Edtech in 2023: A Year Of Layoffs and Funding Crunch Edtech unicorn Byju's was engulfed with multiple problems this year, which led to skepticism about the entire sector

India's edtech sector continued to grapple with multiple challenges in 2023. Experts expected things to get better in 2023, but most players were not been able to show any meaningful progress toward profitability.

"Edtech companies in India have been facing some challenges in the aftermath of the pandemic. Slowing demand for technology-based education services, coupled with the much talked about funding winter has had a domino effect on India's edtech companies resulting in slower growth and even forcing them to resort to workforce reductions," said Mitesh Shah, Partner, Physis Capital.

According to a report by Tracxn, total funding into the Indian EdTech space plunged 48% to $971 million in 2023 year-to-date (YTD) till August 2023 from $1.87 billion in the same period in 2022. It dropped by 50% compared to the same period in 2021, while the number of funding rounds in 2023 YTD decreased by 77% and 82% when compared with the same period in 2022 and 2021, respectively.

Edtech unicorn Byju's in particular was engulfed with one problem after another, which led to skepticism about the entire sector.

The Byju's impact on the sector

"Investment giant Prosus writing down the valuation of ed-tech giant Byju's to below $3 billion, marking a steep drop from $22 billion has prompted apprehensions within the entire ed-tech sector," added Shah.

This year, Byju's found itself amid many problems. Starting with a legal battle with its lenders over repayment of its $1.2 Bn Term Loan B, layoffs, top-level leadership exits, the resignation of auditor and stakeholders to coming under the radar Enforcement Directorate's (ED) radar for alleged FEMA violations, the list of issues faced by the edtech major is long.

"Byju's has single-handedly destroyed investors' confidence in the whole edtech sector. There are so many good founders and edtechs out there doing innovative and pioneering work, but struggling to raise money due to the overhang of Byju's debacle. Hope this thing is dismantled soon and put to bed so that the rest of the sector can move forward," said Rajesh Sawhney, founder and CEO of GSF Accelerator.

Reality check

2023 marked a turning point of sorts for India's edtech sector, highlighting the consequences of aggressive growth strategies adopted in the previous years. "The sector, once buoyed by unchecked expansion and heavy investor funding, faced a significant reality check. The unsustainable business models and unit economics that propelled rapid growth eventually led to a major contraction. This is evidenced by the steep decline in funding, with Indian edtech startups dropping by over 75% in 2023," said Anirudh A Damani, director, Artha Group.

Often, in their endeavors to grow big and fast, many startups fall into the trap of controversies, regulatory non-compliance, financial losses and other troubles. However, today as a result of funding winter and the overall ups and downs of the last three years, many startups have started to focus on unit economics and cash break-even for longer sustainability.

"In scaling an edtech business, it's vital to remember that success isn't just about growth metrics, but the lasting impact you create in students' lives. Providing quality education to the user should always be at the heart of what you do. This must define all activities of the business, whether it be a new product, feature or program - whether it is simple and will truly improve student's learning or not," said Jairaj Bhattacharya, MD and co-founder, ConveGenius Group in an earlier interview.

Mergers and Acquisitions

The Covid tailwind for the sector busted after the schools and colleges reopened, leading to Mergers and Acquisitions (M&As) as an escape route for many edtech startups. However, overall, the number of acquisitions this year was lesser than previous years. According to Tracxn, we saw seven acquisitions, a 70 % decline compared with 23 acquisitions in the same period in 2022 and 19 acquisitions in the same period in 2021.

Some of the sub-segments that have seen notable acquisitions this year include online course platforms that offer a wide range of courses across subjects and disciplines, test preparation startups and platforms, especially those catering to competitive exams, college admissions tests, or professional certifications, language learning platforms, skill development and vocational training startups and startups offering supplementary education solutions, such as online tutoring, homework help, or personalized learning tools and LMS platforms used by educational institutions to manage and deliver online courses, assessments, and content.

The reasons behind more M&A activity in edtech as compared to other sectors are many. "The edtech companies usually are not able to scale up after reaching a certain revenue majority of them may be 80 percent or so get stuck around revenue of 100 Crore per annum and the only way for them to scale up is through a merger or an acquisition. With funds drying out in present times in VC space due to various reasons majority of edtech are stuck for scalability or survival," said Milan Sharma, founder and CEO, 35North Ventures.

Hybrid, AI and upskilling to the rescue?

Since online learning took a backseat after Covid, physical centers and offline coaching came back to the fore, albeit with online integration this time. Today, hybrid and use of advanced technologies are being looked at as the light at the end of the tunnel for edtech. "While challenges persist, encouraging signs of recovery are beginning to emerge in the sector. With government assistance, advancements in technology such as AI, and growing internet access in Tier II and Tier III cities, the sector still has the growth potential. Blended learning formats (Online and offline tailored to meet the learner's needs and preferences), focus on Pre-K learning innovation, upskilling, vocational training, and community and mentor-driven learning are likely to drive growth in the ed-tech space going forward," said Shah.

2023 was also the year of allowing the idea of AI-enabled learning to settle in. "2024 will be the year of collective upskilling, so that the power of AI can be leveraged by the educators to make learning more meaningful to each student in their own way, as well as by students to expand their areas of interest in every direction through unrestricted learning. I don't think we're far from the day when AI helps us create content that explains Maths using History or Biology or even languages as a backdrop for students who have a deep interest in these subjects," said Ravi Bhushan, founder and CEO, BrightCHAMPS.

The road ahead for the edtech sector in terms of long-term trends remains positive, as the demand-supply gap for quality education and upskilling continues to expand, say experts. "With India being the fastest growing large economy in the world, the nation's continued requirement for skilled workforce continues to drive the growth of edtechs. With skills continuing to be disrupted and new themes cropping up, such as AI revolution, clean energy, etc., working professionals are being incentivised to invest in their personal skill building. With education remaining on the top 3 spends in the Indian household expense basket, the sector's growth is promising. In line with these positive signs, there is cautious optimism," said Pranjal Kumar, Global CFO and Head of Corporate Development, Emeritus.

Overall, despite the challenges, the edtech sector still presents enormous opportunities. "As unsustainable models phase out, the remaining players will likely find a more conducive environment for growth. The sector, potentially worth trillions, demands quality education delivered economically, paving the way for sustainable and profitable business models in the long run," summed up Damani.