Are Edtech

Valuations in a
Bubble?
June 2021

www.eximiusvc.com
Growth in Edtech in the
Last 5 Years
Edtech valuations and fundraising have seen a massive spike in 2020 driven by
COVID-19 induced lockdowns.

Edtech has gained immense popularity in India since 2015 drive by

a large student population (approx. 360 million), cheap internet,
and rapid smartphone penetration.

Edtech market is expected to increase from $2 billion in 2020 to

$10 billion by 2025. Edtech companies have seen a massive jump in
user base and valuations due to COVID-19 induced lockdowns.

Valuation of Byju’s has gone up ~3x surrounding a 50% rise in

user base. Unacademy is now ~4x of its 2019 valuation follow-
ing a ~3x rise in user base. Although this looks promising, valua-
tions have seen a non-linear growth as compared to the user base.

In fact, in 2020, 20% of all the pitches we received were edtech – com-
panies providing academic vs. non-academic courses, offering 1:1
vs.1: multiple sessions, tapping into coding and even providing no-code
building solutions to kids.

More notably, most of them had started operations in 2020 itself.

www.eximiusvc.com 2
Why This Report?

To justify edtech's success, we needed a deeper analysis and understanding of

the COVID-19 induced growth and how users perceived it.This spurt in user base
followed by a rise in valuation piqued our interest and really got us thinking:

Could this growth be sustained Are edtech valuations in a What story does the rate
post-pandemic, or is it just a bubble? If so, what would of adoption and spending
temporary phenomenon due to be the path forward for the patterns tell?
compulsion? industry?

Will the user base stick Is the digital medium truly as

to the platforms post effective as traditional modes
pandemic? of imparting education?

We spent the last few months

speaking to 300+ students and
parents,120+ teachers and
10+ founders and investors
each on the path forward for
edtech. This report discusses
our findings.

www.eximiusvc.com 3
 Setting the Scene – Why
the Question Arose?
While the optimism around edtech began in 2015, pandemic induced lockdowns
attracted $2.4B of investments in the sector in 2020.
Investment in edtech over the years

Funding ($M) No. of Rounds

2,500 2,420 250

2,000 200
177
155
151
1,500 139 139 150

121
1,000 Byju’s
100
809
71 $822M
57 607
500 43 50
260 238
100 152
90 55
- -
2012 2013 2014 2015 2016 2017 2018 2019 2020

Notable
companies

Companies
formed 439 543 747 1,257 1,086 640 529 632 613

2011-2014 2015-2017 2018-2020 2021 & beyond

Edtech space starts Most active period in Unacademy becomes a Currently, there are
picking up. Increasing terms of edtech Unicorn and Byju’s ~4,530 active edtech
education companies companies formed. becomes a Decacorn startups in India; most
with online-first model. amidst COVID-19. found in or after 2015.

Byju’s is formed in 2011. Jio 4G launched by Smartphone users in Increased tech adoption
Reliance – reduction India surpass 400 million in schools to help B2B
in the cost of 1GB 4G in 2018; Rural smart- startups.
data from INR 250 to phone users surpass
National Education
INR 10. urban in 2020.
Policy (NEP) to
influence significantly
as it starts to take
shape.

Source(s): Tracxn, VCCircle www.eximiusvc.com 4

Massive Funding at
Top Edtech Companies
COVID-19 induced lockdowns have led to a spike in the user base and
valuations have increased disproportionately.

Case study: Case study:

(K-12 segment) (Test prep segment)

$15B* $2B
75M 2020 40M 2020
161% 2020
2020 292%
50% 208%

50M
13M $510M
2019
$5.75B 2019 2019
2019

User base Valuation User base Valuation

growth increase growth increase

Only ~6% paid users in both years. Only >1% paid users in both years.
*Pro forma for the latest fundraise.

The two Indian edtech unicorns show increase in both valuations and user base. However, valuations
have seen a non-linear growth.
More notably, between pre-COVID and post-COVID, Byju's and Unacademy didn't see a similar spike in
paid user base, therefore being unable to increase paid user penetration.

