Why Do Edtech Startups Fail In India? Here’s What Investors Think!

Two sectors which have rapidly grown as a byproduct of ecommerce in India are edtech and logistics tech. While the latter is rising almost in parallel to ecommerce and crowns 3 unicorns today, edtech is yet to find its apex. 

The only unicorn in the sector, Byju’s took an entire decade to reach this valuation and create a sustainable revenue stream for itself. The situation is still worse for new entrepreneurs.

Let’s have a look at a few numbers.

According to Datalabs by Inc42, between January 2014 and September 2019, over 4,450 edtech startups have been launched in India. Of these, roughly 25% of startups have shut shop while only 4.17% of startups have raised funds. Shockingly, Byju’s alone attracted 65% of the total funding in edtech startups.

This is the brutal reality that Indian edtech startups are facing today. Although analysts forecast edtech to be a $1.96 Bn market in 2021 thanks to with rising internet and smartphone penetration as well as ease of paying online, the sector is getting diversified into several niches. Creating brand value is proving to be a difficult task for startups, which forces new entrepreneurs to spend a large part of their budget in marketing to compete with heavily-funded players in the market.

So the irony is, to create a brand value, an edtech startup needs large funds. On the contrary, investors are more interested in funding revenue-generating stable businesses. Inc42 reached out to a few of the leading investors in this space to understand the mindset and the gaps they find in the business models of edtech startups.

Here Are 9 Reasons Why Edtech Startups Fail In India

1. One-size-fits-all approach
2. Averseness towards change
3. Lack of funding and perseverance
4. Difficulty in scaling at the local level
5. Compromising on learning outcomes
6. Inability to find the right business and revenue model
7. Lack of interoperability with existing systems
8. Inefficiency in creating user engagement
9. Existing talent gap in India

Edtech startups and founders that Inc42 spoke to highlighted these gaps among the primary growth hurdles for the sector. 

• One-Size-Fits-All Approach

Swanubhuti Jain, COO, JITO Incubation and Innovation Foundation (JIIF) believes that for any startup to succeed, it must offer a solution that addresses and solves the problems of all parties affected. For example, those working in the mobility sector solve the problem of consumer (buyer – ease of service availability), service providers (car companies, taxi fleets and drivers), government (social impact) and the startup themselves. So it is a win-win situation for everyone involved. 

“However, when it comes to the education sector, the perceived problem of each involved party is different and complicated and most solutions offered don’t appeal to all equally,” she added.

“Most startups in the space lack dynamism.”

• Adverseness Towards Change

Jain added that most solutions offered entail deep learning curves for all parties involved and huge change management. Any change management is not successful until it solves any biting pain area. Unfortunately, the sector seems complacent and averse to change and the pains are not felt enough by changemakers primarily, she added.

• Difficulty In Scaling At The Local Level

Unlike other sectors that are too focussed, education is vast and its processes, needs and dynamics vary drastically from location to location. The sector is deeply decentralised with deemed universities and independent bodies ruling small pockets. This makes scalability tedious and requires much more agility from the businesses for their products or services to be relevant.

Omkar Kulkarni, programme Head for GMC Calibrator, Gray Matters Capital’s digital accelerator programme seconds Jain’s thoughts. “I think in the phase of incipience, edtech entrepreneurs tend to focus on hyper-growth in terms of user acquisition instead of identifying impediments to a great learning experience to keep users engaged and creating high economic value which is very hard in education,” he added.

• Lack Of Funding And Perseverance

Education is too content-focussed and content relevance is changing by the day. Changes in all sectors impact education as the industry is horizontal, unlike other industries that run vertically. 

“To impact such vast target segment, funding and perseverance are vital and both are challenging in case of startups as quick results are often chased and hence it becomes difficult to sustain success,” said JIIF’s Jain.

• Compromising On Learning Outcomes

One must realise that education is an extremely outcome-oriented business. The transaction starts with a very clear expectation – which is generally scoring better or achieving higher rank in the exam. Not delivering that in the medium-long term not only leads to customer dissatisfaction but has a direct negative impact on future business. Everything else comes second to it. 

Kulkarni further adds that most edtech startups find it difficult to quantify their impact in terms of improving the learning outcomes of the end-users. Collaborative work is important for achieving scale. “I have seen very few startup founders aware of the work done by corporates or other startups in the education sector and rarely reach out to them for partnerships,” he added.

• Finding The Right Business And Revenue Model

It is perhaps one of the more complicated and time-consuming tasks. “At the same time, finding a cost-efficient and effective distribution is tough and most startups in India are unable to crack this,” said Sunitha Viswanathan, senior associate, Unitus Ventures, an early-stage venture fund which has backed edtech startup Eduvanz.

• Lack Of Interoperability With Existing Systems

Unitus’ Viswanathan further believes that one of the reasons for failure is inability to integrate edtech solution within the current framework. Whether it’s a solution expected to lower teacher’s administrative overheads within school or an after school learning App, unless they can neatly integrate into the daily schedule of the teacher or student, adoption will be very low. Hence the product fails to take off.

• Inefficient User Engagement

GMC’s Kulkarni feels that very few edtech products are able to stoke the desire to learn by guiding users through a personalised learning experience that is engaging. Most edtech startups fail to stay relevant in the users’ mind which leads to product failure. “In my experience, I have seen that most edtech entrepreneurs are trying to solve problems that end users think do not exist,” he added.

• Existing Talent Gap In India

Another concern for edtech startups is something that pretty much every other startup in every other sector is facing. We are talking about the lack of adequate talent with the right skillsets for emerging tech. India’s talent gap has been highlighted by many industry stakeholders, and Sajith Pai, director, Blume Ventures believes this impacts key strategic and leadership positions – accentuated at the early stages of startups due to their inability to pay high salaries.

With 2020 around the corner for the Indian startup ecosystem, we expect to see at least one more unicorn from the segment this year. Although the market seems volatile presently, the stakeholders are still keeping an eye on the edtech sector and are willing to invest in good opportunities ahead. 

As Pranjal Kumar, CFO and head of education fund at Bertelsmann said, “In our view, the failure rate for edtech startups is comparable with any other sector. Given that education is a high-involvement category and a career-affecting service, tech adoption is usually lower compared to other services and products. Hence, edtech startups can take more time to scale up than in some of the other categories.”