The rise and fall of edtech startups in 2022: Entrackr report

Education, and now edtech is one area where India has punched above its weight thanks to its projected market size. Just the online education and lifelong learning market is expected to be worth $5 billion by 2025 (as per this Redseer report). The high value parents place on education otherwise, pretty much guarantees that unicorns will continue to be minted here as and when firms demonstrate the sort of grasp and mastery of the market that they promise their students over subjects.

The broader domestic opportunity is considered to be worth $30 billion by 2030, even as many of the India based unicorns seek a footprint beyond the country. Hundred per cent FDI permission has also made this an open invitation to think large.

While the pandemic came as a tailwind for edtech companies in India, the reopening of schools and coaching centers and funding winter amid global slowdown turned out to be a double whammy for the startups in this sector.

Funding in edtech startups plummeted from $5.82 billion in 2021 to $2 billion in 2022 till August 15, according to our data tracking platform Fintrackr. There were only two deals in edtech during the first two weeks of August, with a pipeline looking thinner by the day. 

The full database can be accessed here.

The sudden decline in edtech funding is part of the overall trend in the industry: total money inflow in Indian startups slipped from $12 billion during the first quarter (Q1) of 2022 to $7.86 billion in the second quarter (Q2). Also, July saw less than $1 billion in total funding which is the lowest in the past 15 months.

The year-on-year graph (below) shows how funding in edtech startups performed in the last two and a half years.

Uncertainty looms over edtechs after fundraising and skyrocketing valuations

Edtech companies broke all records in terms of fundraising in 2020 and 2021. Right from pre-product to late-stage, startups across stages managed to mop up back-to-back rounds without any hassle. Byju’s, Unacademy, Vedantu, upGrad, Eruditus, Classplus, BrightChamps, Cuemath, LEAP, and Teachmint emerged at the top of the list of startups raising money during 2020 and 2021. While a majority of them continued to announce new rounds in early 2022, Unacademy, Vedantu, Teachmint, and BrightChamps are few examples which have not raised any new round this year so far.

When we sifted through the data further, we found that Byju’s is yet to close its $800 million round that was announced five months ago. Where Eruditus’ $350 million round was all debt, newly minted unicorn PhysicsWallah raised $100 million in its first ever external funding. The top 10 funded list of edtech companies also included upGrad, Leap, Scaler and two B2B focused startups namely Classplus and LEAD.

According to Fintrackr’s data, around 17 edtech startups including Byju’s, upGrad, Teachmint, Classplus, LEAP, Quizizz, Eupheus Learning, and Leverage Edu scooped up two or more than two rounds in 2021. However, the number of edtech startups raising two or more rounds dwindled to zero in 2022 (till date). Large funding rounds in edtech continued to happen in early 2022 as five companies scooped up $100 million or more in a single round. That number was 11 in 2021. 

Layoffs and Shutdowns: Numbers tell the story

While layoffs happened across startups in 2022, too many edtech companies scaled back as rapidly as they had grown, letting go of employees in a bid to trim expenses and extend their runway. As per several media reports, Byju’s and Unacademy laid off over 1,000 people each in 2022. Both companies, however, maintained that the layoff numbers were below 500 and 600, respectively. 

Byju’s-owned Toppr fired 350 employees while WhiteHat Jr fired 300 employees and there was also a mass resignation of more than 1,000 staff members. Another unicorn Vedantu fired 724 employees in three phases. Collectively, edtech startups gave pink slips to around 3,000-4000 employees in the past few months. The numbers could be larger. Apart from the mass layoff, a clutch of startups including Lido, Udayy, Crejo.Fun and Super Learn shut their operations.

It’s worth noting that Eruditus and LEAD did not go for cuts at the same scale and there were no reports of layoffs at upGrad, Cuemath, Classplus, and Teachmint. As per several media and research estimates, around 12,000 startup employees have been fired in 2022 and edtech accounted for nearly 30% which is quite concerning if we take one segment.

Amidst the chaos, some players have opted for a different path i.e. a hybrid model with entry into offline learning space. Byju’s, which acquired Aakash in April 2021, announced the launch of its tuition center across India earlier this year. Unacademy and Vedantu followed suit with their offline learning centers in different cities.

Alakh Pandey-led PhysicsWallah also forayed into offline learning in June this year. As per a VCCircle report, Scaler is set to launch three co-living campuses of upskilling centres.

Overhiring, overspending, and acquisition(s) backfire 

Edtech startups managed to grow during the past couple of years but this came at a clearly unsustainable cost, especially with funding taps running dry. Overhiring was a key culprit. For context, Unacademy and Vedantu had over 6,000 employees before the layoffs. Byju’s is estimated to have more than 12,000 employees.

These edtechs also posted heavy losses during FY21. As per their annual financial reports, Eruditus registered a Rs 1,934 crore loss followed by Unacademy’s Rs 1,537 crore loss in FY21. Vedantu registered a Rs 604 crore loss during the same period. Byju’s, which is yet to file its FY21 numbers, saw a Rs 262 crore loss in FY20.

Big ticket promotions have been seen as the fastest way to gain traction within these larger startups. While Byju’s will be among the sponsors of the forthcoming FIFA football World Cup in Qatar, Unacademy and Vedantu spent heavily on the Indian Premier League for sponsorship and broadcast association respectively. Trophy hunting for big name teachers also played a role. A  Moneycontrol report said that Unacademy spent as much as Rs 100 crore over the last two months to poach 30 educators from Kota. Brajesh Maheshwari, the director of academics of Kota-based Allen, hit out at teachers who are leaving the firm for rivals. The firm also sued 20 of its former educators for breach of contract.