Primary Growth Drivers

Lowering paywalls COVID-19 restrictions

Increased user base growth due to New wave of students with the introduction
lowering paywalls on edtech platforms. of live classes and closure of schools
allowed for annual renewal rates to
touch 85%.

Source(s): Tracxn, VCCircle, Inc42 Unacademy Article, Byju's Business Insider Article. www.eximiusvc.com 5
 Valuations Across
Edtech Skyrocketed
Edtech valuations across all business models and stages increased in 2020.

Funding spree has continued in 2021 as well. Leading edtech companies are continuing to raise
large rounds - Teachmint raised $16.5M, Lead School raised $30M, upGrad raised $120M, and
Byju’s raised $1B, after which its valuation reached $15B.

Startup Valuation Students/Teachers/

Partner schools

300 25M
$255M 25 67%
106%
200 15M
15
$124M
100
5

Series C to Series D Pre-COVID

- Post-COVID
-
Pre-COVID
-
Post-COVID
-

200 500
$175M 500
233%
150 259%
250
150
100 125
$50M

Series B to Series C
Pre-COVID
- Post-COVID
-
Pre-COVID Post-COVID
- -

75 $70M 20K
75% 20

50 $40M 15 1567%
25
10

Series B to Series C 1.2K

Pre-COVID
-
Post-COVID
- - -
Pre-COVID Post-COVID

$150M
150
150% 15 13M
255%
100 10
$60M
50 5 4M
Series C to Series D
Pre-COVID
-
Post-COVID
- - -

Pre-COVID Post-COVID

$150M
150
183% 60
50K
150%
100
40
$53M
50 20K
20
Series B to Series C
- - - -
Pre-COVID Post-COVID Pre-COVID Post-COVID

Source(s): Tracxn, VCCircle, IVCA www.eximiusvc.com 6

 What Is a Reasonable
Edtech Market Size?
Market experts have been showing varying market size estimates ranging from
$10B to $16B.

Market size can be broken down using the following parameters, analyzed in table 1.1:

1.1 In 2020, education spending was expected to be $117B; edtech at $1.8B

1.1Particulars Education spending expected to be at $117B; edtech
2020 2025at $1.8B (2020)
CAGR
2020 CAGR
1 No. of learners in India (in million) 360 390 2%

2 Average annual spend on 325 415 5%

education (in $)

3 Size of Indian education 117 161

market ($B) 7%

4 Edtech penetration (%) 1.5% 5.5% 30%

5 Edtech market size ($B) 1.8 8.9 38%

Breakdown of the particulars in table 1.1:

1 No. of learners in India - across all age groups and segments from pre-K to corporate.

2 Average annual spend on education - including primary and supplementary education.

3 Size of Indian education market - including primary education, higher education, test preparation,
training, and more.
4 Edtech penetration - this is further broken down in table 1.2.

Source(s): Tracxn, IVCA www.eximiusvc.com 7

 1.2 Factors contributing to growth of edtech
Factors 2020 2025

1 Smartphone penetration 38% 60%

2 Edtech awareness 70% 90%

3 Willingness to pay 6% 10%

4 Edtech penetration 1.5% 5.5%

Assumed to be the same as Byju's paid user base. 6% of Byju’s user base is paid;
% of paid user base did not increase during the pandemic.

Breakdown of the factors in table 1.2:

1 Smartphone penetration - students who have access to a digital medium to avail edtech services.

2 Edtech awareness - students aware of digital medium as an alternative to traditional learning.

3 Willingness to pay - students who spend money on these services. We use Byju's paid user base as
a percentage of its total user base as a proxy for this.

Even after assuming that 10% of the total user base across all edtech companies will be willing to pay
for the services by 2025, we can only expect edtech penetration to reach 5.5%. In this case, the edtech
market will grow to $9B by 2025, as observed in table 1.1.
Market size - 2025 ($B)
We further sensitized for different edtech penetration levels to estimate market sizes in 2020 and 2025.

1.3 Sensitivity of edtech penetration to edtech market size (in $B)

Penetration level (%) Market size - 2020 ($B) Market size - 2025 ($B)
The market size
estimate that we
1.8 2.4 arrived at in table
1.5% 1.1 with a 1.5%
edtech penetration.

