After a prolonged winter, the Indian edtech sector seems to be witnessing some signs of a thaw.
The sector has received $608.8 million of funding across 68 deals in 2024 so far — 153 per cent more than the $240.9 million across 106 deals during the same period last year — according to data from market intelligence platform Tracxn.
The resurgence has been driven by large funding rounds, with investors writing larger cheques for companies emerging as market leaders and showing strong exit prospects through public markets and improved performance metrics.
No player other than Physics Wallah (PW), which doubled its valuation to $2.8 billion by raising $210 million, has increased its valuation significantly.
In October, executive education firm Eruditus raised $150 million in Series-F funding led by TPG’s The Rise Fund to reach a valuation of $3.2 billion — slightly higher than the $2.9 billion it had secured in 2023.
Similarly, upskilling and higher education firm UpGrad raised $60 million from Singapore’s sovereign wealth fund Temasek at a flat valuation of $2.25 billion.
Leaner leaders interest investors
According to Dev Khare, partner at Lightspeed Venture Partners, who led PW’s recent investment round, investors are now prioritising leaner and more efficient edtech businesses.
“A lot of edtech companies that emerged between 2015 and 2022 did so during the “easy money” era, with a strong focus on marketing rather than efficiency.
"Consequently, their top line grew rapidly, but they lacked operational efficiency and incurred significant losses,” Khare told Business Standard.
Several large edtech firms, including Unacademy, Byju’s, and Vedantu, which secured substantial funding during the pandemic, have struggled to scale since.
These companies have laid off employees and reported significant losses.
Khare added: “A lot of these inefficient companies either failed to secure funding or received it at much lower valuations.
"Many have shrunk considerably due to limited spending on sales and marketing, while others have become more efficient.”
While Vedantu narrowed its losses by 46 per cent to Rs 373 crore in FY23, it faced scaling challenges, with its revenue declining 8 per cent to Rs 152.5 crore.
Meanwhile, Unacademy’s FY24 revenue dropped 5 per cent to Rs 1,044 crore, even as its losses decreased by 62 per cent to Rs 631 crore.
Businesses like PW, Eruditus, and UpGrad emerged as market leaders in segments like test preparation, higher education, and executive education.
Eruditus became earnings before interest, tax, depreciation and amortisation (Ebitda) -positive at about Rs 80 crore on a full-year basis in FY24.
It is expected to achieve overall profitability within this financial year, and projects 25-30 per cent year-on-year revenue growth in FY25.
Last month, Lightspeed also invested in Bhanzu, a maths-focused edtech platform that raised $16.5 million in Series-B funding. Bhanzu claims to have achieved eightfold growth since its previous funding round, along with a positive cash flow and a strong product-market fit across the markets it operates in.
Meanwhile, investor interest in the K-12 segment — the educational system from kindergarten through 12th grade — has diminished, primarily due to the failure of players like Byju’s.
Once the poster child of the Indian startup ecosystem, Byju’s has faced regulatory issues and disputes with investors, leading to a financial decline.
“Investors are now starting to back better companies,” said Ashwin Damera, co-founder and chief executive, Eruditus.
“The first wave of edtech funding came in 2016-17. Category leaders have emerged over time.
"It’s now extremely challenging for a new startup with a similar business model and total addressable market (TAM) to raise funding.”
Damera had previously said companies with strong fundamentals and stable management teams were restoring investor confidence in the edtech space.
Edtech IPOs
interest, given the prospects of near-term exits.
Both PW and Eruditus have indicated plans to go public within the next one or two years.
“Broadly, the dynamics here are so much better.
"The Indian IPO market today is what the US market used to be 15-20 years ago.
"Back then, a modestly sized $100 million company growing profitably in the US could easily go public.
"That’s no longer the case there, but India presents that opportunity,” said Deborah Quazzo, managing director of US-based GSV Ventures, which has invested in both PW and Eruditus.
Quazzo, however, emphasised that IPO-bound companies must exhibit positive unit economics and “solid but not hyper growth” to make a successful stock market debut.
Eruditus’ Damera believes that edtech firms, unlike other consumer-facing sectors, do not require majority domestic ownership to bypass regulatory concerns related to foreign direct investment (FDI).
“If domestic capital is available at attractive valuations, it makes sense to leverage it.
"However, edtech firms are not obligated to seek Indian capital.”
Damera also said that the decline of Byju’s had not hindered the IPO prospects of other edtech firms.
“Bad actors can tarnish the sector, but markets and investors reward performance over time.
"If a company has strong fundamentals, competent management, and a robust TAM, Indian investors recognise its value,” he said.
