Santa arrived early for EdTech (2020)
#Education #EdTech #India #EdTech3.0 #WaterBridgeVentures #Perspectives #Byju’s #Unacademy #DoubtNut #Vedantu #Eruditus #upGrad #greatLearning #WhiteHatJunior #LeadSchool #BitClass #BigFatPhoenix #ClassPlus
Background & Disclaimer: Author is the Managing Partner of WaterBridge Ventures, a VC firm with investments in B2C, B2B companies using Tech disruption in critical sectors of the Indian economy, as well as global Tech companies being built out of India. WaterBridge has current (or exited) investments in the EdTech space like BigFatPhoenix Interactive, BitClass, DoubtNut and Unacademy. Author has also invested in some of the earliest EdTech investments in India like Edukart (acquired by PayTm) as well as evaluated dozens of education sector investments like CareerLauncher, Everonn, Educomp, FIITJEE, Manipal Education, Tutorvista across early learning, K-12 and higher-ed. Earlier as a senior investment professional in an education (+TMT) sector focussed fund (Providence Equity), he has had the opportunity to witness the evolution of for-profit companies like Archipelago Learning, Blackboard and Education Mgmt. Corporation in a major market like the US. Thoughts expressed here are of personal nature with the intent of capturing his views on the opportunity what he calls EdTech 3.0 that India is harnessing over the next decade (2020 – 2030). This is the 1st of a series of write-ups articulating India the EdTech 3.0 opportunity.
Sources: WaterBridge Ventures internal analysis, PGA Labs, Tracxn, Avendus
If you live in or follow India and unless you were living in a cave (which is possible given the gloom and doom induced by COVID-19), it is hard to have missed headlines like, “India EdTech received highest ever $2.2 Billion of funding in 2020”. For all its economic, social disastrous effects and claiming over 1.7M lives (hoping for minimal loss of life from hereon), this pandemic has accelerated a positive trend towards further adoption of digital education around the world. As schools, colleges and universities were shut down (almost) worldwide since March 2020, all the stakeholders of the education sector (students, learners, parents, teachers, educators, governments) have had to scramble and perform circus acts to find substitutes for their century old habit of face-2-face education delivered in a largely physical environment. No other sector (than Education) has witnessed such a massive semi-permanent to permanent consumer behaviour change that the last 9 months of 2020 have brought at a global scale. Unfortunately while the haves somewhat moved on to new models of learning, the have nots (ones with lack of digital or device access) have further dropped down in the knowledge and education divide in both emerging as well as developed economies, repercussions of which humanity would feel for years to come.
As a response, new EdTech themed companies have proliferated across the world while the existing players increased their prominence in a very short period of time, sometimes ahead of ‘real value creation’, but then that’s the nature of capital markets. While the goal of this write-up is to articulate the EdTech opportunity set in India, it is only apt to compare the flow of capital in the 3 major markets (measured by metrics like size of learners, market size i.e. revenue $’s + profit pools, and capital flows). While India (high volumes, younger population) and US (high GDP/capita and ARPUs) have seen a similar investment interest ($2.2 — 2.5 Billion), China overtook by a huge margin with $6.2 Billion worth of investments in EdTech in 2020.
The compounding effect of EdTech investments in the US and China over the last 5-10 yrs. can be clearly seen in this comparison chart of funded companies, total funding, no. of unicorns, as well as exits via acquisitions and IPO’s. India is clearly 2–5 years behind just like in eCommerce, financial services and other sectors where Tech disruption needs to catch up with economic growth, income levels and maturity of capital markets of China, US. Having said that, if one has to pick the top 1 or 2 sectors where India will leapfrog the adoption of Tech ahead of its GDP/capita and overall capital market maturity levels, Education is definitely one of those sectors given the pent-up demand, innovation from local players, nuances of India’s education sector to economic prosperity outcomes, and regulatory push (read later about India’s New Education Policy of 2020 in this story).
I have had the privilege as a multi-stage investor in the Education sector (earlier at Providence Equity and now at WaterBridge Ventures) to have a decade+ view of how this sector has evolved in India. We have indeed come a long way from the early attempts (failed for the most part) of delivery of tech based learning in schools through B2B2C models like Educomp and Everonn, or hybrid models of test prep from players like Vidya Mandir, Brilliant Tutorials to loose attempts at bringing global higher-ed programs to Indians through learning centers and certifications which was done to control the (in)famous IIT led brain drain of knowledge and human capital from India to the US.
Today while India has access to the some of the world’s best education programs on the Indian soil, the democratisation of access to the best teachers even within India (for test prep as a major use case) is being solved in an expeditious manner from companies like Unacademy. While companies like Byju’s are solving for after-school interactive digital learning for the affluent and aspirer families (30–40M metro/Tier-1 K-12 students), simultaneously companies like DoubtNut are making K-12 after-school learning accessible to the India beyond the metros or to the middle, lower income brackets (aka Bharat) i.e. 100M+ K-12 kids classified as part of the Next Half Billion (NHB) users.