3.5% 4.1 5.6

The market size

5.5% 6.4 8.9 estimate that we
arrived at in table
1.1 with a 5.5%
edtech penetration.
7.5% 8.8 12.1

Thus, to reach a $12B market size by 2025, edtech penetration needs to increase by 400%.

Source(s): Tracxn, IVCA www.eximiusvc.com 8

 2020 Edtech Growth
Posed Several Questions
Increasing valuations, growth in user base, and optimistic market sizes posed
several questions for us.

1 4
2 3
High growth Continuing
in 2020 willingness
The edtech industry to spend
in India witnessed Spike in the spending
phenomenal growth capacity of students /
in 2020, both in parents on online
terms of user base Advantages of Adoption education channels
and valuation. Is this digital education While a lot of anticipated and edtech platforms
growth sustainable growth in the edtech might be a result of
post-COVID or is it Digital education has the pandemic, since it
industry is based on the
a temporary growth several advantages, is the best and the
optimism surrounding
due to forced both on the side of only option available.
smartphone penetration,
circumstances? teachers as well asstu- Will they continue
will the adoption of
dents. However, it is yet paying post the
digital meeting channels
to be seen if loss of pandemic as well?
correlate with the accep-
productivity and
tance of edtech plat-
performance is worth
forms as a substitute
the convenience
of traditional channels
attached to it?
– either fully or
in part?

www.eximiusvc.com 9
Defining Themes and
Concerns
There are primarily 5 themes that we evaluate and test through research to
determine the long-term viability of edtech as a sustainable mode of learning.

Market awareness
Edtech platforms would become profitable only when they reach a criti-
cal mass. This event depends on a number of complex macro-level
factors, one of which is awareness – responsible for sustainable
customer acquisition cost levels.

Adoption by students / schools

The success of edtech also depends largely on schools and students
adopting the platforms – who would do so after considering its effect on
level of education, performance, and learning outcomes.

Willingness to pay
Early trends in the industry show increased willingness to pay. However,
this could be a result of diversion of disposable income from other chan-
nels of imparting education due to the imposition of lockdowns.

Effectiveness of learning outcomes

It is being assumed that edtech is perfectly substitutable to traditional
means of education dissemination. However, it remains to be seen if
the convenience of edtech outweighs the lack of efficiency.

Stickiness of the user base

While COVID-19 has led to a significant uptick in the user base for most of
the edtech startups, it remains to be tested if this user base gain is a
temporary phenomenon forced by lockdowns or would continue post
vaccination.

www.eximiusvc.com 10
Research Respondents-
Students’ Profile
To validate the above themes, we conducted a comprehensive survey of
students / parents across regions, income groups, school type, and boards.

Student / Parent survey

Respondents 306

Regional, 8
Internatnl., 21
Internatnl., 39
>20L, 50 South, 59

Hindi,
State,
118
112
10L-20L, 69

North,105

Private, 231 ICSE,

34
5L-10L, 91

English, West, 96
180
CBSE,
139
2.5L-5L, 86

East, 46
Govt., 36
<2.5L,10

School Language Board Income level Region

(in ₹)

www.eximiusvc.com 11
 Research Respondents-
Teachers' Profile
To validate the above themes, we conducted a comprehensive survey of teachers
across regions, subjects, and grades.

Teacher survey

Respondents 120

International, 2 Test Prep, 4

Others, 12 South, 17

Social Science,
14 Higher Ed., 26

Science, 31 North, 40

9-12, 45

Private, 90

Maths, 35

West, 39

K-8, 26

Language, 36
Government, 28 East, 24
Pre-K, 19

School Subject Grade Region

We also talked to 10+ investors and founders each

to get their insights on how they perceive edtech.

Note: 8 teachers are teaching more than one subject.

www.eximiusvc.com 12
How Aware Are the Users
of Edtech Platforms?
As compared to other online methods, the usage of edtech did not pick up equally
post lockdown – both on teachers’ as well as students’ end - which shows low
edtech awareness.

