Indian edtech overhaul sparks renewed investor optimism

“There was the crazy pop (in 2021) and then there was the Byju’s period. Now we're just seeing companies with their heads down, executing, driving to profitable growth. That is now the mantra," Deborah Quazzo, managing partner of edtech-focused investor GSV Ventures, told Mint.

As a result, investors have started reconsidering investments in edtech. According to data from analytics firm Tracxn, the sector's total funding surged from $245.8 million in 2023 to $608.9 million in 2024.

Early-stage funding more than tripled, growing to $303.2 million this year, from $100.7 million in 2023. Similarly, late-stage funding surged nearly threefold, rising from $95.5 million to $263.3 million. Volumes went up as well. The number of early-stage rounds rose from 15 to 20 and late-stage from 6 to 10.

Also read | After a year-long pause, GSV Ventures looks to invest in Indian edtechs in 2025

This follows over two tough years for edtech, marked by waning investor confidence due to declining post-pandemic demand for online learning, a shift from growth to profitability, and the collapse of Byju’s. Funding plummeted from its $4 billion peak in 2021, reflecting the industry's challenges.

Edtech investors warming up

The thawing funding winter for edtech seems to be favouring some. A large chunk of the increased funding was mopped up by industry leaders like Physics Wallah, which raised $210 million in September; Eruditus with a $150 million round in October; and upGrad which raised $60 million in the same month.

Fuelling this surge is the buzz around potential initial public offerings (IPOs) these companies are gearing up for in the next 12 to 24 months.

Physics Wallah is planning for a public listing in 2025, while upGrad will gear up for an IPO within the next two years. Meanwhile, Ashwin Damera-led Eruditus is planning to shift its domicile from Singapore to India for a potential stock market listing.

The prospects of a flurry of exits have resulted in investors warming up to the idea of making further investments.

“In 2025, between further backing our existing investments in companies like Adda247, Sunstone, and Lead School, we are open to making more investments in the edtech sector," Sandeep Singhal, co-founder and managing partner of WestBridge Capital told Mint. The venture capital firm, however, did not make any primary edtech bets in the past two years.

Singhal added that both the K-12 and undergraduate education segments in India are substantial, as families dedicate a significant portion of their income to their children's education. “In the next 5-10 years, edtech will be one of the largest value creation sectors, both monetarily for companies' valuation and from the perspective of the value they bring to consumers."

Also read | When schools drop out: Why edtech LEAD is struggling to find followers

Some have even started. Earlier this month, Mint reported on Quazzo's GSV inking new deals in the Indian edtech sector.

According to Varun Gupta, managing director and head SEA, digital and technology investment banking at Avendus, the pipeline for edtech is rebuilding on the back of sector leaders' performance and potential public listing. "Edtech is definitely seeing a renewed interest this year with two large rounds already announced and more logs in the fire... There are at least 3-4 good IPO candidates with strong profitability metrics for the next couple of years which is drawing investor interest in this space."

Meanwhile, private equity players have also been more active in writing large cheques in select companies, signalling a growing interest in the intersection of education and technology as the sector matures.

“We’re actively seeking management buyout opportunities in our focus sectors - financial services, consumer, education, software and automation," Gopal Jain, co-founder and managing partner at Gaja Capital, told Mint.

The challenges in the edtech ecosystem have been overstated, said Jain, noting that the issues are confined to a few business-to-consumer (B2C) players with unsustainable unit economics and poor learning outcomes. Gaja Capital has previously invested in CL Educate, Educational Initiatives and TeamLease.

Where's the money going

Edtechs have started niching down especially in high-margin or under-penetrated areas like study abroad, and business-to-business upskilling, on the back of falling revenue growth in broader categories. New niches within edtech have emerged in 2024 where both newer startups and established companies have attempted to enter. Some of these niches are attracting investor interest.

Also read | Indian edtech startups niche down into nursing, allied healthcare upskilling

Dev Khare, partner at Lightspeed, told Mint that while the venture capital firm is excited about the growth of portfolio edtech companies like mental math startup Bhanzu and test prep Physics Wallah, he also sees significant potential in emerging niches.

He is evaluating opportunities in non-certified skill development within areas like influencer training. “In a country like India, where there’s a strong aspiration for upward mobility, people want to learn and improve their prospects for such skills," Khare told Mint.

Khare also believes that Indian companies targeting global markets and leveraging local talent for international audiences, are among opportunities Lightspeed will explore in 2025. The company has also made investments into vocational training in verticals like healthcare this year with Emversity.

For GSV’s Quazzo, investment opportunities lie within the intersection of artificial intelligence and education. “AI right now is obviously all anyone's thinking or talking about, it should have a profound impact on education. We're spending a huge amount of time around the impact of generative AI on education," said Quazzo.

Meanwhile edtech companies like Frontrow, Bluelearn and Stoa School shuttered operations.

The sector is expected to witness some consolidation with profitable and well-capitalized players acquiring the ones struggling. “There will be more acquisition activity as valuations settle to a level that buyers are willing to pay. There may be some companies that have not recovered really from the downdrafts and some of these weaker businesses might get pulled into other franchises," Quazzo said.