India: Edtech startups are finally attracting investor interest after lacklustre 2015

Indian education startups, dubbed ed-tech, are seeing increased investor interest with the sector landing more funding so far in 2016 compared to last year’s hot favourites, fintech and foodtech.

In the last two years, edtech startups have seen other sectors whizz past them in funding. But, so far in 2016, the ed-tech space has raised $77 million, compared to $54.8 million by foodtech, a sector that has lost its lustre after a string of problems. Ed-tech has also raised substantially more than fintech companies.

In March, Bangalore-based test preparation firm Byju’s raised $75 million from Sequoia Capital and Belgian investment firm Sofina. That was the biggest funding round in an ed-tech firm in India, and symbolic perhaps of better times for startups in the sector.

Ed-tech covers a vast range of startups because the term is very broad. A startup that helps users learn a new foreign language to a tech-led corporate training program all come under the ed-tech umbrella.

Most of the education startups are basically technology platforms that enable teaching or training, and bring students and teachers together. Some do one of these functions, others do both. Collectively, they are referred to as ed-tech. Just as fintech companies are using technology to disrupt the traditional banking sector, and medtech firms are doing the same for healthcare, so edtech uses technology to disrupt the education sector.

Funding chart 1 (1)

E-commerce, fintech and foodtech sectors got more funding than edtech startups. Source: Tracxn.

 

Edtech has not been among the hot startup sectors in the last two years. Out of nearly $8 billion in venture funding in Indian startups last year, only $114.7 million went towards edtech companies according to data from startup tracker Tracxn.

VCs attribute the relative scarcity in funding to long sales cycles. Unlike customers of an e-commerce site, who decide quickly whether they want to stay or leave, a similar behaviour takes more time to manifest in edtech. And that is one reason why investors have been wary. Also, Indian education system is different from the west. It is more oriented towards goals, and that means global startups are not setting up operations here. In other words, there is no Uber for this sector.

Funding chart 2 (1)

Top 5 edtech startups by funding from 2014 to March, ’16. Source: Tracxn.

 

Things do seem to be picking up for a certain category of startups in the sector which are able to display a clear path towards scaling up and solving a pressing issue. In India, millions of students need out of school tuition to get a better understanding of topics in English, Maths and Science, taught in a way that helps them score higher in tests in school. And then they need tuition to prepare for the tough engineering and medical tests for entrance to top institutions. Only a small percentage finally make it through, but a lot more prepare for it. For example, out of about 500,000 students appearing for a seat at the Indian Institutes of Technology, only about 5 per cent actually make it.

And this is one of the categories of startups within edtech that are getting more funding. Apart from test-prep firm Byju fundraise, Toppr, which offers assessments and practice packages for competitive exams, raised $10 million in 2015 from Eight Roads Ventures, Helion Venture Partners and SAIF Partners, followed by a venture debt round of $2 million from InnoVen Capital.

The other category that has investors interested is corporate training. Which is where startups like Simplilearn are positioned. They raised $15 million in Series C investment last year from Helion Venture Partners, Kalaari Capital and Mayfield Fund. UpGrad, co-founded by Ronnie Screwvala, is also in the same space, and received $15 million in funding last year. It has tied up with LetsVenture to offer courses in angel investing.

There hasn’t been a major exit in the sector since 2010, when Pearson Education acquired TutorVista. But the prospects are still bright, given that the sector is growing fast, and parents in Asia, and in India in particular, are willing to pay more to ensure good quality education for their kids. With apps, edtech companies can push out updates to textbooks and related software at a fraction of the cost, while reaching millions in one click. The new trend of higher investments in edtech might be here to stay.

Also Read:

Unilazer’s investments for 2016 done, Ronnie Screwvala aims to make UpGrad 10x of UTV

What next for education start-up Simplilearn?

Online test prep platform Toppr raises $2m in venture-debt from InnoVen Capital