Teachers’ response to COVID Use of online meeting

platforms by students
Circulated notes/
recorded through 8%
Used edtech WhatsApp
7%
platforms 5%
19% 24% 1%
Primary Supplementary
Pre-COVID Post-COVID

Use of edtech
platforms by students
46%
41%
33%
26%
No classes
7% Conducted
1% 3%
online class Primary Secondary Casual
50% Pre-COVID Post-COVID
(Out of the total responses, 28 used neither online platforms nor edtech.)

Most teachers / schools circulated notes or homework through WhatsApp or moved to online classes
through platforms like Zoom. The fact that only 19% teachers chose B2B/B2C edtech platforms
shows lower pre-COVID awareness.

As a result of the COVID induced lockdowns, we see a significant increase in the usage of online
platforms. However, we don’t see the same delta for edtech platforms, which essentially shows
lower awareness among target groups.
However, we observe that a few students switched from secondary usage of edtech to primary
usage as the schools were shut.

Investors’ insights
For B2B edtech platforms, schools were using only a few modules pre-COVID.
Now the schools have begun using more modules and features. Awareness
does exist among students regarding existing options available on edtech
platforms; but efforts are needed to make them aware of its potential benefits.

www.eximiusvc.com 13
How Did Willingness to Adopt
Online Education Platforms Increase?
The number of hours spent on online education and edtech platforms increased
showing higher adoption, however, this could be driven by pandemic induced
lockdowns.
Hours spent on edtech Level of proficiency of teachers
platforms by students
50
20
40 Peak pre-COVID
Peak
15 post-COVID
Peak post-COVID
#Responses

#Responses
30

10
20

10 5

0 0
0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9
Hours spent Proficiency levels

Pre-COVID Post-COVID

Hours spent on online meeting

2 Willignness to adopt pre- and post-COVID
platforms by students
Edtech Online meet Proficiency
2
20 Timeframe
(hours) (hours) (rating / 10)
Peak
15 pre- Pre-COVID 5.03 2.81 6.35
#Responses

COVID Peak post-COVID

10 Post-COVID 5.32 4.41 6.77

5
The comparison in table 2 reflects an increase in
0
0 1 2 3 4 5 6 7 8 9 adoption, visible through the difference in the
number of hours students spent on online platforms
Hours spent
and teacher proficiency pre- and post-COVID.
Pre-COVID Post-COVID

Increase in the proficiency level of teachers on online platforms shows steady adoption among
teachers and schools as well.
However, while the number of hours spent on edtech platforms have increased slightly, online
meeting platforms have far exceeded them.
Investors’ insights
While adoption has increased considerably in metro and tier
Investors’ insights adoption within tier 2 and tier 3 cities 1 cities, especially
during the pandemic, is a problem
While
since adoption
the usershas increased considerably in metro and tier 1 cities, especially
face
difficulties
during the pandemic, adoption in understanding
within tier 2 and tierthe UI. is still lagging since
3 cities
the students face difficulties in understanding the UI.

www.eximiusvc.com 14
Are Users Willing to Spend a
Lot More on Edtech Platforms?
Willingness to spend has increased post-COVID, but teachers are not willing
to recommend online channels unless it is a necessity.

Shift in willingness to pay Edtech recommendation by

for students teachers (Post-COVID)
Pre-COVID Post-COVID
26%
23% 22% No 6%
16% 15%
12%
9% 9% 9% 9% Maybe 44%

Yes 50%
Below 1K 1K-5K 5K-10K 10K-20K Above 20K

3 3
Average spend across all tiers of
Pre-COVID
payments (INR p.a.)
Interest by teachers in continuing
with online platforms (Post-COVID)
Pre-COVID Post-COVID

11,530 12,775 17%

No

Using edtech platforms post Maybe 37%

free trial by students
Yes 46%
Not using
23%
edtech

No 1%
~50% of teachers are not positive about
Maybe 18% recommending edtech platforms post-COVID.
Major problems include absenteeism and
Yes 58% low effectiveness.

Increasing willingness to pay by students and parents since the pandemic is a testament to the
convenience of edtech platforms and their ability to deliver quality content at affordable prices.

