India's future prosperity heavily relies on its young population, which comprises a staggering 230 million individuals aged between 8 and 18 years. As a nation, we have made substantial progress by achieving near-universal enrollment at the elementary level, expanding higher education and vocational training systems, and continuously improving teaching and learning processes. However, it is evident that these advancements necessitate the ongoing efforts of multiple generations, as significant hurdles still remain in both accessibility and quality. Ensuring all children develop foundational literacy and numeracy skills, followed by enrollment in and successful completion of secondary, senior secondary, and higher education are vital.

India can achieve its development goals only when all the young people are put on the path to become productive and valuable contributors to the society. Both the government and the private sectors have crucial roles to play in innovating and scaling efforts to meet this immense challenge. Technology, when utilised appropriately, can play a pivotal role in facilitating these endeavours. Educators can innovate and scale their pedagogical practices while reaching a larger number of students and students can learn at their own pace and in their preferred learning style.

Entrepreneurs have made significant progress in harnessing technology to enhance both accessibility and quality. Over the past decade, the edtech industry has experienced numerous ups and downs. In this article, we take a moment to contemplate how the sector has evolved and the challenges it faces going forward.

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I. EdTech Funding over the last 10 years

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During the first five years starting 2012, Ed-tech in India was largely focused on recorded content, enabling students to gain conceptual clarity through visualisation. With the rollout of affordable high-speed internet, live-learning gained popularity and more so during the Covid19 pandemic when schools and colleges were shut down. The sector continues to evolve with changing technology including experimenting with Generative AI in 2023. With the diverse needs of the student population, Ed-tech has been finding different use cases across multiple touchpoints, with many players even venturing into the international markets. This evolution has been propelled by increasing sums of private capital invested into the sector. Here is a quick look at how the sector has attracted funding over the past 10 years.

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A. Overall funding trend: ~$12bn+ has been invested in Edtech in the last decade. The early part of the last decade marked the beginning of a remarkable journey for Edtech funding in India. Byju's captured more than 40% of the industry capital, firmly establishing its dominance in the sector. The total funding for the sector between 2013 and 2017 was on par with the funding of $850m in 2018 alone, marking it as the first inflection point of edtech investments. Looking at the edtech funding trend, by excluding Byju’s funding too, the data confirms the same. Edtech funding witnessed a three-fold increase in average annual money raised (excluding Byju's) to $350 million from $100 million between 2013-2017. This sharp rise was driven by several factors, including the addition of millions of new users coming online and Edtech becoming a relatively known phenomenon by then. Subsequently, the Covid19 pandemic proved to be a game-changer, triggering an unprecedented boom in Edtech funding. With schools and colleges shutting down across the globe, the demand for online education skyrocketed and the investments followed. The sector witnessed massive growth in funding, with an astounding $2.4 billion raised in 2020 (a 2.6x YoY growth) and more than $4 billion in 2021 (another 2.3x YoY jump). The momentum continued in 2022, with funding remaining high at $3 billion. Several other macro factors were also at play, such as the shutdown of Edtech in China by its government, leading to dollars moving to India's Edtech sector, and a slowdown in some other sectors, bringing attention to the rapidly-growing sector in India.
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B. Distribution of funding by size of player:
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Of the total $12bn raised by edtech companies, 43% went to Byjus and the next four took up 25% of overall funding. Top 20 companies accounted for 82% of funding and the 18% of total went to ~680 number of companies.  

In the last three years between 2020 and 2022, ~$9.5b of overall funding was received by companies in the sector. Byjus raised $4bn, next 4 companies raised avg of $700m, while the 15 cos after the top 5 raised $82.8m on an avg. The large capital availability also led to funding of new companies with a handful of companies receiving sizable money in the seed round itself. While seed rounds averaged at $0.82m across 305 companies, 30 companies raised $3m+ in seed round. 

