Is India's Edtech Losing its Mojo?

Many leading edtech startups such as Unacademy, Lido and Vedantu are taking the layoff route today

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Layoffs have been the talk of the startup town. Since the beginning of 2022, around 12 prominent Indian startups have laid off nearly 6,000 people so far. Of these, surprisingly, three are unicorns. And not so surprisingly, four are from the edtech sector. The names include Unacademy, Lido and Vedantu. The number of employees sacked also seems to be more in the edtech sector.

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Why are edtech companies taking the layoff route?

Before we get into it, let us rewind a bit and look at how the sector was up until March 2020 when the pandemic hit us and schools and educational institutions were forced to shut down.

The edtech was surely not a favorite sector of VCs. In fact, BYJU'S was the only unicorn in the sector and even BYJU'S had to spend around ten years to reach the valuation. Test preparation, online certification, skill development and STEAM for K12 were the only sub-sectors that looked a little promising.

However, by April 2020, parents were forced to move their children online and K12 started flourishing. The pandemic gave the "questionable' revenue model a different dimension. From extracurriculars to tutorials, everything moved online. The golden era of edtech had begun and the companies started hiring left, right and center to cater to the growing demand.

Impact of schools reopening

Today, as schools reopen, the situation is back to pre-pandemic days. "People have started to adopt to offline mode for education and hence there is stress on sales and edtech companies will see a drop in sales volume with offline getting started," says Anil Joshi, managing partner, Unicorn India Ventures.

Experts say that, unlike e-commerce, edtech has not achieved a drastic behavior shift in the last two years. In fact, many parents have understood the importance of offline coaching more than before. "In 2020, suddenly overnight, parents didn't know what to do with the kids who were at home. Their education was getting impacted and lockdowns were getting extended every month. This meant they had no other option but to move to online education for all the different segments. However, parents realized that children were zoning out faster in online classes and were looking forward to offline classes. So, edtech was a short-term phenomenon." says Pearl Agarwal, founder and managing director, Eximius Ventures.

The firm has not made any investments in edtech. Sharing the reason for the same, she says, "We were of the opinion that this is only a COVID phenomenon. So, we wanted some reset and look at something that is more permanent and stable. Hence we kept away from it."

A flaw in the business model

Further, experts opine that there is also an inherent flaw in the business models of most startups in the space and that is why before and after the pandemic, the sector has and will have a limited scope. Aniruddha Malpani, an angel investor, says that layoffs in edtech don't come as a surprise to him. "The sales team is the one that gets laid off, which shows how these companies are only interested in sales. They set unrealistic targets for the sales employees, for whom this is usually the first job. They get lured into the job as they are promised a fat salary. And when they can't keep the targets they are fired," he says, adding that layoffs are nothing new.

"It is becoming more obvious now, that's it. They do push sales and over time, it gets harder and harder to pull all the people all the time as a result of which these guys are finding it hard now. It is not a sustainable model, " he says.

Pradeep Poonia, an edtech critic also blames the way the products are designed. "The product, for instance, the video, is created in one year and then is used for five years. Once the product is done, they don't need people. Schools work for a longer period of time, they grow slowly. There is a reason for that. In education, it takes one year to pass one batch. Then you evaluate and then you grow. In edtech companies, they grow 10x within one year. They come up with fancy ideas, but it doesn't work and they shut even before completing one year. Edtech companies are rushing. We all thought edtech would provide equal opportunity to everyone in the country, but that's not the case," he says.

A fluctuating market

Besides the flaw in the business model and schools reopening, the market is also not favorable for these companies. The slowing economy and funding cycle have also pushed most of the edtech companies to adopt optimization and cost-cutting and hence layoffs.

"Countries at large are facing a downturn and economic slowdown and India is no different. While India is a developing economy and some of the fundamental is still allowing the economy to fair better compared to other countries, in this downturn most of the industries are impacted. Edtech is impacted even more as people have started going back to the offline model," says Joshi from Unicorn India Ventures. The firm believes that technology will be a major factor for delivery in the education sector and a lot has to be done on the same. Overall, the firm is bullish on edtech.

With access to quality education being a primary problem in India, technology can surely come in handy. It can democratize education to a great extent. However, which are the models that can effectively do that, while cracking the right unit economics, is something only time will tell. For now, big players like Unacademy, BYJU's are focusing on offline expansion, that is a hybrid model, as they call it, and the investors are betting on some of the "safe' sub-sectors within the edtech, such as test prep, skill development and higher education.