We don’t need no classroom, we need education.
India enjoys the cheapest data rates in the world. This has been the single largest factor that has led to the digitization of India — internet penetration stands at ~ 560mm Indians! Internet usage has increased from 27% of our population in 2017 to ~ 42% now — a rise unlike anyone’s in the world. While all sectors were expected to and did catch this big wave of digital adoption, edtech struck a chord with parents and students alike who jumped on the bandwagon to solve the dearth of quality teaching and accelerate their training for competitive exams. There are over 4,530 active EdTech start-ups in India today, out of which 435 were founded in the last 24-months alone. The total funding raised by these EdTech firms since 2010 stands at $2.46bn. And the 5 segments that it has catered to include test preparation, skill development, online certification, online discovery and enterprise solutions. The revenue models for these are freemium, pay as you go and subscription.
Enter 2020 and COVID changed everything about all our lives. Schools and colleges shut down, classes moved online and players in the ecosystem rapidly changed their behavior.
To give you a sense of the number, India is home to 1.5mm schools, ~ 270mm students, 751 recognised universities and over 35k colleges. A majority of these ~300mm students and teachers were forced to operate from homes. This reduced the cost to switch to edtech learning products and therefore, the CAC for edtech companies across models — particularly those that had built a brand and previously raised capital. We saw a flight of capital move towards established quality edtech companies with Unacademy and Byju’s raising large rounds of funding. As a result, out of the $2.46bn raised by edtech startups, ~ $257mm or ~10% was raised since April 2020 to today!
We at Ankur Capital have been tracking this sector for some time now and believe that what is different about the Indian edtech scene post COVID is the mass scale adoption by all players in the ecosystem. Which in turn has led to a systemic shift in all metrics related to it — CAC, user base, rate of conversion, funding it attracts and the most valuable factor — the talent that wants to solve for it. It has also forced some of our best minds to focus on how to make this better than offline; and build on the possibilities and breadth that online offers. The burning question in our mind is what will stick with parents and students once the dust settles — will online offerings get more creative and what cutting edge techniques will the disruptors keen on this space come up with.
The tailwind that edtech benefited from is not lost on anyone. If life is a marathon and venture capital investing mirrors it, we have to think of the road that lies ahead after the stardust settles and we are back on flatter terrain. From our extensive discussions with all stakeholders, the schools will embrace technology for their operations and in classrooms, but physical classes are coming back and everyone is itching to be back in school. There is a strong element of personal connect, social interactions and oversight that is critical to learning at the K12 stage. It’s unlikely to be replaced by digital technologies. (A word of caution to entrepreneurs whose primary product is enabling schools to manage their digital delivery of education — classrooms are here to stay and you may want to hedge your bets). Of course, it’s unlikely to go back full circle. There will be digital interventions that will continue to be part of academic life. Most prominent in the K-12 sector will be tution classes and online afterschool for younger kids. As a fund focused on the next billion segment, we are excited to see tuition teachers reaching beyond the cities they operate in, specifically to Tier 2 and Tier 3. There will be a slew of famous pan India tutors emerging enabled by companies such as Teachmint, BitClass and Vedantu tackling the tuition market.
The other segments we believe will be driven by edtech is higher education and continued learning. For this age group, digital first is more likely to offer the flexibility that allows leveraging of digital to its fullest extent. For instance, large physical lectures could all be online and smaller phygital discussions could lead to doubt solving/ in depth discussions. Such changes will free up professor/lecturer time and move it to create more learning through discussions. In continued learning, the flexibility and access offered by digital is likely to create new solutions. Learners are likely to be attracted by the benefits of anytime, anywhere.
The total addressable market for these 2 segments is expected to grow from $400mm and $100mm this year to $3.6bn and $1.2bn by 2025 — according to RedSeer. The lowest conversion of this sector to online, pegged at 30%, is still ~ $1.5bn.
We believe that there are opportunities in higher education and lifelong learning that are yet to be built for the India context, and early movers with the right models can be long term winners.
In our view the permanent shifts in behavior and adoption will drive these solutions to reach large audiences much beyond traditional markets. We are super excited about the prospects of edtech especially in terms of giving motivated students across social, economic and geographic divides the opportunity and access to world class education at their doorstep.
Might the bard of Bengal say — Into that heaven of education, let my country awake!*
(We encourage startups innovating in the edtech space to reach out to us at info@ankurcapital.com. We take risky bets, back founders who dare to dream and play in markets that are focused on the next billion users.)
*please note that this sentence is lifted from Rabindranath Tagore’s work