While I will devote the next article in this series to talk about the Business models of success in EdTech in India, it is pertinent to share what I think are the key contributors for EdTech’s massive disruption and value creation:
(1) Boldness of the Indian entrepreneur to think local first and global later — innovative companies like Byju’s, DoubtNut, LeadSchool. Toppr, Unacademy, Vedantu are very Indian in their DNA and customer obsession, while all have global applicability and optionality value today;
(2) Massive market with GDP+ growth and high inefficiencies riding on top of access solved by players like Jio, led to the unshackling of the Indian education consumer (student) as well as customer (parent, school, external finance). If there was any doubt of the sheer scale, India has over 1 Million schools, 800 universities, 40,000 colleges, 10 Million+ educators where 360 Million learners were engaged in some form or fashion;
(3) Just like IT services, Indian regulator has not interfered with innovation in the sector along with bringing progressive policies like NEP 2020 (perhaps only 30% of the work is done in this area but it’s a great start).
Case in point is just the after school tutoring market which is much larger than China or the US in enrolments and % of engaged (already paying) K-12 population.
This would be a good segue to talk about why EdTech has grown leaps and bounds and will continue to be a beacon for Tech disruption across critical sectors of India.
Growing Young Population: 37% of Indian population in the age bracket of 5–24 years. Large K-12 consumer base with 260M enrolment
High household spend on education: Per capita income in India rose by 30% from 2015–2020. % of household income spent on education is high in India as education is considered primary lever for social mobility
Growing Job-seeking population: High working age population with 280M job seekers expected to enter the market by 2050. High urban unemployment rate (8–9% pre-COVID and 15%+ post-COVID)
Technology Adoption: Smartphone penetration increased from 9% to 30% during 2013–20. Internet penetration increased from 15% to 39% during the same period. Widespread adoption of UPI based digital payment methods have helped in adoption
Limited access to quality education: India student-teacher ratio is one of the lowest at 24:1 ( Canada at 9:1). Only 47% of Indian school graduates (by 2030) will have basic skills to be employable as per UNICEF report
Government’s Digital initiatives: Government initiatives such as SWAYAM, E-Basta, Skill India, Digital India, Beti Bachao Beti Padhao Yojana, NEP 2020 etc. enabling infrastructure needed for students to study online
For a moment stepping out of the Indian well, it would be sensible to think about the question, “Has EdTech seen the creation of valuable companies around the world”?
If Unicorns were considered just one measure of success, the following count is impressive across K-12, Skilling and HigherEd. Only 2 Indian players have made it to the list (of 36 EdTech unicorns), but I am willing to bet that by 2025, India would be hosting at-least 25% of the world’s most transformative EdTech companies.
An anecdotal evidence would best portray the craziness in EdTech in the year of the pandemic in India. At WaterBridge, our nationwide and popular Seed program, FastForward’s cohort of 2020 that ran through the months of June — August (peak of the pandemic in India) witnessed 550 startup applications, of which 160 i.e. 30% were in EdTech.
Is all hunky-dory in Indian EdTech? Not at all. As with most things in India, it will get worse before it gets better. While significantly high quality entrepreneurial talent has flocked towards EdTech (I am a fan of that as I think sectors like EdTech could do better with non education sector professionals and entrepreneurs, save the details for the next write-up in the series), there also has been a proliferation of me-too companies and momentum capital in EdTech which will continue to create noise and the signal may be lost for the common man, consumers and investors alike. The current (indicative) crowd of EdTech looks like this:
While the EdTech cake can be sliced and diced in various ways, I find the following cut to be the most intuitive. Some of the high-level business models and approaches are mentioned along with select representative players.
Although private sector interest was growing in EdTech this year, the Indian government simultaneously came out with the much awaited New Education Policy (after a gap of 34 years since the last major policy framework) which will have lasting effects on both government and private funded players in the sector. The policy is not even in the early stages of implementation as of yet, but here is some of the expected impact on EdTech business models.
The jury is out on whether NEP was bold enough to address all that is problematic with the sector and if it will serve as the holy grail for new innovations. My limited view is that it has enough positive directional signalling that it will serve as a great catalyst for disruption in the sector along with helping attract more capital investment. It is apt to contrast the expectations of the policy with a quote from the yogi, author and spiritual guru Jaggi Vasudev.
Being a VC and therefore labelled by default a ‘capitalist at heart’, I have to at-least address the existential question for my peers and entrepreneurs with an eye on this space (existing and aspiring)— Have the valuations run ahead in this sector? While the next write-up should address this subject in greater detail along with the business model SWOT analysis across the value-chain of EdTech, it would be reasonable to highlight that the largest player in K-12 (Byju’s) is currently tracking a $900–950 Million ARR (last reported valuation of $12 Billion) and the largest player in HigherEd (Unacademy) around $150 — $175M ARR (last reported valuation of $2 Billion). My estimates suggest a combined $2 Billion ARR for the Indian EdTech sector (all players combined) and a cumulative private valuation of $20 Billion. Given a $8-10 Billion revenue industry / 4x — 5x growth estimate by 2025, although Santa has come early in 2020, (s)he would not be disappointed and leave well served with hot milk and freshly baked cookies.
