The worst fears of Byju’s critical financial health were confirmed in September, when the education technology (edtech) company declared its financial results. The Bengaluru-based company’s consolidated net loss surged to a whopping Rs 4,588 crore in FY21, almost 20 times its FY20 loss of Rs 231 crore. Speculations over Byju’s financial mess were already rife when the company had put off declaring its FY21 results to September.  

Days after announcing its results, Byju’s revealed that it would slash 5 per cent of its around 50,000-strong workforce in a phased manner. The announcement will result in the country’s only edtech decacron – a unicorn (a company with valuation of $1 billion) with $10-billion valuation – sacking about 2,500 of its employees across product, content, media and technology departments.

“The last six months have been the toughest for me and everyone else involved. And if this cannot break us, I can tell you nothing else will. It is a segment that requires at least five Byju’s, not one,” stresses Byju’s Founder and CEO Byju Raveendran.

Byju’s is not the only edtech company to be in deep trouble. The over Rs 16,300-crore Indian edtech industry is reeling under severe losses, resulting in huge layoffs across many companies. Bengaluru-based Unacademy has sacked 1,100 workers, while Vedantu, another edtech player, has fired 724 people. FrontRow, LEAD, Eruditus and many other edtech startups have issued several hundreds of pink slips to their employees. Besides, Lido Learning, Crejo.Fun, Udayy and SuperLearn have sacked their entire staff and shut down operations.

According to industry reports, Indian edtech startups have laid off more than 7,000 employees in 2022 so far. Moreover, there are many reports of employees being forced to put in their papers. The edtech crisis is so grave that the sector accounts for about 47 per cent of the more than 15,000 retrenchments seen across the Indian startup ecosystem this year. All these companies are justifying their harsh layoff measures for rationalising their workforce and for conserving cash amid acute liquidity crunch. 

Edtech In A Nutshell

Market size: Rs 16,300+ crore

No. of players: 4,450+

Major segments: K-12, Test-Prep, Reskilling & Upskilling

A golden period

The gloom sweeping across the edtech sector was simply unthinkable a year ago. Last year, edtech startups were on a roll, garnering huge funding from venture capital (VC) and private equity (PE) funds. The Indian edtech industry had mopped up more than $4.7 billion in funding across 165 deals and emerged as the third favourite sector for investors in 2021.

In fact, the golden period for the sector had begun with the onset of COVID-19. The viral pandemic and ensuing lockdowns had shut down schools and colleges across the country, giving online learning a major boost. In fact, the sector had minted as many as six unicorns –Unacademy, Eruditus, UpGrad, Vedantu, Lead School and PhysicsWallah – between September 2020 and June 2022. For many years until September 2020, Byju’s – India’s first edtech startup – was the only unicorn. It still is the country’s only decacorn, the much-coveted status that it had achieved in June 2020.

Inspired by these success stories, a host of new edtech startups mushroomed in the country during the pandemic years. According to industry insiders, there are over 4,450 edtech startups in the country. 

What ails edtech?

The edtech sector entered 2022 with high hopes of bettering past years’ performance. But then suddenly, it got sucked into a violent storm, leading to serious cash crunch and other consequent problems. If 2021 was the year of record funding, big acquisitions, aggressive growth and blooming unicorns, 2022 has turned out to be the year of mass sacking, massive scale-down and even shutdown of operations in some cases. So, how exactly did the booming domestic edtech sector plunge into the present sorry state of affairs?  

The post-pandemic world came as a rude shock for the industry. As normalcy returned and schools and colleges opened in August last year, students moved back to classrooms, leaving edtech companies in the lurch. Edtech startups in the reskilling and upskilling segment too bore the brunt as many companies mandated their employees to return to offices. As the work-from-home option dwindled, there were very few enrolments for reskilling and upskilling as employees could not find time for such online courses.

The ongoing funding winter has, in fact, played a major role in battering edtech startups. “The environment right now has turned volatile for a lot of people. The Russia-Ukraine war, a commodity price boom due to supply and demand issues and interest rate hike are causing consternation in the market,” points out Rajeev Suri, the managing partner of Orios Venture Partners.

