using some of their services can exceed a school's yearly charge. There shouldn't be a need for parents to pick between after-school activities and paying the whole tuition, since any reasonable parent would spend half of their child's school budget on these.

9 Methods to Grow the Initial User Base of an EdTech Startup
Edtech startups are rapidly growing with 9,043 startups in India presently. Finding the right audience for your EdTech product is very difficult.

Falling of a Big Tree

The latest upheaval at BYJU'S has highlighted some major problems that the company is encountering as well as possible areas where all startups should be investigated. Many problems have arisen for BYJU'S in the past few months. These issues encompass:

  • After multiple confirmed allegations of allegedly abusive and poisonous work culture, as well as unscrupulous sales techniques and consumer exploitation, BYJU'S has become notorious for a hostile work environment, and revenue growth has slowed in recent quarters.
  • While BYJU'S is rapidly losing customers, it is also rapidly depleting its cash reserves. In the third quarter of 2022, the company's monthly active user (MAU) base fell by 15% while its cash burn rate was anticipated to reach $1 billion per quarter.
  • In the past few months, BYJU'S has lost several prominent board members and executives. Among them are the COO, CFO, and director of marketing for the organization.
  • An examination into many financial irregularities, including delayed financial reporting, has been initiated by the Serious Frauds Investigation Office (SFIO), which is part of the Ministry of Corporate Affairs (MCA).

These problems have reduced BYJU'S value. Analysts currently estimate a worth of less than $10 billion for the firm, down from $22 billion at one point. What happens to BYJU'S is uncertain. The firm is resolute in its pursuit of growth, despite the numerous challenges it has encountered.

That BYJU's is only one example among many. Some EdTech startups have been successful in maintaining operations, while others have failed. Both sets of instances are noteworthy. The future of India's education technology sector is something to watch with interest.

Why Is the Indian Edtech Market Under Heavy Loss in 2022?
The Indian edtech market has witnessed massive growth in during covid but as schools reopened many edtech startups had to shut their shops.

Must have tools for startups - Recommended by StartupTalky

Read more