Investors will be more sceptical about investing in Indian edtechs following Byju's crisis: Cuemath's Manan Khurma

Cuemath founder Manan Khurma

Cuemath’s founder Manan Khurma said investors are likely to approach the edtech space in India with greater scepticism, due to the impact of Byju’s crisis on India’s online education sector.

“Whenever something like this happens, it impacts the whole industry. With this whole struggle happening over at Byju’s, it obviously puts a question on the overall investor link. Investors will absolutely be more sceptical about investing in edtech,” Khurma said in an interview with Moneycontrol.

"I have heard investors saying we will not touch edtech again. So, it is obviously bad," he added.

Founded in 2013, by Manan and Jagjit Rai Khurma, Cuemath offers an after-school online math program for K-12 (kindergarten-to-class-12) students. The company's prominent backers include Alpha Wave, Lightrock India, Peak XV Partners (formerly Sequoia Capital India), CapitalG (formerly Google Capital), Manta Ray, and Unitus. In June 2022, Cuemath raised $57 million, which doubled its valuation to $407 million.

Also Read: Cuemath's Manan Khurma expects Indian business to grow slower than international ops over the next year, cites limited depth

His statements echo those made by Eruditus CEO Ashwin Damera a few weeks ago, when he shared that global investors were expressing caution about investing in the Indian edtech sector.

Both founders' observations about the impact of the crisis at Byju's on India's edtech industry come amid a notable decrease in investments within the sector. The edtech space had witnessed remarkable growth due to the stay-at-home restrictions imposed by the Covid-19 pandemic.

“..if you are an investor sitting in the US or somewhere else and you have written your first cheque for a company and if that company has a whole bunch of issues, whether those issues are real or not that’s a different point, you are not writing your next cheque in any hurry. I have personally heard investors saying, ‘look this person made an investment, but they won’t be making any India investments or they won’t be making any edtech investments for some time now’,” Damera had said.

Khurma further added that the crisis at Byju's has had an impact on how parents in the country view edtech in India.

"Parents who had a poor experience in the past would be sceptical to try out a new player in the near term," Khurma said.

However, he added, “We are not so concerned about it. Obviously, there will be some short-term impact, but I think ultimately the need for good education is not going anywhere. Parents need to get kids to do math better. So from our point of view, the demand would continue to grow and if we do our job well and if we focus on retention and overall experience, we may emerge as one of the new crops of education that parents really trust and that is what we are going after,” Khurma added.

Byju’s, currently India’s most-valued startup and the world’s most-valued edtech startup, is facing a host of challenges including a liquidity crunch amid a long-pending fundraise. The company has also come under the scanner of India’s Enforcement Directorate (ED) under provisions of the Foreign Exchange Management Act (FEMA). Meanwhile, social media platforms like Twitter and LinkedIn are full of employee and customer complaints.

Following the crisis at Byju's, investors have also started scrutinising the revenue recognition practices of India's edtech startups in their portfolios, Moneycontrol previously reported.

Investors have been particularly interested in how revenue is accounted for when bookings are finalised, such as whether a straight-line revenue recognition is employed (dividing revenue by the subscription period), how discounts and cancellations are accounted for, and the proportion of revenue derived from subscriptions versus the sale of hardware (if applicable), industry insiders had told Moneycontrol.

“I think the good thing about us is that we have always been very conservative with these things. For revenue recognition, we have always complied with GAAP (Generally accepted accounting principles) standards. We look at things like not just topline revenue but also accrued revenue, refund rates and we report the real metrics and that has always been comfortable for our investors. So we have always been very strong with governance and compliance,” Khurma said.

“If you ask about investors getting more hands-on, I would say, our cap table has always been supportive and fairly involved,” Khurma added.