Speed Bump in Ed-Tech Industry?

The Revolution

Covid 19 Pandemic in 2020 brought almost the entire world to a halt. Like all other industries, the Education sector was pounded due to worldwide imposed lockdowns only to be revolutionized in a few weeks by its tech-powered counterpart -the Ed-tech ecosystem. Tech in education enabled crores of a student from the farthest corner of the country to connect with top educators across the globe, the opening of online schools & colleges, thus better education and access to opportunities for all.

The Gloom & The Doom

In all the years prior to Covid, India only had one unicorn in Ed-tech - BYJU’S. During Covid technology was the savior, from September 2020 to June 2022, the sector minted as many as six unicorns including Unacademy, Eruditus, UpGrad, Vedantu, Lead School, and PhysicsWallah.

?In 2021, Ed-tech saw 3x growth with $4.7 Bn raised from 165 deals. After nearly six months of the year 2022, the funding amount has reached $1.6 billion (up to June 18, 2022). This year, the sector does not appear to be on course to match the pace of 2021, and its layoffs have made headlines.

Headline-The Layoffs!

Despite such high valuations and insane revenues from a massive customer base, the market has seen a large number of layoffs since the beginning of 2022. Ed-Tech giant Unacademy claims it is "a result of PIP, which is Standard practice?in all organizations," while the?others justify it as a cost-cutting measure.

However, that's not the end of the list. Many characters (Factors) in the story of fall must be explored.

A)??The Offline Swing

Reduction in Covid cases made it possible for students to be back in offline classrooms. This affected the K-12 segment in the worst way in comparison to the test Prep Sector. Owing to the motive of Ed-tech, experts and investors believe that post covid the sector shall continue to grow as a support mechanism.

B)??Winter is Coming!

The bugle for Investor Winter has been in news since the beginning of FY 2022-23. The Russia-Ukraine war and the US Fed's interest rate hike have led to a controlled monetary flow from other countries and a pullback of money flow. Inflation, interest rates, bloodbath in the market, and war have compelled investors to either block the fund or look for companies that can produce near-term certainty. Startups from sectors like software as a service (SaaS), EV, and Internet of things (IoT) are seeing significant traction from investors.

C)?The Million $ Burn

In 2020-2022, as funding flowed rapidly, uncertainties such as lack of profitability and heavy acquisition costs were sent to the background. The giants continue to make a burn of Mn$, the prominent factor had been the cost of acquisition. According to industry experts, Ed-tech players, on average, spent 70-80% of their total revenue on CAC. This fell by 30-40% in the first year of the pandemic, but the high CAC days are back now that life is gradually returning to normal. Lately, startups are driving affordability to expand penetration in the offline sector. All these costs add up, making it necessary for startups to do a cost analysis and re-evaluation.?

D)??Expansion Plan-The Hybrid Model

Post-Covid, as the world geared up to ‘Normal Life’, Ed-tech observed the need of going Hybrid, companies have started reaching out across multiple locations, and are adopting a 360-degree marketing approach. Currently, non-metro markets contribute 70% of the traffic, the presence in these cities will help to develop a wider and more loyal customer base, thus adding to revenue along with quality education.

Reality

The fact is, EdTech startups need large funds to create brand value, but the foreign reality is hitting home now, as capital has become expensive, and the situation is troublesome for Startups. The capital crunch and expansion plans with high burn rates forced startups across the board to cut costs, shut down unviable business verticals, freeze hiring new talent, and conduct layoffs. Startups shall now focus on business plans and the road to profitability.

New trends & the future

Interestingly, the future of the startup ecosystem is likely to spawn new trends. Experts in the Ed-Tech space have pointed out the need for a personalized approach to teaching, that fits the need of a student. Secondly, there has been a surge in queries from Tier II and Tier III cities, which is a relatively new trend and depicts the rise of awareness among these cities. Also, Industry watchers pointed out that companies will have to focus on programs or courses, which are not easily available either elective or niche courses.

Conclusion

The bump in the Ed-tech journey has slowed down its growth rate but in the long-term Ed-tech startups are likely to go only bigger. According to a report by RBSA Advisors, the Indian Ed-tech sector is slated to reach $30 billion by 2032, Tier II and Tier III cities are expected to contribute to the next phase of user growth. ?

The Indian Ed-tech industry witnessed a dream run, churning out six unicorns in two short years, and post covid it shall continue to grow as a support mechanism. Thus, the experts believe, that ahead of these tough times lies a bright future for the participants in the Ed-tech sector.

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