Pandemic market fit is over. Edtech will live: Sajith Pai, Karthik Reddy

The best businesses are often born in the depths of gloom. Those who build quietly, frugally, passionately, and address deep customer pain will grow, Pai, partner, and Reddy, cofounder and partner at Blume Ventures write

By Rajiv Singh Forbes India Staff

Published: Aug 3, 2023 12:09:05 PM IST

Updated: Aug 3, 2023 12:20:34 PM IST

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Almost all education plays that moved online saw crazy demand. As the numbers grew, and venture capitalists (VCs) invested in these companies. Illustration: Chaitanya Dinesh Surpur

In the first half of 2022, edtech funding hit $1.87 billion, according to Tracxn. This was a jump of 35 percent from the previous year, which itself had seen a 70 percent jump over the previous year.

In short, 2021 and 2022 saw a record rise in funding, audience numbers, engagement, hiring and growth. In Blume’s 2020 Edtech report titled ‘It is EdTech’s Moment’, we quoted an edtech founder saying, “The ecommerce of India is education” and that India’s Amazon would be an edtech company. We had indeed hit peak edtech.

Cut to July 2023. The first half of 2023 saw edtech funding drop dramatically to half the size of the previous year, at just under $900 million. Many edtech companies founded in 2020 and 2021, and which raised record rounds are now floundering. Some have shut shop and returned money to investors. Some of the sector’s leading lights with unicorn status have had to let go of people, and re-engineer their operations. From online, there has been a sharp push to offline, as many have set up physical centres.

What happened? Is edtech no longer edtech?

Blume has been a prominent investor in edtech, and the related human capital space, with investments in players such as Unacademy, Mettl (acquired by Mercer), Classplus, Leverage Edu and Uolo. We are not edtech sector investors, but we do understand the distinct nuances of the sector, and have a well-thought perspective of it. While Karthik led the first cheque into Unacademy and Mettl and operational expertise, Sajith helped the Times Group set up Bennett University, and also led the rounds into Classplus and Leverage Edu.

PMF… pandemic market fit and not product market fit

We believe that a lot of edtech startups that saw a sharp growth in numbers and customer demand (WhiteHatJr is the canonical example) actually had what we title Pandemic Market Fit and not true Product Market Fit (PMF). Given that we were all forced to be indoors, all education moved online, and for a brief while education became edtech. Products that otherwise wouldn’t have got PMF—like online hobby classes for young kids—started seeing great traction.

In regular times, we have seen that for parents, kids’ hobby classes are fundamentally socialising or childcare sessions (when the mother grabs a welcome coffee break). The skill or education part is secondary. During the pandemic, we saw a sharp rise in both supply and demand for online classes, led by excess funding as well as parents wanting to keep their kids gainfully engaged. The moment the forcing function of the pandemic waned, we saw a drop off in parent interest. Not surprisingly, almost all of the online hobby classes startups have shut shop or pivoted.

It is not just online hobby classes that saw pandemic market fit. Almost all education plays that moved online saw crazy demand. As the numbers grew, and venture capitalists (VCs) invested in these companies, we saw these startups use these cash reserves to subsidise growth, giving the product free. Not surprisingly, demand rose even more. However, this growth was not backed by genuine demand, or at least a large number of the audiences were ‘tourists’, who moved out when the pandemic eased (as schools and offline centres opened up), and the growth subsidies eased. With their moving out, and the deflation of growth we have seen, many edtech players have had to take drastic measures to reduce their cost base, scuppering divisions, letting go of talent etc.

Also read: Edtech or Greedtech?: Where is the sector headed?

Online to omnichannel

Byju’s’ acquisition of Aakash, Unacademy’s expansion into offline centres, Vedantu’s acquisition of Deeksha are all pointing to offline expansion as the big growth lever for edtech players. With this, it is a fair question to ask: Is it edtech at all if you go physical?

Just as Nykaa, Lenskart, Sugar and many more have cleverly leveraged physical expansion to create an omnichannel presence to tap into relevant customers, it is imperative that edtech players go where the audiences are. In a country like India where 30 to 40 million households (perhaps a little higher for education) are the core drivers of consumption, it makes sense to go where they are, and use offline if that is their preferred medium.

The offline presence is, however, married with tech, and leverages tech significantly, to help the startups onboard students effectively, track engagement and outcomes, thereby creating an enhanced ‘phygital’ product. This phygital product has the best of both worlds, delivering classroom engagement and effectiveness, and leveraging digital for notes and explainers, interactive quizzes and doubt-solving sessions etc.

Only when the tide goes out, do you discover who is swimming naked: Warren Buffett

We believe that the best businesses are born not in the times of frenzy, but often in the depths of gloom. It is times like these that separate what are genuine businesses that are solving customer pain with well-crafted products, from the rest.

For every few stories of failures, we are seeing several success stories as well. In times to come, we will celebrate their achievements.

To wrap up, we saw intense highs, and to some extent the correction was welcome. It was inevitable that it would correct once the pandemic effect waned. We should, however, not go the other way and declare that edtech’s days are over. In the background, we are seeing several founders and their teams quietly building away, frugally, passionately, addressing deep customer pain through their products. We can’t wait to see them emerge into the spotlight soon.

Pai is partner, and Reddy is co-founder and partner at Blume Ventures