The past two years have been transformative for various industries, but none quite as much as India's edtech sector. With the shift to online education during the pandemic, Indian edtech startups gained global recognition, witnessed significant M&A activity, attracted substantial investments, and experienced the impact of China's crackdown on the sector.

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As the effects of the pandemic subside and offline education returns, the edtech industry now faces the challenges of a funding winter. Today, we delve into the highs and lows of India's edtech industry and explore the immense opportunities it presents.

To begin with, let's examine the total addressable market of India's edtech industry. According to Blume Ventures, in 2020, the addressable market was valued at $4 billion. By 2022, it had already grown to $6 billion, and Blume predicts that by 2025, it will reach an impressive $10.5 billion.

Digging deeper into the edtech opportunity in India, we find that the market size is estimated to be around $4.6 billion in 2022 as per various estimates including tose rom IBEF, KPMG and Inc42. By 2030, this figure could skyrocket to a staggering $29 billion, reflecting a compounded annual growth rate of over 25 percent from 2022 to 2030. This exponential growth is worth exploring and seizing.

Which segments contribute to this growth? According to an analysis by KPMG and Inc42, the K-12 sub-segment, covering kindergarten to Class 12, is expected to be valued at $15 billion by 2030, with a compound annual growth rate of 26 percent.

Test preparation follows closely, projected to reach $9 billion from its current $1.4 billion. Online certification and skill development sectors are also witnessing significant growth rates of 14 percent and 30 percent, respectively.

However, growth isn't solely determined by market size; it also depends on the number of users embracing edtech solutions. As of 2022, the sector had approximately 18.5 million paid users, with test preparation and online certification being the primary drivers. By 2030, this number is expected to exceed 120 million paid users across online certification, K-12, skill development, and test preparation, KMPG finds.

Numerous factors contribute to the edtech industry's growth. The continuous increase in internet users in India plays a significant role in expanding the edtech sector. With mobile devices being the preferred gateway for online content consumption in India, the proliferation of smart devices presents another open opportunity for edtech startups.

Additionally, the popularity of online content consumption in India, particularly educational videos, helps drive the growth of edtech. The country's young, employable population also fuels the demand for skill development and online certification. Moreover, the need for reskilling and acquiring new skills becomes imperative for working professionals.

While there are several listed companies in the edtech and affiliated industries, such as NIIT, Aptech Education, Zee Learn, and Tree House Education, the sector has witnessed the mushrooming of countless startups. In fact, more than 4,500 edtech startups have emerged in recent years. Prior to the pandemic, the sector had only one unicorn, BYJU'S. However, over the last three years, six edtech startups have entered the billion-dollar club, including Vedantu, Physicswallah, Lead School, Unacademy, Edruditus (Emeritus), and UpGrad.

The Indian edtech sector has experienced a flurry of mergers and acquisitions, with the number of deals increasing each year. In 2022 alone, 33 deals were signed, followed by 31 in the previous year.

Up until 2019 in the pre-Covid period, this sector saw $1.6 billion of funding across 307 deals with a handful of mega deals and one unicorn created. Cut to 2020 and the funding boom began. Edtech companies broke all records in terms of fundraising in 2020 and 2021. As schools and colleges moved online and Covid took hold- Investors pumped in billions of dollars into this sector- deals of over 6 billion from 2020 to 2021 with 10 mega deals and 4 unicorns.

But with the Covid-effect wearing off, and funding winter kicking in, funding in edtech startups plummeted to $2.4 billion from 2022 until April this year, less than half of what we saw the previous year.

The aggregate revenue of unicorns and soonicorns increased by 91 percent YoY in FY22 owing to strong post-pandemic impact. At the same time, their expenses also almost doubled in FY22, and were much higher than their earnings. Picture this: In FY22, to earn Re 1, unicorns and soonicorns spent Rs 3.63 on an average amid pandemic-induced aggressiveness to acquire market share. Most Valued Indian Edtechs Continued To Burn Heavily In FY22.

The aggregate loss of unicorns and soonicorns increased 89 percent YoY amid continued focus on growth and customer acquisition. The only outlier in this space is Physics Wallah, which entered the billion-dollar club in 2022. It has been profitable since its inception in 2020.

In a tough macro environment, amid the funding winter and mounting losses- with profitability remaining elusive- many edtechs are shifting their focus on capital efficiency and cost cutting. 19 edtech startups including five of the seven edtech unicorns have laid off more than 10,000 employees since 2022.

Two out of every five layoffs in the Indian startup ecosystem was from an edtech startup. Byju’s laid off more than 5000 employees, Unacademy over 2000, Vedantu over 1100 and so on. The fallout has also seen startups like Lido Learning, Crejo.Fun. Udayy, SuperLearn, shutting operations for good.

But what next? On Mad About Markets, we speak to experts from Unacademy, Emeritus and Masai School to understand what will enable this industry to excel in the future.

For one, online-only players may have to evolve into a more hybrid model to survive and thrive in this cut-throat competitive sector. Continued focus on efficiency, capital conservation, right product-market fit, and sound business models will separate the wheat from the chaff in this mutli-billion dollar, fast-growing industry.

First Published:Jun 21, 2023 3:37 PM IST