Investors’ insights
Willingness to pay exists across all tiers, only if students / parents see value
in it. While teachers are now more aware of edtech platforms; in the long run,
it is expected that lectures would move back to the traditional channels.
However, assessments and homework will be managed through online
channels, thereby increasing spending as compared to pre-COVID levels.

www.eximiusvc.com 15
How Effective Do the Users
Think Edtech Platforms Are?
Lower scores in terms of learning levels by teachers as well as by students’ own
admission show that online platforms are not as effective as traditional methods.

Students’ learning level assessed by teachers 59%

46%
33%
28%
19%
16% 17% 17%
12% 15%
10% 11% 11%
5%
2%
1 2 3 4 5
Traditional Zoom / Gmeet Edtech

Own learning level assessed by students

70%
65% 63%

24% 25%
21%
7% 9% 11%

0% 1% 1% 2% 2% 1%
1 2 3 4 5
Traditional Zoom / Gmeet Edtech

Anticipated learning levels by Rating Rating

students from online platforms 4 Channel (Teachers) (Students)
38% Traditional 4.18 4.59
27% 28%

Zoom / Gmeet 3.86 4.51

7%

Below 20 21-50 51-80 Above 80 Edtech 3.63 4.49

Teachers feel that traditional channels are far more superior as far as learning effectiveness is
concerned. However, this contrast is not visible with students. On the other hand, students / parents
are wary of online channels due to increased distractions and higher screen times.

Investors’ insights
Learning outcomes and effectiveness are difficult to track. Effectiveness is a bigger
problem with respect to K-12, given the amount of engagement and handholding
involved. Test prep, upskilling, and reskilling startups would showcase a lower delta
in terms of learning effectiveness between online and traditional channels.

www.eximiusvc.com 16
Will Users Stick Around
Post COVID Induced Lockdowns?
Student, teacher, and investor views suggest that the traction garnered by edtech
startups during the lockdown might be temporary.

Initiation of usage of online Student usage intensity post-COVID

meeting platforms

86%

21

18
9%
5%

Compulsory Friend / Myself

in school Relative
58
73

Continuing usage of online meeting 2

platforms (post-COVID)
11
70% 9 11
66
2 6 9 8

16% No Maybe Hybrid Yes

14%
Usage < 50% Usage < 25%

Yes Maybe Only if Similar usage Usage > 25%

compulsory

Most students shifted to online platforms since it was made compulsory by the schools. Moreover,
most students would prefer to go back to traditional channels of learning after the pandemic.

Even amongst those who would continue, ~54% say that they would want a mix of traditional and
online and ~82% say that their intensity of usage would either stay the same or decline.

Investors’ insights
Edtech startups that are the perfect substitutes of traditional channels will suffer
the most after COVID. Online channels would exist, but only if they complement
the offline channels, since most students would prefer either traditional or hybrid.

www.eximiusvc.com 17
Expectation vs. Reality
While edtech has benefited from positive tailwinds from the lockdowns,
there are several questions that still need to answered for edtech to become
as large as the market expects it to be.

Themes Expectation Reality

(Investor / Founder View) Call Call
(Student / Teacher View)

Awareness for schools / teachers Low pre-COVID awareness

increased considerably. Edtech is observed amongst teachers. While
Awareness seen as a viable mode of learning. awareness amongst students is
Students need to be made aware of higher, it is still not as high as other
the potential benefits of using online channels.
edtech platforms.

Adoption has increased across Number of hours spent across online

user groups. B2B adoption has channels and edtech platforms have
Adoption also improved post lockdown with increased; however, this could be
schools using more features. driven by the lack of alternatives
However, usage in tier 2/3 cities during COVID incuded lockdowns.
still lagging.

Increasing willingness to pay is being

observed with students / parents.
Willingness to spend exists across
They have, on average, increased
all tiers of users, but only if they see
spending. However,teachers not
the value. For B2B platforms,
Spending spending is expected to increase as
recommending online modes might
lead to schools not adopting these at
compared topre-COVID levels as
mass. Thus, B2C platforms are likely
schools increase usage.
to see more spending than B2B
platforms.

