Funding Woes for Indian Edtech: Startups Report 44% Drop In Investment In 2022

India’s edtech sector is one of the largest in the world, with 395 startups operating across more than seven sub-sectors such as test prep, K-12, and edtech SaaS, among others, having raised $10.13 Bn between 2014 and 2022.

Until the beginning of the pandemic-induced lockdowns in India, edtech startups managed to keep their pots boiling, and the sector had just one unicorn, BYJU’S. It was only after the onset of Covid-19 when citizens were confined to their homes, that the sector received an unprecedented boost on the back of online education making strides never imagined before. 

As a result, the sector attracted a lot of investor interest and funding, which helped it emerge at the top.

The pandemic-led boom also helped the country’s edtech sector expand into areas like upskilling, test prep, and online certification, giving more opportunities and choices to professionals, job aspirants, and students to educate themselves online.

In the last three years, as many as six edtech startups have become unicorns, and the sector has seen an exponential rise in funding activities.

Between 2014 and March 2020, edtech startups raised about $1.32 Bn. However, in 2020, the sector raised $1.43 Bn, $11 Mn more than what was lapped up in the preceding five years. 

Further, in 2021, edtech became the most-funded startup segment in India, with a total funding of $4.73 Bn. Edtech funding in 2021 was 1.72X higher than the total funding amount raised between 2014 and 2021.

Then came the funding winter of 2022, and the edtech startups could only raise $2.64 Bn. According to industry experts, the 44.18% YoY decline in funding was due to the reopening of schools, colleges and coaching institutes.

A Desolate Funding Landscape For Edtech

Edtech was one of the few sectors, which saw a decline in funding across all startup stages, with late-stage funding suffering the most.

Late-stage funding in the sector declined 48.15% in 2022 to $1.97 Bn from $3.8 Bn in 2021. Similarly, growth-stage funding took a significant hit, falling 28.93% to $563.8 Mn in 2022 from $793.25 Mn in 2021. 

Further, early-stage edtech startups, too, shivered in the harsh funding winter of 2022. After raising $73.15 Mn in 2021, the funding in early-stage startups declined 23% in 2022 to $56.63 Mn.

Amid the funding gloom, test prep emerged as a clear winner, as startups in this space raised $1.13 Bn last year. However, the sub-sector saw a 63% YoY fall from the $3.05 Bn raised in 2021.

Similar is the tale of edtech’s online certification segment. Startups in this space saw a funding decline of 22% in 2022, at $809 Mn, compared to $1.04 Bn raised in 2021.

Further, the funding in edtech SaaS and K-12 segments declined by 15% and 55%, respectively, in 2022. 

Surprisingly, the year remained positive for startups in the higher education and upskilling segments. While the funding in upskilling startups rose 62% YoY from $61.3 Mn raised in 2021 to $165 Mn in 2022, higher education startups raised $149.3 Mn in 2022 versus just $79.05 Mn in 2021.

Edtech Startups Have Axed 8K+ Employees Since 2022

Banking on the promising boom in the country’s digital adoption, especially online learning, which many thought would stay, edtech startups became aggressive in hiring. Unfortunately, when things returned to normal, demand for online education declined due to the reopening of educational institutes, especially schools, colleges and coaching centres.

The fall in the demand for online education and a major shift to a hybrid learning model sent jitters down the spines of investors, who were then seen seeking accountability for the funds that they had once pledged. 

Many investors returned to their cocoons and refrained from investing. As a result, a funding gap was created, and we cannot ignore the fact that by this time, these startups were only dependent on investor funds and were not making any money.

Meanwhile, the geopolitical tensions, interest rate hikes and fears of a looming recession further broke the camel’s back, giving rise to a harsh funding winter.

Since the onset of 2022, as many as 17 edtech startups have fired 8,041 employees. Overall, 20,484 employees have lost their jobs across India’s startup ecosystem since the beginning of 2022.

Amid all this, as many as five edtech startups – Udayy, Qin1, Crejo.Fun, Lido Learning and SuperLearn – were forced to shut down in 2022.

Is There A Hope For A Better Tomorrow?

Last year, India’s edtech startups were forced to reassess their priorities and business models to become profitable. This happened after 2021’s watershed moment when founders confused the spike in funding with the new normal and thought the bull run would continue.

However, they forgot to consider that the shift of education to online channels was due to a lack of offline options, as India faced the impact of multiple lockdowns.

The founder of Cuemath, Manan Khurma, notes that it has become all the more imperative for India’s edtech startups to look at their business models and cut costs, without victimising their workforce.

“Edtech businesses must be cognisant of their bloated CAC (customer acquisition cost) and shrunken LTV (lifetime value) as it will lead to further increase in cost,” Khurma said, adding that sustainability in terms of profitability and not valuation must become a fundamental tenet for the country’s edtech startups.”

However, Mukul Rustagi, the cofounder and CEO of edtech unicorn Classplus, is of the opinion that categories such as upskilling, vocational training and test prep, especially government exams, would remain popular among Indians and flourish in 2023. 

He adds that programmes related to vocational training and focusing on career and business skills will continue to grow online throughout 2023.

As far as funding is concerned, experts believe that it is not going to rise to pre-June 2022 levels any time soon. While edtechs have been making it a habit of firing people to cut costs and increase cash flow, there are far deeper problems that need to be nipped in the bud.