The edtech bubble is bursting as schools, colleges reopen and funds dry up

• Indian edtech startups emerged as the third most-funded sector in 2021, with capital infusion of $4.7 billion.
• The venture capitalist and private equity players in general have become more cautious about their investments.
• Edtech unicorns Unacademy and Vendatu have already laid off 1,200 employees to increase their runway.

The last two years have proved to be the golden age for the Indian edtech industry. But every good thing comes to an end, especially after the children are going back to schools, colleges et cetera.

The pandemic years have also created screen fatigue for learners. As per a survey by the Ministry of Education, 80% students found remote learning ‘burdensome’ and also missed their peers. This changing attitude will also hit new customer acquisition and also threatens the existing base who might shift to an offline mode.

“Edtech has received massive traction in terms of funding over the last 2 years however the ability to create retention on products built by some of them is not promising. In such a scenario, it increasingly becomes expensive to acquire a customer given the competitive landscape and the value ascribed to each customer may not be commensurate with such acquisition costs,” Neha Khanna, director at management consultancy firm ValPro, told Business Insider India.

Vaibhav Tamrakar, Senior Vice President at research firm PGA Labs, noted that edtech firms will find it challenging to sustain the pace of growth it achieved over the last two years especially with high customer acquisition cost and expensive offering.

Going offline, but where’s the money

To brace for impact, India’s biggest edtech companies — Byju’s, Unacademy and Vedantu — have turned their attention offline. Byju’s acquired Akash Institutes with 250+ coaching centers in India in 2021 and the company also plans to launch 500 offline tuition centers.

Unacademy is launching its centers across nine cities and hopes to enroll 15,000 learners in the first batch. It has also launched offline experience centers. Vedantu is also looking to experiment with a hybrid model with the launch of offline learning centres.

“While the pandemic has given the edtech sector a boost, the present edtech environment will continue to evolve with new products that focus on giving consumers a more tailored and individualized learning experience…,” Gaurav VK Singhvi, co-founder of investment firm We Founder Circle, said.

However, the offline model and new products require a lot more capital investment and that has been drying up too. As the Fed increased interest rates, the funding scenario has turned tighter across the globe, and VCs have been pushing companies to prove their profitability instead of revenue generation skill – taking away the concept of cash burn to acquire customers.

Companies are trying to make the ‘best’ of what they have. "We are looking at a time where funding will dry up at least for 12-18 months. Some people are predicting that this [funding winter] might last 24 months. We must adapt,” founder and CEO of edtech company Unacademy’s Gaurav Munjal wrote in an email to his employees.

2021 was the best year yet for edtech funding

In 2021, edtechs attracted funds to the tune of $4.7 billion — the sector’s best yet. But the year of slowdown followed soon after. Devendra Agrawal, founder of investment firm Dexter Capital, believes that the edtech funding will go down drastically this year.

Vamsi Krishna, chief executive officer and co-founder of Vedantu, in a blogspot confirmed that the external environment may be tough due to the Russia-Ukraine war, impending recession fear and Fed rate interest hikes that have led to inflationary pressures. “Given this environment, capital will be scarce in upcoming quarters,” he said.

Layoffs may increase

The first casualty of a trucating business and lower funding is employees. Edtech unicorns Unacademy and Vendatu have already laid off 1,200 employees to increase their runway. Overall, Indian startups have laid off about 6,000 employees and may lay off another 60,000 this year.

“As per the current scenarios there are high chances that the edutech companies will be the biggest contributors of employee layoffs because the demand for online learning platforms have gradually declined,” Archit Garg, cofounder at Glamyo Health, noted.

It is also the last sector that could be hiring for the next few years. “Edtech could be another, but now that we have seen several layoffs by massive organisations, people are not relying on them for potential hiring,” Naveen Jangir, co-founder of HRTech company Incluzon noted.

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