Forbes India 15th Anniversary Special

Edtech or Greedtech?: Where is the sector headed?

The downfall of edtech startups can be chalked up to this—a sharp growth in numbers and immense customer demand was because companies had 'Pandemic Market Fit,' and not true 'Product Market Fit' (PMF), which is unravelling in the post-Covid world. Where will edtech go from here?

Rajiv Singh
Published: Aug 1, 2023 12:37:28 PM IST
Updated: Aug 1, 2023 01:30:50 PM IST

Edtech, unfortunately, has seen the crashing of a flurry of rockets at an alarming pace.
Image: Shutterstock
Edtech, unfortunately, has seen the crashing of a flurry of rockets at an alarming pace. Image: Shutterstock

“It’s not rocket science,” reckons Anil Joshi. “Still, not many founders understand this,” says the venture capitalist, alluding to a quirky aspect of human behaviour. “Rockets are fascinating,” he says. The thrust, the take-off, the uplift and the speed… all are a visual delight and captivating. What, though, is freaky is the other side of the rocket, which nobody wants to look at, understand and talk about. For entrepreneurs and founders, achieving a rocket-speed kind of growth, Joshi underlines, can happen only when the venture (aka rocket) is propelled by enough fuel. “For any fledgling startup, that fuel happens to be venture capital,” he says. And once it dries up, vanishes or becomes hyper-precious—as it has now during the funding winter—the rockets struggle, and will crash.

Edtech, unfortunately, has seen the crashing of a flurry of rockets at an alarming pace. “There is a price that one has to pay for everything,” says Joshi. “They got speed. And now they are paying the price.”

Sajith Pai and Karthik Reddy make a blunt assessment of what went wrong. A lot of the edtech startups, seasoned investors at Blume Ventures point out, which saw a sharp growth in numbers and immense customer demand—WhiteHatJr is the canonical example—actually had ‘Pandemic Market Fit,’ and not true ‘Product Market Fit’ (PMF). During the peak of the pandemic, people were forced to be indoors, socially distant, learning moved online, and for a brief period, education became edtech. Products that otherwise wouldn’t have managed to get PMF started seeing great traction.

As the numbers grew, VCs got excited and invested. What followed next was startups using cash reserves to subsidise growth and giving the product for free. “Not surprisingly, demand rose even more,” point out Pai and Reddy. However, this growth was not backed by genuine demand. “A large number of the audience were ‘tourists,’ who moved out when the pandemic eased,” they underline.

But what forced this chain of events to play out? What made artificial PMF, high cash burn, staggering CAC (customer acquisition cost) and ballooning losses a sordid reality? The answer lies in FOMO (fear of missing out). Let’s start with the FOMO of edtech founders. Anushree Goenka, co-founder and CEO of Spark Studio, an online English and extracurricular learning platform for kids, was one of the few entrepreneurs who heeded the warning, and advice that she got at Y Combinator in 2021. “When there’s too much on the buffet, don’t overeat,” was the message.

Edtech, unfortunately, has seen the crashing of a flurry of rockets at an alarming pace.
Image: Shutterstock
In top gear: Autorickshaws in Kota never run out of advertisements and passengers

But other founders exhibited greed. There was rampant over-eating as there was indeed too much on the table. Look at the numbers. Edtech equity funding soared from $572.3 million in 2019 to $4.1 billion in 2021. The next year, however, it crashed to $2.5 billion. There was panic. The funding winter had arrived. Startups were fast running out of rocket fuel.

The ones that didn’t have any left in the tank died, and the ones who were fortunate not to exhaust all are now living on a wing and a prayer.

“I don’t know how long I can extend my runway,” confesses a struggling edtech founder who didn’t want to be named. He knows the writing is on the wall. There is not much money coming, the ones who are already ‘obese’ are being shunned by VCs, and there is no appetite to go for mergers and acquisitions.

Also read: Inside Kota: Edgy students, caring crusaders & a missing safety valve

Founders alone were not greedy, though. Parents, too, were victims of the acute FOMO mindset. From coding for kids—which was billed as a sure-shot ticket to make millions and billions in the future—to a flurry of online courses that were at best embellishment and lacked any value, there were takers for all. Parents didn’t mind paying as the offline world was shut. Once schools opened, the startups started shutting down. And parents went back to an offline way of life—schools and brick-and-mortar coaching institutes.

Edtech, unfortunately, has seen the crashing of a flurry of rockets at an alarming pace.
Image: Shutterstock

Offline bounced back with a vengeance, and the Mecca of medical and engineering coaching in India got a new lease of life. The poster boys of conventional online edtech—Byju’s and Unacademy—bought a seat for themselves at Kota. Edtech players finally realised that offline happens to be the core of edtech in India.

The ‘edtech special’ issue of Forbes India takes a look at some of the strong trends that have played out over the last three years, and the tectonic shift that the edtech industry is experiencing now. From a deep dive into the life at Kota to examining a bunch of edtech players who are slowly and steadily growing their ventures to finding out how PhysicsWallah—the only profitable edtech unicorn in India—has cracked the chemistry of running a profitable venture, you will find it all in this edition. Go ahead, read and soak in the learning.