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Startups | At $5.5 bn valuation, Byju’s is making investors sit up and take note

Byju’s valuation is making news. The sheer size of India’s education market and growth prospects could be the key factor at play

July 17, 2019 / 12:39 PM IST

Till recently only a handful of e-commerce startups in India such as Flipkart and Paytm – also a digital wallet company – played the valuation game through a series of funding rounds. This was driven by customer acquisition, discounts and reach, in a massive consumer market that is still hugely underpenetrated.

Then came taxi aggregator Ola, followed by Oyo that manages hotels. But Byju’s entry in the $5-billion club was so fast that it took many by surprise. The education technology company’s valuation has just soared by $2 billion, with the latest round of $86 million taking it to $5.5 billion, Mint reported.

The jump of $2 billion in one round is not common. It has two reasons. First, Byju’s, which closed 2018-19 with a Rs 1,430 crore top line (a three-fold jump in one year), has turned profitable on a full-year basis. Second, the Byju Raveendran-founded firm has expanded fast in the past year, especially by acquiring US-based Osmo for $120 million this January as it entered the US market. It is already present in West Asian markets, apart from India.

Byju’s has so far raised Rs 3,159.4 crore, or $460.8 million. The ratio of funding raised to  valuation is hugely different from other Indian startups that are valued at least $5 billion. According to the Mint report, Ola came with a valuation of $5.7 billion this January, which has so far raised around $2.5 billion since inception. Oyo, valued at around $5 billion, has raised around $1.7 billion thus far.

Clearly, Byju’s valuation is making news. Why are investors so gung-ho about the startup? The sheer size of India’s education market and growth prospects could be the key factor at play.

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According to a report by India Brand Equity Foundation, India’s education market is estimated to cross $180 billion by 2020, nearly double the $100 billion now, more than half of which is dominated by brick-and-mortar schooling. Of this, e-learning accounts for just about $2 billion, the second-largest globally after the US. By 2020, India’s e-learning market is set to hit $5.7 billion.

Byju’s dominates Indian market, and its entry into the US is another talking point. So, Byju’s is making its presence felt in the world’s top two e-learning markets. That’s precisely why investors see value here.

Byju’s is not the first Indian firm to get into the edu-tech space. There have been many that tried their luck. Even now, there are more than 40 edu-tech companies in India, but none of them could match Byju’s scale.

Well, MeritNation, which started operations in 2008 like Byju’s, has seen some 6.8 million downloads – more than double of Byju’s around 3 million – according to a report by Factor Daily. But MeritNation has raised very little funds (around $18 million) so far.

Byju’s success lies in taking online education to masses in a way its peers could not. One of the key issues of India’s education system is lack of quality teachers with student-teacher ratio as high as 100:1. Byju’s model of online education tries to partly solve this issue. It’s not sample tests that students need, but quality teachers and systematic training, which Byju’s has capitalised on.

Non-metros lack quality of teachers, and that’s why private coaching has been mushrooming. Byju’s tries to solve this to an extent. That explains why around 90 percent of Byju’s revenue comes from K-12 students. It does have modules for higher education and training for competitive exams. But that’s an area that is bracing for slow growth. K-12 will always remain the sole revenue earner for Byju’s. The logic is simple. For higher education and competitive exams, students usually shift to metro cities, or at least major towns where quality of brick-and-mortar education and private coaching are reasonably of good quality.

Outside India, Byju’s is still testing waters.

All said, the sheer opportunity in India gives Byju’s its valuation. It makes complete sense that the startup should keep its soul rooted in the hinterland of India, at least for the next decade.
Sounak Mitra is an Associate Editor, Moneycontrol. He has been writing on corporate issues and policy for more than 15 years, having previously worked with Mint, Business Standard, Mergermarket, The Telegraph and The Times of India.

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