As schools and universities reopen and finances dry up, the Ed-tech bubble is crumbling.
With a capital inflow of $4.7 billion in 2021, Indian ed-tech firms became the third most financed industry in the world.
VCs and private equity investors have grown more cautious with their investments in general.
Unacademy and Vendatu, two ed-tech unicorns, have previously laid off 1,200 employees to expand their runway.
For the Indian ed-tech sector, the last two years have been a golden period. However, all wonderful things must come to an end, particularly when the youngsters return to school, lectures, and other activities.
Students have developed screen weariness as a result of the epidemic years. According to a Ministry of Education poll, 80% of students considered distance learning to be "challenging" and that they missed their classmates. This shift in mindset will have an impact on new client acquisition as well as the current customer base, which may be forced to go offline.
Edtech (education technology) companies are therefore trapped in a catch-22 situation, with demand slowing and easy finances drying up. In a frantic attempt to survive and remain relevant, vast numbers of online educators have been laid off, the industry has been restructured, and the hybrid model — online education is given alongside brick-and-mortar teaching shops — has been adopted.
Eye contact between the instructor and the student is just one aspect of school learning. Parents who see their children wasting time in front of the computer screen, alternating between education and amusement, are disillusioned.
Modern teaching toolkits (smart courses) have a lot to offer, but they are best used as a complement to conventional pedagogy, which involves the instructor explaining ideas with precepts and examples. A competent teacher's role is to simplify even the most difficult and abstract idea or formula.
A competent teacher may communicate in two hours what would otherwise take 20 hours of self-study, at the conclusion of which the learner may still be sceptical. An excellent instructor goes to great lengths to dispel even the most vexing student's concerns. Online doubt-clearing courses pale in comparison to face-to-face explanations.
Online instructors, too, are disillusioned, with little sign of the promised El Dorado.
A comparison to telemedicine is appropriate. Telemedicine is invaluable in an emergency and for patients whose medical history the doctor knows like the back of his hand, but it is not a replacement for complete hospital treatment. Similarly, the old-world brick-and-mortar schools and universities will always be the sole feasible alternative for a child's entire development into maturity and beyond. According to Nikhil Mahajan, executive director of Career Launcher, "online education doesn't give even 1% of the actual school experience."
Layoffs may become more common.
Employees are the first victims of a structured organisation and decreased finance. Unacademy and Vendatu, two ed-tech unicorns, have previously laid off 1,200 employees to expand their runway. In all, 6,000 people have been let off by Indian startups, with another 60,000 expected to be put off this year.
According to Archit Garg, co-founder of Glamyo Health, "under present situations, edutech businesses are projected to be the greatest contributor to staff layoffs since demand for online learning platforms has significantly fallen."
For years to come, it is also the last sector to be employed. "Edtech might be another," said Naveen Jangir, co-founder of HRTech firm Incluzon, "but now that we've seen multiple layoffs by huge firms, people don't depend on them for possible recruiting."
What the VCs misread
For once, venture capitalists (VCs) seem to have misread the tea leaves. The helped enterprise's revenue model, as well as the inevitable bandwagon effect that inevitably escalates competition, must continually be scrutinised by them. Work-from-home may be a viable choice in certain businesses, but 'learning from home' was made possible by the pandemic's unusual conditions. If only the edtech companies and their investors hadn't been swept off their feet and mistook the wood for the trees.
For firms with modest sales, financing $50 million is a walk in the park, according to Mahajan. Edtech companies had a 24-month honeymoon period, with a boom cycle occurring every 5-7 years. He claims that two out of every 50 people survive when the tide shifts.
In 2021, Indian edtech startups will have raised $4.7 billion, up from $2.2 billion in 2020. This makes edtech the third most financed start-up sector in India, after only e-commerce ($10.7 billion) and fintech ($8 billion). However, due to a cash shortage and greater client acquisition expenses post-pandemic, they are now cutting off hundreds of people.
While sagging investor confidence and delaying fundraising rounds have harmed start-ups in general, edtech firms have been particularly hard struck. According to Inc42's Indian Startup Layoff Tracker, 18 Indian businesses have laid off 9,000 workers so far this year. Seven ed-tech businesses owned 3,000 of these. The closure was caused by all-time high client acquisition expenses, poor retention rates during the pandemic, and screen fatigue.
India's education sector is expected to grow to $313 billion by 2030. The ed-tech sector is now valued at over $2 billion. Given that India has the world's biggest population of persons aged 5 to 24, the potential is enormous (580 million people). India has the largest number of school-aged children in the world, with over 250 million pupils.
Because the industry is still large, ed-tech businesses are embracing the hybrid model and innovating to expand their offline presence. BYJU'S bought Aakash Educational Services, a 32-year-old company, for $1 billion last year, marking the company's entry into the offline education sector with 200+ centres. It is spending more than $200 million to establish 500 brick-and-mortar tuition centres in the next 12-18 months, in addition to the 80 it now has.
With its future Unacademy Centres for competitive tests, Unacademy announced its push into offline learning last month. The first such centre will open this month in Kota, India's coaching capital, and will be followed by centres in Jaipur, Bengaluru, Chandigarh, Ahmedabad, Patna, Pune, and Delhi.
Vedantu is also said to be looking at hybrid possibilities. Most ed-tech businesses are striving toward an omnichannel strategy to enhance learning outcomes and experience, increase stickiness, and lower customer acquisition costs, according to Ankur Pahwa, EY's India e-commerce and consumer internet head.
As a result, it's evident that huge ed-tech companies with vast money are backing their hybrid strategy to remain afloat.