Fundraising no cakewalk for edu-tech start-ups

Investors say the dream for edu-tech start-ups could be over as there is a fundamental fault in the companies

Education start-ups aren’t in good shape. Two education start-ups are finding it difficult to scale up and meet their targets. One of them is on the verge of handing out pink slips to its employees after investors pulled the plug on funding. The start-ups, sources said, have been asked to “show results” to get any more capital. These start-ups did not wish to be identified.

“Funds are hard to come by. We were to raise our next round of funding by November-December but investors are not forthcoming. They want us to scale up the business but we are finding it difficult to reach our sales target,” said the founder of an education venture. The founder added that he might have to slash salaries and lay off a few employees if he is unable to raise funds in a couple of months.

Zishaan Hayath co-founder Toppr.com, which raised Rs 64 crore last June said, “Education is a tough sector to raise funds as it is more fragmented and large. Availability of funds depends on a case to case basis.”

Though sources said Toppr.com was finding it difficult to raise funds, Hayath denied the same. “We are not in the market to raise funds. We are comfortable with our financial position.”

Toppr.com had last June raised $10 million (around Rs 64 crore) from Fidelity Growth Partners India and existing investors, SAIF Partners India and Helion Ventures.

Hayath's firm is a start-up using technology and content to disrupt the online test prep market. It is a subject learning platform for middle school and high school, the fifth to 12th grade. There are no language subjects. The platform offers courses in IIT-JEE, pre-medical and foundation.

An investor at one of the start-ups said one of the problems these companies had was valuing themselves like e-commerce companies, which creates funding problems. “Edu-tech companies are not like e-commerce firms where the user returns. He buys once and goes away. There is no loyalty. Education is a huge market but it is a long hard slog to crack it. There are no easy answers because the way of thinking of these customers needs to change,” the investor said.

Other investors, however, said the dream for edu-tech start-ups could be over as there is a fundamental fault in the companies.