In summary, category leaders lapped up large sums of money. Byjus, Unacademy, Vedantu in K12/ test prep and Upgrad, Scaler in upskilling for certification or better career outcomes. Category followers with better pmf and stronger distribution such as Physics Wallah attracted capital and grew fast. What we also saw was that not only companies catering to top income segments or mixed income segments, but also those serving vernacular or low income segments grew, both in funding and scale. Adda247 has emerged as a leader in vernacular test prep companies followed closely by Entri. Similarly companies focused on affordable private schools like Lead School and Uolo have reached a large number of schools, upskilling companies catering to low income segments like Masai School or Virohan have grown.

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C. Distribution of funding by different segments:

Looking at the companies with more than $1m in cumulative funding, K12 B2C tops the chart with more than 40% of the cumulative funding received by them. This is followed by Upskilling & Test Prep, both receiving funding in billion dollar figures. Categories such as school education and education finance that recently got a boost come next.

^{Source of data: Internal Enzia Analysis; base data from Tracxn}

^{*Data analysed for companies with more than $1m in total funding}

^{**Vedantu and Byju’s are included in K12 B2C and Unacademy has been classified as Test Prep}

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We also look at the segments by excluding the top 5 companies in order to analyse funding patterns across different sub-segments. Funding in the K12 B2C segment beyond the large companies grew slowly and remained constant over the last three years. Slow to attract categories such as School Education received attraction since barriers to adoption got significantly lower. As a consequence, it emerged as the most funded segment in 2021. Upskilling / Higher Ed picked up rapidly and topped the chart in 2022. Meanwhile, some new categories also got created e.g. online extra-curricular and models like SaaS for educators and foreign education also got significant boost in funding.

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^{Source of data: Internal Enzia Analysis; base data from Tracxn}

^{*Data analysed for companies with more than $1m in total funding}

^{**Vedantu and Byju’s are included in K12 B2C and Unacademy has been classified as Test Prep}

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As we see, there has been substantial funding in the sector that boosted both category leaders and followers, gave birth to new categories and catapulted the sleepy categories. However, this infusion of capital also led to dramatic increase in spends with larger mindshare on land grabbing without efficiency. Growth and fundamentals did not keep pace with the funding and valuation growth. At the beginning of 2023, the majority of startups demonstrated poor unit economics at scale. Some categories such as online extra-curricular that emerged in the pandemic could not survive once the physical world came back to normalcy. We saw proof of fundamentals for Higher Ed and Upskilling categories as they are naturally forced to be positive at the contribution margin level from the first sales.

The slow down of the macro environment and over investments in the edtech sector has been followed by the slowdown in funding of the sector. This has now forced players to improve economics even if it comes at the cost of much reduced growth. This, infact, is the right thing to do. One would have hoped the economics to be sorted before capital was over-utilized. Nevertheless, given the large need and profit pools, we believe that the sector will bounce back and demonstrate product market fit at scale. The most important learning remains that education is a trust business and education outcomes consistently delivered year after year are critical. Businesses that will focus on building their brand based on customer outcomes will not only survive but also thrive.

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II. Segment Opportunities and Challenges

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We took a deeper look at the funding and growth trends of the top 50 companies (by funding) especially as the sector re-emerged post pandemic. In this section, we go deeper into insights gained in 4 key sub-segments of edtech.

A. K12 B2C: Business-to-consumer models focusing on education for children from KG through 12th grade
B. Test Prep: Platforms offering job and entrance test preparation courses
C. Upskilling for jobs & Higher ed: Institutes or platforms focused on higher education or upskilling
D. School ed & Software for schools: B2B models, enabling schools / teachers with tech tools and content

A. K12 B2C

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B. Test Prep

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C. Upskilling for jobs & Higher Ed

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D. School Ed & Software for schools

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‍The education sector still faces several challenges that require innovative solutions to improve pedagogy and provide better outcomes for learners. While we may not see significant external capital raised by top companies in 2023 which will show up in overall reduced funding attracted by the sector, seed and early-stage funding will continue. It is worth noting that education is not a winner-takes-it-all market, and there are several profit pools to explore. We can expect that the robust companies that demonstrate customer outcomes will emerge stronger and become large and profitable. Simultaneously, emerging companies will keep disrupting the space, whether through harnessing cutting-edge technologies such as Generative AI or addressing the inefficiencies inherent in existing models and investors will back them with stronger conviction starting in the beginning of 2024.

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