It is no secret that the EdTech sector in India has been traversing financial doldrums for the last two years. India’s EdTech companies, which once put her on the map as “the EdTech capital of the world”, now face massive financial crises.

While the crash of EdTech giant BYJU’S from “India’s most valuable unicorn” at $22 billion to insolvency is often talked about, Unacademy is the latest start-up to hit a crisis, with 350 employees laid off in November, and reports of its acquisition by ALLEN.

Many naturally see these crises in two of India’s largest EdTech start-ups as a death knell for the sector as a whole, but numbers indicate otherwise.

According to a report by Tracxn, an American software company, India’s EdTech industry was able to raise $164 million in funding between January and June this year, which is a 96 per cent increase from the same period in 2023, when just $81.9 million was raised.

While the sector is on a slow path to recovery, this year’s growth is nowhere close to the $4.1 billion raised in 2021.

This begs the question — where is the sector headed? What would the future look like for EdTech start-ups?

VC-backed start-ups in the most trouble

Most EdTech companies that fell into financial trouble did so after being unable to account for and recover the investments they received from venture capitalists, experts opine.

“These companies received millions, and even billions in funding cycles, but they weren’t able to generate enough revenue to match the investments. As a result, they couldn’t pay their investors back,” says Sahaj Arora, Founder of Courtroom by TLOI Academy, an online platform that offers coaching for judicial exams.

According to Arora, this mismatch comes from a gamble taken by EdTech companies — believing and perpetuating the notion of online classes being the future of education in India.

“The EdTech sector saw a boom in 2020 when there was a lockdown because of the COVID-19 pandemic. Students had no choice but to study using online means. With lockdowns lifted, students are heading back to physical classrooms, leading to a decreased number of enrollments” he explains.

He adds that he also started TLOI Academy during the pandemic, and the academy now earns just one-third of the revenue it used to. However, the academy does not face a crisis as they don’t have a VC waiting for a return on his investment.

End of online classes?

Arora adds that one big reason for the diminishing enrollments in EdTech platforms and online courses is the disillusionment towards online learning among students and their parents.

“Students grew tired of spending hours sitting in online classes, and parents were convinced that their children were not learning anything. A sense of digital fatigue set in among them,” he says.

As a result, to bring back enrollments and generate revenue, a lot of EdTech companies also began to open offline centres. However, there was one problem — there was a stark difference in the quality of teachers in these new centres, and those from already established, local coaching institutes.

“The coaching centres set up by EdTech companies lacked specialised subject matter experts. Most experts already established their independent businesses and students, and these companies could not recruit new ones. As word about the lack of quality in the teaching at these institutes spread among students, they were turned away from them,” Arora explains.

Talking more about students’ attitudes towards online classes, Ravi Kapoor, Indian Revenue Services (IRS) Officer-turned-mentor for the Union Public Service Commission Civil Service Examination (UPSC CSE) says that several of them found it difficult to integrate online classes into their daily routine during the lockdown.

“It takes a lot of discipline to stay on your phone for hours on end during the day and stay focused on your classes. A lot of students, unfortunately, lacked this discipline,” he said.

He adds that offline classes come with a support system of friends and peers, which keeps students motivated to focus on their classes.

However, making the case for online classes, Kapoor says, “A lot of students can learn in a peaceful and more structured manner online.”

Illustrating this based on his own experience, he says that he joined an offline coaching institute in Old Rajendra Nagar, one of Delhi’s now-infamous coaching hubs when he was preparing for the UPSC CSE, but had to stop because he found attending classes in the area too overwhelming.

“Old Rajendra Nagar is extremely crowded and chaotic and induces anxiety among students. Given the overproliferation of coaching centres, you are left with a feeling of FOMO (Fear Of Missing Out) when you join an institute as you feel like another institute is offering something more,” he narrates.

As a result, when he transitioned to offering mentoring to UPSC aspirants, he was informed of these issues while tailoring his mentorship programme.

“I can offer customised courses for students based on their learning style, and give them one-on-one mentoring. Physical classrooms don’t usually give teachers the bandwidth to do these,” he says.

For students from the hinterlands and less connected regions of India, he adds, online classes are the best and only available option to receive specialised coaching and education.

Speaking more about the demand for online EdTech platforms, Mayank Kumar, former Co-founder of upGrad says, “A lot of the funding for the EdTech sector fell as the K-12 segment stopped being profitable once lockdowns were lifted, and VCs were not keen on investing in it anymore.”

He adds that the demand for online education persists for courses and programmes with clearly visible outcomes, such as upskilling and test preparation.

“For these courses, students can ascertain their value based on their outcomes. Upskilling courses could lead to an improvement in career and test preparation courses could be assessed by how many students cleared a particular exam,” he elaborates.

“Not the end,” say industry insiders

Reacting to the perception of doom around the EdTech sector, Kumar says, “Similar sentiments were expressed when the Satyam Computers scam broke out. Everyone thought that the IT (Information Technology) Services industry was done for, but nothing of that sort happened. The industry has bounced back from the scam’s fallout.”

He adds that a “few bad apples” would not deter the sector and companies in it from growing further.

“As long as EdTech companies focus on learning outcomes instead of aggressive sales and promotion, the sector will thrive,” he says.

Currently, India’s EdTech sector remains the world’s third highest funded in the world, with 11,000 active companies.