Effectiveness is the lowest for K-12 Lower scores in terms of learning

where handholding is necessary. Test levels by teachers as well as by
students’ own admission show that
X
Effectiveness prep and online certifications see
higher effectiveness due to the self online platforms are not as effective
study nature of these offerings. as traditional methods.

Lower anticipated intensity of usage

Only edtech platforms that comple- post-COVID as well as mere condi-
ment traditional channels of educa- tional acceptance of edtech as a
tion would be in demand mode of earning by users show that
Stickiness post-COVID, since most students the current user base might not X
prefer either offline or hybrid prefer online channels later or use it
models. as a complementary learning
channel.

www.eximiusvc.com 18
What Will Be the
Future of Edtech?
COVID-19 has coerced the edtech space to evolve rapidly - 4,500+ edtech startups
and $4.5B+ VC capital poured into the sector is a testament to this. But what will the
new normal post-COVID look like?
Our Predictions
Market awareness
Most students / parents would prefer hybrid or traditional models over entirely online
modes. Startups that complement classroom learning will perform better than perfect
substitutes of offline medium.

Lower grades vs. higher grades

Self-study models such as skill courses and test prep would perform better compared
to lower-grade teaching, where interaction is key. Peer learning, social interaction, and
development of motor skills remain as important as content. Online university degrees
will not be able to replace traditional ones.

Willingness to pay
Willingness to pay has increased post-COVID. It could be attributed to an increased
awareness about the benefits of edtech as a result of these lockdowns. However,
willingness to pay still remains < 1/3rd of people’s annual spend. We believe that
people will only spend a fraction of their entire education budget on online channels
to complement their learning going forward.

Learning effectiveness
Educators believe learning effectiveness has been significantly affected as a result of
the shift from traditional channels to online ones. Edtech companies will need to begin
focusing on effective learning outcomes of their cohorts before becoming mainstream.

NEP 2020
Increased public spending in the sector could make B2B models more lucrative going
forward as schools look to upgrade and adapt. However, this will take 5-10 years to
pick up. Until then, massive discounts will have to be provided to increase adoption
among teachers.

Upcoming consolidation
It is expected that post-COVID, smaller edtech startups will struggle with traction (espe-
cially ones catering to metros and tier 1 cities), leading to increased consolidation in the
industry. The opportunity to tap into tier 2/3 market exists but companies will need to
innovate interface and marketing to cater to it.

While there are challenges for the edtech industry in the near future as normalcy returns, it has penetrated deeper into
our education system. We would expect the user base to reduce immediately post-COVID as students return to offline
classes before technology becoming an inherent part of learning.

www.eximiusvc.com 19
Appendix
Other
Results

1 Device preference for consumption 2 Preference by students

of online education w.r.t. edtech lectures

7% Indifferent Live
sessions
5% 64%
2% 42%
5% No answer

17% 17%
23%

Mobile / Tablet Laptop / Desktop Both

Recorded
Edtech platforms Zoom / Gmeet sessions
(10% are not using any online platform) 8%

3 Edtech platforms used

40%

26%

17% 16%
13%
6% 3%

Byju’s Vedantu Unacademy Toppr upGrad Coursera Others

1. Most students prefer to use laptops / desktops to consume educational content. This could be an
outcome of the lockdown, where the primary source of education is also through online channels.

2. K-12 seems to be the most popular category, followed by test prep and higher education.

3. 64% of all edtech users interviewed prefer live sessions. This means that edtech users are
looking to substitute traditional education channels as perfectly as possible.

www.eximiusvc.com 21
Advantages and
Drawbacks of
Edtech Platforms

For parents / students

Advantages Drawbacks
78%

42%
53% 40%
37%
45% 34%
25%

Higher quality Flexibility & Affordability Increased Increasing Requirement Insufficient Lack of real
content convenience distractions screen time of technology personal time doubt
attention solving

For teachers
Advantages Drawbacks
65%
53% 58%
52%
48%
39%

1%
Reduced travel Recording facility Better monitoring Absenteeism Low learning Reduced Others
time effectiveness attention span

www.eximiusvc.com 22
Are Edtech Valuations
in a Bubble?
An Eximius Ventures Report
June 2021

[email protected] | www.eximiusvc.com