Unacademy, however, recently announced that it will go through several cost-cutting measures, including the discontinuation of its IPL sponsorship from next year.  While making the announcement, Unacademy’s founder Gaurav Munjal added that the company is in good shape and it had Rs 2,800 crore in the bank.

Apart from spending massively on advertising, Byju’s and Unacademy collectively acquired around two dozen startups since January 2020. Expectedly, many of these acquisitions haven’t worked out. Byju’s-owned Toppr fired a large number of employees whereas WhiteHat Jr is facing a bad time. Meanwhile, Unacademy shut down its K-12 businesses. Interestingly, the top 4 valued edtech startups – Byju’s, Unacademy, Eruditus and upGrad – have acquired around 50 startups since their inception. Check the full list of acquisitions in the sheet.

The ongoing calendar year, too, saw acquisitions in edtech at the same pace but Byju’s or Unacademy have been quite. Byju’s-owned Great Learning has acquired a couple of startups this year. Ronnie Screwvala-led upGrad has emerged as the top acquirer of this season with six acquisitions in 2022 so far. Overall, upGrad has acquired 14 startups since its inception.

Government is also worried 

After expressing its concerns and putting tight control on cryptocurrency and fintech companies, the Indian government has now turned its gaze towards edtech companies. Recently, education minister Dharmendra Pradhan said that the central government is working on a policy to regulate edtech platforms. While not quite as drastic as the China approach to seek only not for profit firms in the sector, there is no doubt that the government will resist profiteering of any kind.

Last month, the government warned edtech companies against indulging in unfair trade practices, including misleading advertisements. According to an ET report, the government took a serious view of alleged mis-selling of courses by edtech firm Byju’s and its subsidiary WhiteHat Jr. Byju’s, however, argued that less than 2% of the total complaints filed with ASCI were in the edtech sector. Recently, Congress MP Karti P. Chidambaram wrote a letter to the Serious Fraud Investigation Office (SFIO) to investigate the finances of Byju’s.

Earlier this year, the All India Council for Technical Education (AICTE) Chairman Anil Sahasrabudhe said that edtech companies can’t be given permission to delve into areas that lie outside their domain, such as offering diploma and degree courses. He added that postgraduate programmes in management and computer applications can only be offered by universities and approved colleges.

During the Union Budget 2022, finance minister Nirmala Sitharaman announced the formation of a digital university to provide access to world-class education to Indian students. The digital university will be built on a hub-and-spoke model where edtech companies can provide infrastructure.

What’s ahead for edtech startups

Despite challenges, not all is lost for edtechs as some of them continue to tread their path comfortably. Bootstrapped company PhysicsWallah became the second Indian startup to turn unicorn at a Series A stage. B2B startups such as Classplus and Teachmint maintained their show without shedding any workforce. Some players with different offerings such as Leap, Leverage Edu and Scaler also managed to raise funds at regular intervals. In fact, considering the funds already invested in the sector, a tighter environment might be the best way to wean out the real business models from business projections. The slick ppt from the real delivery on the ground. But you can be sure that this is one sector that will bounce back as soon as the tide turns on the funding side, for the opportunity India offers is simply too big to ignore for investors even today. 

Meanwhile, around 90 startups focused funds were announced or are in the process of arrival in 2022. While their focus has been shifted from edtech to fintech, SaaS, healthcare, agriculture and D2C brands, venture capital and private equity funds focusing on edtech continue to exist. As per Fintrackr’s data, nearly 20 investment firms in 2022 have mentioned that they will focus on the edtech segment with their new fund launch. All this is to say that while the segment got a reality check and would have to be frugal going forward, the ones that show promise will continue to get funded. 

What edtech companies are saying:

Entrackr reached out to 15 edtech companies, that have been the top fundraiser or witnessed layoffs in the past couple of years, to understand the ongoing situation and their growth plans.

“I would say that whole startup funding scene is going through  a rough  patch not only Ed-Tech because of economic slow down but thankfully we have not witnessed any of this thing - our business is more stronger than ever. Instead of laying off, we are the one absorbing the talented people who are being laid off due to this unfortunate circumstances.” – PhysicsWallah spokesperson.

“Should not categorize or generalize as each business is different. We raised $450M primary capital in our Series E last year which put us in a strong position where we do not need to raise funds. With the uncertainty in the external market conditions we're committed to growing our organization sustainably and responsibly.” -  Ashwin Damera, founder and CEO of Eruditus.

"LEAD is in the School EdTech segment, which is very different from Consumer Edtech.  In fact, with schools across India now open again and students back in physical classrooms, the School Edtech segment is poised for accelerated growth. With ~470000 affordable-private and low-fee schools across India, the School Edtech sector holds great potential for double bottom line organizations such as LEAD, which has grown from 135 schools prior to the pandemic, to over 3500 schools today.” -  LEAD spokesperson

Comments from upGrad, Classplus, LEAP, Scaler, Leverage Edu, Teachmint and Cuemath can be seen here. Byju’s, Unacademy and Vedantu did not respond to detailed queries sent by Entrackr.