Byju's fallout lingers but edtech ecosystem bets on long-term benefits

Following Byju's crash-and-burn, both industry players and investors are moving away from a valuations game to larger issues of governance and sustainable growth

After weathering the fallout from Byju’s crisis, India's edtech sector is finally seeing signs of stabilisation. While 2024 didn’t reach the funding peaks of 2020 and 2021 - the pandemic years - industry players and investors believe that the sector, having got rid of its earlier hype, is now poised for sustainable growth. 

From a funding perspective, 2024 fared better than 2023, though. Venture capitalists invested a total of $741 million across 103 rounds, compared to $556 million the previous year, according to Tracxn data. Importantly, the sector did not have a single M&A opportunity in 2024. 

Despite the lingering impact of Byju’s collapse, many believe the sector will emerge stronger in the long run. Industry leaders see this as a necessary reset, paving the way for sustainable business models, responsible growth, and improved governance within India’s edtech ecosystem. 

"Once you burn your hand on a stove, it takes a long time before you stop being cautious around it. Byju’s was a difficult experience for investors, companies, employees, and the entire industry," said Michael Moe, founding partner and chief executive officer (CEO) of GSV Ventures, a major investor in the global edtech space, including India. He noted that investor confidence in edtech startups has significantly declined post-Byju’s. 

Other players, however, say that the incident brought the focus back on governance, which had been pushed to the backburner due to the valuations game. 

Smita Deorah, co-founder and co-CEO at LEAD Group, said that investors have started focusing on the governance factor as Byju's tale, a cautionary one by any metric, has scarred investors and the larger ecosystem. “Now, they are back to asking questions, which is the right thing to do. It does raise a lot more diligence in that area," she told Business Standard. 

Eruditus co-founder and executive director Chaitanya Kalipatnapu says the impact will be much higher in the K-12 segment compared to higher education and upskilling segments. 

Nikhil Barshikar, founder and managing director of Imarticus Learning, said that Byju's shadow still looms over the edtech ecosystem. "It's not gone yet. There is a realisation from founders and the investor community that more such cases cannot happen," he said, adding that investors now cannot simply pay and pressurise founders to grow at rapid speed. 

However, the ecosystem feels that the company's fallout has led to a necessary course correction and the long-term impact would be positive. "I think as horrible as it was, and as much as it has a lingering impact, the impact in the long-term is actually healthy because it creates additional caution in terms of how companies in the education space need to operate to succeed in the long-term," Moe said. 

Talking about long-term benefits, Deorah said that earlier there was a big wave of B2C edtech companies, and many players entered the K-12 segment. However, investors who believed that B2C was the go-to model are now looking at other models.  "Those who understand B2B and understand what will work in education in India are making selective investments," she said.  

Mayank Kumar, co-founder of upGrad, said companies that are on a steady growth trajectory will benefit from Byju's downfall. "I feel the companies that are staying firm will gain from last year's fiasco. It is because people will then start thinking that each of these companies has good governance, high ethical standards, and a high bar that they have set for building a business, and that goes positively on their side versus going negatively," he said. 

"Earlier I agreed that maybe it has a negative impact, but today having seen this for the last six months to a year, I feel it has a more positive impact than negative because (the) companies that are left are being seen as much more steady and viable," he added. 

Byju’s, once India's most valuable ed-tech startup, rose to prominence with an aggressive growth strategy, high-profile acquisitions, and strong investor backing. At its peak, the company was valued at $22 billion in 2022. However, it witnessed a downfall facing governance lapses, cash crunch, employee layoffs, mounting losses, valuation cuts, legal battles with investors, and a leadership crisis, serving as a cautionary tale for the Indian edtech ecosystem. 

Moe said that Byju's was successful in the short-term, in terms of raising capital, growth, and valuation. "The reason it imploded is because it took its eye off the very fundamental objective, which is delivering great results for the students and people that were part of it," he added.