“Ed-tech” became a buzzword after the onset of the pandemic in 2020 as students began to enrol on platforms that offered various forms of online coaching.

Ed-tech companies used the opportunity to raise large sums of money to fund the business helped by widespread narratives about the “new normal”. The funds were used to aggressively push sales, develop products, hire teachers/content creators, and acquire other ed-tech companies.

According to dealroom data, ed-tech company Byju’s cumulatively raised $ 4.3 billion through the sale of equity, between 2011 and 2022. Of the total funds raised, $ 3.3 billion or 76 per cent of the total amount was raised after 2020. Similarly, data shows that Unacademy raised $891 million since inception, but $ 847 million came only after 2020.

While the liquidity boom has skewed the fundraising towards the last two years for all sectors, the heavy skew does point toward investors’ bullishness on the ed-tech sector. But, even as valuations continued rising, several Indian ed-tech companies were facing various allegations of using coercive sales tactics, misselling, misrepresentation, low-quality content, etc.

Several industry experts have suggested that the companies’ quest for growth at all costs in a highly competitive environment with well-funded competitors led to these questionable practices. In addition, the quest for growth led to a higher number of acquisitions as companies chose to diversify offerings and grow inorganically. The pace and the valuations at which the acquisitions took place indicated the high growth expectations in the ed-tech space. However, after billions of dollars have been pumped into the ed-tech space, the education technology sector appears to be slowing down.

Over the last few months, there have been reports of companies laying off staff, slashing salaries and even shutting down – indicating the potential. Lido Learning shut down in February 2022 after the company said that it had no funds left to run operations, which has left stakeholders like students, parents, employees, vendors and tutors in the lurch.

Similarly, Unacademy has laid off around 1,000 employees, including Prepladder, a company that it had acquired in July 2020 for $ 50 million. The number includes staff that were engaged on a contractual basis and on-roll staff.

Another report by IANS suggested that Byju’s had lowered the salary for new Business Development Trainees, after promising them a much higher amount. While there haven’t been any serious derailments in the ed-tech space yet, the tightening of finances could suggest that these companies are moderating their business outlook.

Return of the Physical Format

There could be several reasons for these actions, ranging from idiosyncratic factors to sectoral issues.

For instance, the re-opening of schools and colleges is said to have slowed the pace of new additions on these platforms. But on a positive note, competition in the form of new start-ups is likely to reduce as brick-and-mortar schools begin operating again.

Industry sources suggest that several companies have been unable to continue the trend of steady high growth in recent times and are looking towards other options to sustain growth.

It is no surprise then that several major ed-tech companies such as Vedantu, upGrad, Unacademy and Byju’s are now looking to go “hybrid” and start their own physical tuition classes for students.

Byju’s had already acquired Aakash Learning, giving it access to a large network offline learning centres all over India. The move to a hybrid model is possibly an indicator of the slowdown in the online education business.

Increasing Scrutiny

Several ed-tech companies have been at the receiving end of complaints and social media backlash over some of the issues highlighted previously. The serious nature of the allegations has caused the government to take note of the growing ed-tech industry and mull new regulations for the sector.

China has already set an example by cracking down heavily on its ed-tech sector, amid a larger crackdown on technology companies. The government even released an advisory in December 2021 cautioning citizens against ed-tech companies.

The advisory highlighted several issues such as misselling and misleading promises and said that ed-tech companies especially targeted vulnerable families. In addition, it issued several guidelines for these ed-tech companies regarding their advertisements. With the government looking to regulate the ed-tech sector, the growth rates envisaged earlier could turn out to be too high, as necessary compliances increase for these companies.

Possible Decline in Funding

All start-ups including ed-tech companies could see a decline in the availability of funding as central banks across major countries look to hike rates steeply. In order to target inflation that was previously considered transitory, economists are expecting steep rate hikes.

With higher yields elsewhere, capital is likely to move out of emerging markets like India, resulting in a scarcity of capital. In addition, the abundance of capital has led start-ups to raise money at high valuations, but a relative scarcity could limit the valuations at which private companies raise money.

Valuations of private companies have been widely criticised since these valuations do not match up with public market valuations of similar companies, nor do they reflect the illiquidity and relative opacity of private businesses.

While ed-tech businesses do offer a valuable service for users, the issues raised above could significantly impact the ed-tech sector in India. It remains to be seen whether the layoffs or shutdowns are a temporary blip, or could turn into a significant trend.