#Asia Why edtech is getting so little love from VCs in India

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Photo credit: Soma Mukherjee

Photo credit: Soma Mukherjee

“India is the only country in the world which is trying to become a global economic power with an uneducated and unhealthy labor force,” says Amartya Sen in a recent discussion at the London School of Economics. The Nobel laureate and author of The Argumentative Indian is in the habit of bringing up inconvenient truths and this was one of them.

Professor Sen’s ironical point was that it couldn’t be done. India can’t sustain economic growth without improving the quality of its workers.

You would think this is a situation crying out for tech startups to step in. A huge population hungry for education as an escape from poor living standards, a new government promising economic reforms to spur growth and development, and a booming tech startup scene attracting billions of dollars in funding – they make a heady cocktail for edtech entrepreneurs and investors.

The media is full of stories about how edtech is transforming education in India, and how edtech startups are “raising millions to provide millions with world-class education.” The reality is sobering. Edtech, despite its great need and potential in India, isn’t setting the venture capital scene on fire.

Yawning gap between hype and reality

According to venture capital analytics firm Tracxn, Indian edtech startups have raised US$66 million in funding disclosed so far this year, which is nearly two-and-a-half times the US$27 million invested in 2014. But it is still less than 1 percent of the total funding for Indian tech startups which has already crossed US$7 billion this year. Besides, the top three funded edtech startups accounted for US$40 million out of the US$66 million invested in the domain – and only eight edtech startups had funding rounds of US$2 million or more.

To put the Indian edtech scene into perspective, learning tech companies globally got US$3.8 billion in funding in the first three quarters of this year, according to a white paper from Ambient Insight. In other words, India’s share of the global edtech investment pie is less than 2 percent.

A report by US-based Compass ranked Bangalore sixth among global startup hubs this year in terms of access to venture capital – further evidence that the pittance in funding for Indian edtech runs contrary to the trend in most other sectors. Ironically, the Compass report ranks Bangalore a relatively low 17th among startup hubs in quality and availability of tech talent – something of an anomaly in such a highly populated country with decades of legacy in IT services. The talent crunch makes it all the more surprising why edtech isn’t getting the push one would expect in such a scenario.

See: What are the hottest sectors for venture capital in India this year? (INFOGRAPHIC)

Insights from an edtech entrepreneur-turned-VC

Sid Talwar, who had a successful exit as an edtech entrepreneur before turning VC, is well placed to provide some answers to this apparent paradox. His VC firm Lightbox invested in test prep startup Embibe last year.

Education is a vast field in India, but most of it is highly regulated by the government, making it hard to break into. The highly competitive engineering and medical college entrance exam scene is, therefore, one area that edtech startups have targeted. Millions of students don’t have access to good tutors and study material to prepare for these exams which provide a small window of opportunity to break free from a humdrum existence for many. Online test prep portals can help. But even here we have few tried and tested paths to scaling and monetization.

“There is no Uber for X in this space,” explains Sid, referring to the difficulty of importing business models from abroad into the edtech scene in India. “Indians are much more goal-oriented than in the West, and learning habits are different. That’s why you haven’t seen any real foreign player enter the Indian education market yet.”

The absence of comparable international businesses makes it hard to evaluate early stage education startups in India. This is made more complicated by long transaction cycles in education. “Ecommerce transactions, in comparison, run on a much shorter cycle,” points out Sid. “Consumers visit a shopping site, make a decision to buy or not and leave. There’s an immediate result one way or another. And you can use that result to improve your product.”

Lessons from the shutdown of SmartOn

education technology

Photo credit: opensource.com

Education is a different cup of tea. “It takes time to see whether your product is effective or not. You need your users to go through a much longer cycle of learning, testing, and then somehow closing the loop, validating the effectiveness. Instead of minutes, hours, or days for ecommerce, an education transaction can take months and even years,” says Sid.

Rakshit Kejriwal, Lakshmi Dasaka, and Chaitanya Chitta experienced this first hand. They shut down their edtech startup SmartOn this year.

Rakshit had an MBA from Columbia Business School, Chaitanya was a director at KPMG, and Lakshmi held a master’s degree from Cornell University. Their startup offered courses in hot domains like ecommerce, digital marketing, UX design, growth hacking, and so on. It roped in high-profile partners like Columbia University and KPMG. It got angel funding and a seat at the prestigious Kaplan TechStars accelerator program. And yet, it was all over in 21 months.

“The sales cycle was too long. Sometimes, it took six months to get a new client,” Chaitanya told Tech in Asia in a recent interview. “You are dependent on the whims and fancies of the owners or management of these educational institutions. We weren’t seeing enough traction coming from the Indian consumer market either. The sectors that we were addressing – design, ecommerce, data, and so on – were still emerging.”

Chaitanya, Lakshmi, and Rakshit decided to take what they had learned and move on. Their new startup [DropKaffe] is out to disrupt Starbucks, no less, by delivering on demand a wide range of coffee from freshly roasted beans.

Edtech’s time will come

education-in-india-edtech-startups

Photo credit: DFID

Education wasn’t their cup of coffee, clearly. But Sid Talwar believes investment will pick up in this space eventually. “Technology is severely underrepresented in education right now. But there is no way we can create an educated population without technology.”

Amartya Sen had the government in mind when he spoke of the need to invest in education and not talk only of economic growth. Hopefully, venture capital investors too will take the long view and invest in a space so vital to the startup scene as a whole which depends on quality talent.

All is not gloom and doom. Tomorrow, in the second part of this article, we will look at the best funded edtech startups in India, to see what bets VCs are willing to make as of now and meet the outliers in this space.

See: Ecommerce in India: you ain’t seen nothing yet

This post Why edtech is getting so little love from VCs in India appeared first on Tech in Asia.

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