Hero Image

Cost cutting, layoffs & delayed results: Looking beneath and beyond the upheaval in the Edtech industry

A couple of months ago there was a flurry of negative news from edtech start-ups of cost-cutting and layoffs. What had suddenly changed? Well, a couple of things, the effects of Covid were waning off and students were returning to offline classrooms, market sentiment was turning negative and the funding environment was getting tough.



This meant a lot of startups that were cash negative and not funded had to shut shop, the bigger ones with the big bucks in their bank accounts needed to plan well, and plan fast. The startups needed plans to extend runways in case funding did not happen, they also needed to re-align business models.

But why did we get here?

During the Covid period, edtech funding in India and globally reached new highs. A lot of startups were born in this period and some scaled their businesses. A lot of similar models were also born in the hope of making it big via funding.

Given that everyone was at home, this meant learners were looking for at-home/online solutions. It also meant the cost of acquisitions (CAC) was also low. Factors were ripe for many startups to enter the space. This meant that competition levels increased, and pricing models were more based on competition rather than anything else, it also meant CACs started increasing.

The large pool of funds raised by start-ups was used to grow the customer base. With Covid effects waning, learner’s and decision makers (parents of K12 kids) started going out and the bid cost in digital platforms have increased, this meant lead costs are higher for digital marketing driven channels. With also an additional offline channel to compete with (for some startups) the competition has increased. This boils down to CAC’s increasing further.

There is a lot of negative press around edtech startups, while the deployment of funds from the Venture Capital (VC) industry is lower in India and globally in 2022, the significance of edtech start-ups will not fade.

Do we expect students to stop studying or learning?

No, education is an evergreen field! The demand for good learning solutions will always remain whether it is in the K12 space or in the graduation/post-graduation/upskilling space. There will be start-ups and new business models solving the existing problems.

In terms of funding in the edtech industry, there have been several developments. Recently, we have raised Rs 10 crore (out of which Rs 3 crore was raised earlier) in our Series A round. The round saw participation from Disruptors Capital, IvyCap Ventures, Mr Arjun Malhotra (Co-founder, HCL) and others.

From a VC standpoint, a lot of funds have collected large rounds in 2022.

VC money is patient money, what is likely to happen is that there will be the deployment of capital since they will be under pressure to generate returns for their investors. Having said that the metrics for evaluation may change, from growth at any cost, the evaluation metric will change to growth with good profitability/business metrics.

VC Funds would search for good deals (start-ups), and take their own time in making good decisions and getting good quality companies in their portfolio. They would also reserve funds for the existing portfolio companies to ensure they sail through too in this period.

One of the critical things that will change is how startups grow, the CAC being the centre stage here. Startups will have to ensure that they build their business models such that CACs do not escalate with growth. Also, learning outcomes will be an important measure. The earlier strategy of growth at any cost will not find takers, growth with good metrics, P&L management and unit economics will find takers.

It’s said some great companies are made in the worst of times.

Another expected outcome in this period would be the consolidation of the edtech space. We’ve already seen several acquisitions in the space. Capital availability with late-stage startups will ensure they get good deals in terms of acquisitions or the acqui-hires.

There are many compelling problems in the edtech space. Personalization of learners’ journeys as they traverse the course, making teachers more effective with tools, or even solving for upskilling to make students job-ready/employable are many such problems that are still relevant today.

Technology, artificial intelligence etc will continue to play a pivotal role in start-ups’ business models. Students will continue to demand such courses and solutions.

The demand will still exist. Having said that, the start-ups that show promising business metrics will get funded and grow. Today, the funding market is in a rough patch, but at the same time market cycles have become shorter over the years. The market may be tough for large rounds and slightly better for the Seed/Series A/B rounds, but the market will turn.

Overall, education is still a great place to solve many problems using technology.

(The author is the founder and chief executive officer at PurpleTutor)

READ ON APP