For investors, edtech is the darling of the day: Kaizen's Sandeep Aneja

The edtech sector has emerged, globally, as the darling of investors, founders, teachers, schools, parents, universities and students. India has been no different. In 2020, investors poured in $2.2 billion into existing edtech players and start-ups (up from $550 million in 2019). By 2025, estimates indicate the sector will touch $12 billion. Last year saw a higher amount of total investments in the sector compared to investment of $1.7 billion in the last 10 years combined.

Over 90 start-ups raised funding, of which around 60 received seed funding. The number of users across platforms saw a stratospheric rise. Companies bought each other, innovated and entered hitherto unexplored segments, and consolidated their businesses like there was no tomorrow. The giant in the space, Bengaluru headquartered Byju’s, bought WhiteHat Jr and is rumoured to be in talks to buy Aakash Educational Services and Mumbai’s Toppr.

In the giddy excitement that broke out, it’s hard to make sense of what’s really happening. Sandeep Aneja, co-founder of Kaizen Private Equity, spoke to Anjuli Bhargava from Singapore on how he sees the sector shaping up post Covid. Edited Excerpts:

Edtech in India seems like a wild, frenzied beast that has been let out of its cage. What in your view is happening?

I think everyone is going to look back at 2020 as the year everything changed for education as we knew it, in India and globally.

The resistance to online learning has gone. Online learning was perceived as entertainment, a joke or to keep things interesting but was unsubstantiated as a method of delivered learning. In the pandemic, parents -- in particular of young kids -- took to the medium so that their children’s learning would be uninterrupted. Professionals and older children, who had access, took to this space to enhance their knowledge and skills. This is the demand side.

Plenty changed on the supply side. Companies started to innovate to grab the attention of students and retain them. They forayed into previously unexplored territory. Innovation in pedagogy, hiring, openness to mixed platforms, blending of online with real, live classes, remedial sessions with live lectures, live remedial question and answer sessions with teachers, what have you. What seems so obvious today was not so obvious two years ago; everyone then was picking one method and trying to make a success of that. People were entering the space through different routes: We’ll bombard you with questions and answers, we’ll offer animated videos and you learn from those. Now, everyone has realised that online learning has come of age and you need to have all elements in there.

The last component is teachers. They were quite reluctant to learn the skills for online engagement. They have evolved now and are far more comfortable. I know a few teachers who have resigned from their offline, full-time jobs and have decided to earn their entire living through online teaching. Yes, it’s a bit more tiring and tedious at times but it saves commute time and all the other problems associated with working onsite. There’s a lifestyle shift occurring.

Lastly, this whole question of what is more effective. As it is, we know that only a small percentage of students is self-motivated; the rest have to be pushed by parents or teachers, or both. This is not going to change with online. The bigger worry is for students who don’t have access to online learning and will be left behind, a fairly large cohort both in India and globally. There’s a lot of trial and error going on. But overall, online learning has been more impactful than people imagined.

What about the frenzy in companies targeting the top of the pyramid? Everyone buying everyone, investors blindly investing... is there a method to this madness?

There are 200 million-odd learners in the K-12 (kindergarten to Class 12) age group. The tuition and supplemental learning market has grown by leaps and bounds. This market has not seen much consolidation. All the players were local with niche offerings, audiences, ambitions and reach. There is nothing online that consolidated all types of students under one single platform. Now everyone is looking at being the “<largest school in the sky in the world>”. That is the ambition of companies like Byju’s, most of whom have global plans. Companies in our portfolio (Kaizen Equity has raised two funds amounting to $150 million invested in 16 companies, besides a small debt fund, in India and Asia) are also undergoing consolidation and some announcements are expected soon.

The valuations you are seeing right now are a reflection of future possibilities and expectations. For instance, Byju’s valuation can only be justified today by how investors perceive their future ability to dominate the market and their global ambitions.

In your view, does the Aakash buy makes sense for Byju’s?

Yes, the whole idea of Byju’s acquiring Aakash makes a lot of sense but whether they are paying the right amount for it, I can’t comment. I am only speaking from a strategic and business point of view. The details of the buy are not available to me.

The Aakash acquisition makes sense as while Byju’s created a big brand name, the cost of acquiring a student is pretty significant for them. It should be anywhere between $120 and $250 per student (other companies in the space have similar numbers) and it’s pretty high. The cost of acquisition of a new student for a test prep network like Aakash is likely to be far lower. Byju’s will have a strategic advantage now as it acquires many more users at a lower cost and puts its name on it.

The two companies it has or is acquiring -- WhiteHat Jr and Aakash -- present real value to it. It gains a new product to sell to its existing customers and acquire new customers through the purchase. WhiteHat Jr has also given Byju’s deeper access to the US market. Any weaknesses Byju’s perceives in its own platform can be plugged by similar acquisitions.

Are we seeing a repeat of the earlier Educomp and other edtech start-ups, which were chased by investors but subsequently failed?

History has told us that we find a way to mess things up every once in a while, and I have no doubt only a few winners will emerge from this as well. But from an investor point of view, edtech is the darling of the day and the money flowing in is understandable. Investors have not seen students giving up on learning even as they give up on many other things (social life, eating out, entertainment, sports and so on due to the lockdown), and they perceive this to be a long-term shift. It’s like a brain rewiring is happening. Since they don’t expect behaviour to revert fully to the pre-pandemic situation, it is heartening for investors. Of course, not everyone in the space will get it right and some will burn their fingers, but I don’t want to dwell on this for now as I have no additional information on who the eventual winners may be.