Testing times for edtech sector: Deals and funding remain scarce

Upskilling firm UpGrad’s offer to buy edtech platform Unacademy in an all-stock deal has raised a glimmer of hope for a business that has been floundering since post-lockdown back-to-school mandates dented their business models. A funding winter since 2022 is yet to show signs of receding. The collapse of Byju’s, India’s first high-profile edtech unicorn, amid accusations over questionable corporate governance and irregular practices, has dimmed the sector’s allure. The post-pandemic struggles of platforms such as Unacademy and Noida-based Vedantu, once racehorses, have not helped the sector’s cause, either.

 

The latest deal is UpGrad’s second offer in two months. Talks in January fell through after differences over valuation surfaced. Cofounded by entrepreneur and film-producer Ronnie Screwvala, UpGrad is said to have proposed an all-stock valuation of $300 million. This was significantly lower than the $2.25 billion that Unacademy’s investors were seeking and substantially below its peak valuation of $3.4 billion in 2021. In 2024, Unacademy’s talks with Kota-based test-preparation major Allen Career Institute fell through for similar reasons. The potential revival of the deal (only a term sheet has been signed) should not, however, suggest that the sector is headed for recuperation. Further deals are unlikely to take place at the kind of headline-grabbing valuations of 2021 and 2022.

 

The outlook among investors is that raising fresh rounds of investment would entail promoters taking substantial haircuts (which the UpGrad-Unacademy deal implies). In 2024, a small bump in edtech funding raised hopes of the funding winter coming to an end. But in 2025, the number of deals is reported to have dropped to 31 from 48 in 2024 — way below 172 in the 2021 boom year and 95 in 2022 — and the lowest in a decade. Funding dropped from $572 million in 2024 to $240 million in 2025 — again, a steep fall from $4.78 billion in 2021 and $2.44 billion in 2022.  The stock-market performance of Noida-headquartered PhysicsWallah, which became the first edtech to list, reflects the outlook. After listing in November last year at ₹145, the share now languishes at ₹80-86.

 

In many ways, the edtech sector exemplifies the perils of poor strategic thinking both by entrepreneurs and private-equity (PE)/venture-capital (VC) investors. Most edtech platforms revelled in hyper-growth during the pandemic years in the K-12 (kindergarten to Class 12) space as brick-and-mortar schools remained closed during the lockdown, riding high on ever higher valuations from PE/VC investors. Unsurprisingly, they struggled for relevance in the post-pandemic period, when schools reopened. Those in the test-preparation and coaching business have been unable to compete against experienced brick-and-mortar institutes. Both Byju’s and Unacademy burned cash while attempting a hybrid online/offline model, vigorously acquiring startups, and expanding at a pace that ultimately impacted quality control. Falling profitability, layoffs, and restructuring inevitably followed. Investor preferences, too, seem to gyrate. In the post-pandemic era, upskilling, higher education, and professional learning were considered the more profitable options for edtech investment.  Now, the advent of artificial intelligence is seeing investors pivot towards K-12 education, in which the ability of platforms to offer personalised education to school students will emerge as a key differentiator. But here, too, the funding thaw is yet to be seen.