Back to school: Indian edtech valuations fall as funding dwindles

Data InsightDealspeak 8 June

Back to school: Indian edtech valuations fall as funding dwindles

A takeoff in online learning during the pandemic saw global investors flock to fund India’s education technology boom, propelling valuations in the sector to a dizzyingly high enterprise value-to-revenue (EV/R) multiple of nearly 8x. However, as coronavirus (COVID-19)-induced growth starts to subside, companies face deep valuation cuts and are under mounting pressure to rein in costs, say sector advisors and investors.

In 2020, global investment in Indian edtech firms more than trebled from the previous year, with deal volume jumping to 59 deals for around USD 1.7bn, according to Dealogic data. By the second wave of the pandemic in 2021, investors were chasing edtech deals in the world’s second-most populous country, lifting the deal size to USD 2.6bn from only 18 tie-ups.

Huge sector interest manifested in four edtech unicorns — Unacademy, Vedantu, Eruditus, and UpGrad — emerging in India over the past two years. They were joined in January by LEAD School, while Byju’s became the country’s most expensive start-up following an USD 800m funding round in March that put its valuation at an eye-watering USD 22bn.

But the funding euphoria appears to be waning. India’s edtech space in 2022 year-to-date (YTD) has seen only six deals for around USD 1bn, with about 75% of this comprising Byju’s cash call.

“Until six months ago, revenue multiples in the edtech space in India were hovering around 8x for large edtech firms with a sizeable market share, and about 6-7x for small companies in the space,” says Gopal Agrawal, head of investment banking at Edelweiss Financial. “Now, as user growth is declining, valuations for large edtech firms have fallen nearly 25% to a 6x revenue multiple, while for small edtech companies the reduction is anywhere between 20-40% to up to a 4x multiple.”

The trend, says Agrawal, is in line with global edtech valuations, which nearly halved between 2021 and 2022.

Learning curves: some Indian start-ups could delay IPOs

As funding becomes scarce and tech stocks underperform markets, companies are paring back expenses and focusing on profitable growth. Unacademy, Vedantu, Eruditus, FrontRow, Udayy, and Lido Learning have all resorted to mass layoffs in recent months.

Edtech firms are being asked to cut burn and extend runways by a further 15-18 months or longer, says a venture capital investor, who has placed his bets on an edtech unicorn and other start-ups in the space. Consequently, some Indian start-ups such as Byju’s, Vedantu, and Unacademy, which were reportedly considering going public, may now extend their listing timelines.

“M&A in the edtech sector is likely to increase in the coming years,” says Raja Lahiri, partner - growth and overseas listings leader at Grant Thornton Bharat. “Larger and well-funded players will look to acquire niche assets and diversify offerings,” he adds.

In February, this news service reported that Bengaluru-based upGrad was looking to secure funding of more than USD 185m to pursue a pipeline of tie‑ups with universities across the US, Europe, the Middle East and Asia, citing Gaurav Kumar, its president of corporate development and M&A. In January, the online post-secondary education provider acquired Work Better, an enterprise training company based in Mumbai.

Scaler's co-founder Abhimanyu Saxena was cited in local media in May as saying that his firm will invest USD 50m in M&As in fiscal 2023, as it sees a consolidation opportunity amid a funding slowdown and drop in valuation of edtech companies.

Indian edtech unicorn, Eruditus, has signed debt-financing worth USD 350m from the Canada Pension Plan Investment Board (CPPIB), which the company’s co-founder, Ashwin Damera, says is to fund overseas acquisitions in the US and Europe.

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