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Inside India's online education boom

Critics say most companies are overvalued and long-term growth is a big question, but industry insiders say it is just the beginning of something big.

July 17, 2020 / 02:41 PM IST

A year is a long time in business and, especially if it is marked by a “black swan” event.

The coronavirus outbreak that continues unabated has devastated economies across the world, wrecking businesses as millions and millions of people are forced to stay in to curb the spread of the highly contagious virus.

This staying in has pushed people deeper into the virtual world. They meet, learn, work, and even marry online. India is no exception and if numbers are anything to go by, it is in the middle of an ed-tech frenzy.

Sample this: In July 2019, online learning firm Byju's was valued at $5.5 billion. Unacademy, which helps prepare for competitive exams, was valued at about $200 million and Vedantu, which provides live tutoring classes, at about $125 million.

Cut to July 2020, Byju’s is valued at $10.5 billion Unacademy and Vedantu are negotiating fundraises at a valuation of $1.2 billion and $ 600 million respectively. WhiteHat Jr., an 18-month-old upstart for online coding classes, is being acquired by Byju’s for $300 million.

The online education sector has grown $6 billion in value, even if on paper, in barely a year.

The viral outbreak has pushed online education, which was growing fast but on the periphery, mainstream in India.

“I think we’re still in the very early days of online learning. Any spikes you see due to COVID-19 will appear minuscule when you zoom out and look at online learning over the next 10 years,” said Anshul Bhagi, co-founder and CEO of Camp K12, which provides coding lessons to children.

ALSO READ: Exclusive | SoftBank in talks to back Unacademy at $1.2 billion valuation

Mount K-12

K12--Kindergarten to Class 12--is arguably education’s biggest market.

Online learning platforms have seen usage rise by 200 percent month-on-month and investors are convinced it is not just a blip.

"Today every university wants to offer online courses. It could be a diploma, certificate, or even a degree. This wasn't the case earlier. COVID has accelerated the adoption of online learning and demand is growing 30 percent quarter on quarter,” said Ashwin Damera, co-founder and CEO of Eruditus.

The startup has tied up with top foreign universities for short and long-term courses.

While the pandemic forced courses to move online, universities such as Harvard, Stanford and Columbia say a portion will stay online even in the long run, he added.

Online platforms are trying to replicate the classroom experience and bring as much “touch-and-feel” to it as possible. There are doubt- solving sessions, students’ attention span is closely watched and even emotional issues are being sorted out.

Rigorous courses like an MBA can be daunting even at the best of times--deadlines, anxiety and panic attacks, online is no different.

“In our online courses, we provide students handholding and support to finish courses,” Damera said.

Some students do need emotional support in this stressful time. “Interacting with a learning facilitator, course support teams and other students helps and we provide flexibility in terms of submission deadlines,” he told Moneycontrol over the phone.

Replicating the offline experience can go only so far. Engagement is perhaps the biggest hurdle, especially with children Teachers can’t sit next to a child and find out where and why she is stuck. All of it—understanding the problem and its solution--has to be done remotely.

Moneycontrol last week wrote about the online teaching experience and its challenges.

One-on-one interactions get harder as the size of a class grows.

“Teaching one-on-one is easy on any free online conferencing tool but as the class size grows, balancing private and public interactions become key and holding an entire batch’s attention and interest requires a completely different approach. Existing video conferencing tools aren’t built for the education use,” Bhagi said.

Shopping spree

The ed-tech frenzy has also seen players go beyond their original offerings by acquiring smaller startups, hiring well-heeled executives or building a new vertical.

Unacademy, so far focused on test preparation, has acquired PrepLadder, a vertical for the medical entrance exam, and Mastree, which provides math and physics classes for students of classes 6-8.

Vedantu has invested $2 million in InstaSolv, a doubt-solving app for classes 6-12 students. Byju’s is acquiring Doubtnut, a three-year-old startup focuses on doubt solving, for $100 million. It is also in talks to acquire WhiteHat Jr, as reported by Moneycontrol.

Toppr, which competes with Byju's, started live coding classes this week, a sector in which WhiteHat Jr. and Camp K12 are entrenched.