Rising commodity prices and supply-chain issues have led to an unprecedented surge in inflation across the world, especially in the developed Western economies. Central banks have stepped in and closed the liquidity tap that had left huge amount of capital sloshing around in the market. Besides, they have been raising their respective benchmark interest rates to cool down inflation. The result is that most of the developed economies are staring at an imminent recession. End of easy money, high cost of funds and the likelihood of a recession have severely curtailed VC and PE funding – the very lifeline of startups.

The funding winter has frozen the capital flow into startups. Edtech companies had raised around $3 billion in 2020 and mopped up a record over $4.7 billion in 2021. In the ten months of 2022, these startups have managed to garner about $2.2 billion in funding, with funds drying up in the past few months.

During the boom years, edtech startups splurged money to grow at a breakneck speed. Like all startups, edtech companies too focused on growth at the cost of profitability. They spent lavishly in acquiring clients and good teachers and offered high salaries and sops to retain talented teachers. Their marketing costs too soared to unprecedented levels as some of the big edtech companies roped in celebrities – such as film stars and top-notch sportspersons – to endorse their brands. This extravagancy has come back to bite them as funds dry up and client base dwindles. Edtech companies are staring at a bleak, uncertain future as the funding winter is expected to last for another year or two.

Time to reinvent

Harsh realities of the current downturn are teaching edtech companies many new lessons. “In the pandemic, the edtech industry saw a boom. But now, it has to refocus and change its business model,” stresses Eldho Mathews, the deputy adviser of National Institute of Education Planning and Administration (NIEPA), a research-focused university in New Delhi.

Some of the top edtech startups have already embraced the hybrid model – a combination of online and offline systems of teaching and learning – to beat the slowdown blues. Last year, Byju’s had acquired Aakash Educational Services, a 34-year-old brand that has over 70 physical coaching centres across the country. Byju’s is leveraging Aakash’s physical coaching centres to offset the losses accruing from shrinking online client base.

Unacademy has also forayed into offline learning by launching its first coaching centre in Kota, a major hub in Rajasthan for training for competitive exams and entrance exams of professional courses. The edtech startup is also setting up physical coaching centres in other cities. PhysicsWallah too has gone offline with launch of its first coaching centre in Kota.

Amid the rising offline foray, it would be premature to write off online training. A new avenue is opening up for startups engaged in the K-12 (the basic schooling level from kindergarten to the 12^th standard) and test-prep segments (training for competitive exams and entrance exams of professional courses) of the industry. These segments are fast reverting to offline or hybrid mode in urban India. However, there is a growing demand for online mode of training in these segments from students in small towns and rural areas.

Students in far-flung areas have often found it difficult to access good teachers and quality study materials. The pandemic gave them an opportunity to get the best education through online classes. Edtech modules have an upper hand over traditional textbooks. Better navigation of resources, multimedia graphics and interactive elements allow for a more engaging educational experience. Edtech startups will now have to move beyond metro- and city-centric operation and tap the rising demand in semi-urban and rural areas.

Similarly, there are plenty of opportunities for vernacular edtech solutions. Only about 10 per cent of Indians speak English. However, there is a huge number of students pursuing their education in various regional languages. Their plight is similar to that of students in far-flung areas of not being able to access good teachers and get better educational experience. Edtech companies can easily tap into this segment of students, offer them customised online courses and expand their businesses.

“Now, demand will slow down a bit, but it will grow again. It is absolute nonsense if somebody says that edtech is doomed. In a country of 1.3 billion, education is the most important thing, and technology can help it scale,” notes Unacademy Co-Founder and CEO Gaurav Munjal.

Online model of teaching and learning may have hit a hurdle for now. But it is set to thrive in far-off areas, regional languages and other situations. Edtech industry cannot think of replacing the traditional classroom learning. But it can certainly grow as a support mechanism by making up for shortcomings in the traditional teaching methods. The edtech industry is passing through one of its worst winters. However, the spring of hope is not far away.