The country’s edtech market, which according to some estimates has already breached $3.5 billion in market size as of date in the current calendar is going through a tumultuous period with growth-stage capital drying up and forcing many of them to either shut shop or cut back massively on jobs. At least six different edtech firms have laid off thousands of employees in the last few months to keep costs under check, making it one of the most impacted segments in the consumer internet space to take a beating due to the funding winter.
Around three edtech companies including Byju’s, Unacademy, and Vedantu had managed to raise large rounds in funding when demand for online learning and live classes took off in an unprecedented manner post the multiple nationwide lockdowns in 2020 and in 2021. For instance, edtech unicorn Byju’s, which is the most valued start-up in the country raised $1.9 billion in funding in 2021 breaking all previous records set by Internet start-ups. However, as the dust settled in, edtech immediately went into a consolidation mode in the last year with Byju’s and Unacademy going into an acquisition spree.
Byju’s acquired around 12 companies in 2020 and 2021, while Unacademy acquired 10 companies in the same timeline. Market experts that FE spoke to indicate that a major chunk of the funding raised by both these companies was utilised mainly in M&A activity. Rather than building new course content, and hiring educators in-house, edtech with deep pockets instead paid millions in ‘acqui-hiring’ this talent.
Nevertheless, one particular acquisition by Byju’s where it paid $1 billion in cash and stock to acquire the offline coaching brand Aakash Educational Services raised eyebrows in the industry. It was also an indication that the future of edtech would be led by a hybrid model with offline centres in the mix.
Last month, both Unacademy and Byju’s announced their foray into offline learning, which coincided with schools and other learning institutions re-opening physical classes. Unacademy said that it would launch its first learning centre in Kota by next month, followed by similar touchpoints in Jaipur, Bengaluru, Chandigarh, Ahmedabad, Patna, Pune and Delhi. It plans to enrol over 15,000 learners in its first ever batch of NEET-UG, IIT JEE and Foundation (9-12) aspirants. Byju’s also announced its big-buck foray into offline tuition centres in February this year with a planned investment of up to $200 million. Byju’s had earlier launched 80 offline centres as part of a pilot programme with plans to open at least 500 new centres across 200 cities this year alone.
“Edtech products are now more mainstream or at least the ambition is to go mainstream. This means that today’s edtechs are aiming to not just be a supplementary solution, but a primary option for the student across all learning options and grade levels. And for that, they will particularly need a hybrid approach and a software solution alone can’t meet students’ entire learning demand,” said Varun Gupta, director, Digital and Technology Investment Banking at Avendus Capital.
Experts also said that since Byju’s and Uancademy already have a large brand presence, their cost of customer acquisition and money spent on marketing and promotions for the offline centres could be easily recovered. Gupta of Avendus said that legacy offline coaching centres usually attract students through heavy marketing due to the brand presence of their teachers alone. However, such demand pull for existing offline coaching brands cannot be extrapolated beyond their operational geography.
“The way edtech is trying to disrupt offline learning is by creating a pan-India brand and not just in a single geography. Unlike offline players which have been existing for the last 15-25 years, new age edtechs already have experience investing heavily in acquiring customers. So over a period of time, as they start adding the hybrid learning element, the conversion rate of students will expand significantly,” added Gupta.
However, a senior executive from a large edtech firm that recently ventured into offline learning pointed out that the customer acquisition cost (CAC) is certainly higher for offline learners in comparison with online learners.
“An offline learner’s CAC will be much higher because we have the involvement of real estate and things like that. Also, with online classes, one teacher’s pre-recorded session can be viewed by 500,000 students at a time, but with offline that comes down to about 100-120 students per teacher,” the executive added.
Yet, in the next few quarters, investors and market observers expect India’s edtech sector to get into another M&A cycle, different from the one that took place in 2020-2021.
Raja Lahiri, partner at consulting firm Grant Thornton told FE that the second phase of consolidation would see big edtech firms acquiring controlling stakes in large and established offline learning brands. Since many of them have struggled with maintaining a sustainable ROI in the last two years due to lockdowns, they might be open to buyouts.
“However, these M&As will depend mainly on the underlying quality of the assets owned by the target firm. And hence to finance acquisitions of offline learning centres, there can be some resurgence of late-stage funding in the edtech space which could be mostly led by venture debt with some moderated inflow of equity financing,” added Lahiri.