Will Edtech See a Paradigm Shift In 2023?

Higher education, phygital models, vernacular learning, re-skilling, up-skilling are some of the trends that are expected to stay attractive

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2022 was a year of layoffs, falling funding levels and losses for the majority of edtech startups in India. As per 'Tracxn Geo Annual Report: India Tech 2022', funding in edtech fell by 39 per cent in the January-November period of 2022 as compared to the same period last year. Many companies including leading players such as BYJU's, Unacademy, Vedantu had to resort to layoffs to stay afloat.

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Even though edtech was not that big a success story till the pandemic, experts are of the opinion that this year has been the worst year in the history of edtech.

Will 2023 be a better year?

Path to profitability

Edtech startups have not been able to show any meaningful progress toward profitability so far. Valuations became a bigger priority than customer satisfaction for many of these companies last year. According to Anirudh A Damani, managing partner, Artha Venture Fund, the founders of edtech companies sold their products at deep discounts so that they could sell their companies' shares at premium valuations. "Would we be having this conversation if the founders had done the opposite, i.e., selling their services at a premium but their shares at deep discounts?" he asks.

However, today the models are evolving and the focus is shifting away from irrational funding and unrealistic valuations. Thus, 2023 is expected to be a better year for the startups in the space. "In 2023, as some of the 'profitable growth' thesis plays out, newer models get established, investors will selectively start taking more bets in the space," said Ruchir Lahoty, managing partner, MegaDelta Capital.

While the year has been stressful, many of these startups have taken a pause to unlearn and undo. "They have gone back to the drawing board and pressed the re-set to 'profitable growth' mode. This mode requires a significant cultural shift along with the pressure not to let the growth rates collapse completely while delivering this transformation. We should see the results of this in 2023," he added.

Further, even though 2020 and 2021 were golden years for edtech, it was more of making hay while the sun shines and edtech is still in a very nascent stage, with models evolving by the day. "Due to COVID, as school students were sitting at home, many founders tried to take advantage of it and built business models over it which eventually did not work as COVID subsided and schools re-opened. This also led to irrational funding and unrealistic valuations. Now things have settled and the right business models are coming to the front. These are some companies that have already become profitable. You will see 2-3 big profitable companies in the next two years," said Anil Nagar, founder and CEO, Adda247.

Segments that will thrive

Professional education, re-skilling or up-skilling may continue to be attractive. Due to the growing need for higher education with an outcome-oriented approach, investors are looking at startups that focus on upskilling individuals and preparing them for employment. "For more outcome-oriented learning, the government is also partnering with edtech startups. Recently, the government of Goa has signed an agreement with us to offer a scholarship program to train around 10,000 students of Goa to become software developers," said Nishant Chandra and Siddharth Maheshwari, co-founders, Newton School.

In addition, pure online plays adopting offline means and pure offline embracing online tools is a trend that will continue. "It would be exciting to see a Cult.fit type of physical space for children to experience multiple disciplines, eventually helping them master them. Besides, now that physical edtech is back – an Uber-type on-call service for children which provides security and convenience would be a pain point worth solving," said Damani.

Experts also see excellent opportunities in startups helping students study abroad, especially for students who want a better education outside India. "This multi-billion-dollar market will explode when you add a fintech element like providing edtech loans and forex services," said Damani.

Other trends

Next year, hopefully, will also be about vernacular and affordable education. "While there is a lot of content in English or Hindi, there are very few and limited alternatives for non-Hindi speaking states," said Nagar. The startup offers courses in 12 languages.

In terms of technology, things might move further toward artificial intelligence (AI) and virtual reality-based learning. "We should see a revival in the animal spirits of the ecosystem by the 1st quarter of FY23. Until then, things will be tough for companies that must raise money to survive. However, those that make it through this challenging period through customer capital (aka revenues) will find it easier to raise fresh capital at the end of 2023," said Damani.

"Key areas that startups will focus on are in increasing revenue pie with the same customer, bringing down customer acquisition costs, optimizing technology footprint (including acquisition of online-only startups by ones who are largely offline), optimizing physical footprint (edtech startups acquiring largely offline players to build the 'right' phygital combination) etc," said Lahoty.

Overall, the ecosystem players are looking forward to a much better year for most edtech startups in their journey toward profitability.