Byju’s has jumped in as well with live classes and online tutoring. It is also bullish on test prep for engineering and medicine. It hired Asheesh Sharma to head its JEE and NEET vertical in January this year. Sharma was earlier CEO of Resonance, one of India’s largest offline coaching classes.

The string of investments and acquisitions, fairly early in the sector’s lifecycle, show that unlimited organic growth may not be available to everyone.

“Inorganic growth is very important in this space because if you are well-funded, there is no reason why two players can’t dominate the market. Conversely, if two players can doing everything, then why are so many companies getting funded,” a venture capital investor said, requesting anonymity.

According to a Moneycontrol analysis, at least a dozen ed-tech startups are raising $5-200 million and the deals will be closed over the next eight weeks.

Their existing backers include the world’s top venture capital funds such as Sequoia Capital (Byju’s, Unacademy, Eruditus, Doubtnut) Accel (Vedantu) and Tiger Global Management (Byju’s, Vedantu).

Nearly each of these players has raised funds at least once in the last four months, indicating investor interest.

Camp K12 raised $4 million at a valuation of $15 million from VC firms SAIF Partners and Matrix Partners in March. It is in talks to raise a Series A round at a pre-money valuation of $60 million, a person in the know of negotiations said, requesting anonymity.

Why are funds flowing so freely for these startups? Because no other sector is seeing this kind of growth at a time when businesses are struggling and some sectors like travel and hospitality have been devastated.

In the consumer internet space, few sectors show real revenues like ed-tech does. There are fewer discounts, ticket sizes are bigger but most of all, Indian parents are famously willing to pay anything for a good education.

Tech investing often works on FOMO (fear of missing out) principle, the ed-tech frenzy is a prime example.

Venture capital and private equity investors hunting for deals and sitting on piles of cash have found a match when barring ed-tech and software-as-a-services, most sectors look uninvestable.

“Ed-tech is seeing a funding frenzy because online learning adoption is increasing dramatically. This is across K-12, higher education, supplementary education, test prep, etc. In this lockdown environment, where many sectors are hit badly, investors are excited to find a sector that is actually growing rapidly,” said Damera of Eruditus.

The offline paradox

For all the talk about online learning and its potential, offline selling has been crucial to Byju’s and Toppr’s success.

Byju is known for more than 5,000 sales professionals aggressively pitching its tablet and subscriptions door to door, an analog but an efficient model for a $10-billion tech company.

Many credit sales with Byju’s success, which despite its large size has doubled its revenue to Rs 28,00 crore and is profitable.

The coronavirus has pushed this last, and vital offline cog, online as well.

“Our sales have completely moved online to video demos. Six months ago, this may not have worked but people have adapted to the new reality. The advantage is that instead of one or two, a sales executive can do three to five demos a day,” said Zishaan Hayath, founder and CEO of Toppr.

However, conversion rates--buying of subscription--are lower online, by as much as 50 percent.

“Conversion is lower online, but because I can do four times the demos I would usually do, I also end up doing double the sales I usually do,” Hayath said.

Companies have had to train executives for the online space. Done over a video call, sale pitches are far more structured, while in-person conversations are free flowing.

Video calls also use slides and presentation tools effectively and follow-ups are easier. A salesperson doesn’t have to go back to the house again. All it takes is call.

The risks

The ed-tech frenzy is not without its risks. An investor, who didn’t wish to be identified, said most companies were overvalued but the valuations would settle down in the long run.

“This is just how aggressive investing works. You overpay, hoping the company grows into the valuation, and if not, then it is next fundraise may be at the same valuation or even lower if things go south,” the person said.

It remains to be seen if these startups can sustain the hypergrowth, or find new ways to grow. Some students have joined only because of the lockdown while others were lured by some of the paid courses being offered for free.

“It is dangerous to invest so much capital and at such rich valuations based on a short-term spike and on absolute best-case scenario assumptions,” the investor added.

Many of the business models have not shown long-term growth and sustainability. How many users will stay on and how many will ask for a refund remains to be seen and will be decisive in the turn India’s ed-tech sector takes.

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M. Sriram
M. Sriram
first published: Jul 16, 2020 06:18 pm