Education technology companies are seeing unprecendeted investor interest as a direct result of the increased digitisation of education amid the Covid-19 pandemic.
Online live tutoring platform Vedantu has held talks to close a $100 million financing round, led by US investor Coatue Management, valuing the live online tutoring service at $600 million, multiple people in the know said.
This comes close on the heels of Silicon Valley investor and analyst Mary Meeker’s Bond Capital backing Byju’s at a $10.5 billion valuation. If the investment in Vedantu goes through, its valuation will double from the previous funding round, which was led by Tiger Global and WestBridge Capital last year.
New York-based Coatue is a known technology investor, having backed Uber, Meituan Dianping and Doordash
globally, along with bets on Swiggy and Rebel Foods in India.
Others in the ed-tech sector are also capitalising on the positive sentiment. Unacademy is in discussions to rack up new capital at a $1 billion valuation, while Whitehat Jr, which teaches coding to kids online, has been in talks with Steadview Capital, Tiger Global, among others, to pull in new capital at a valuation of $350 million, ET has reported previously.
The heightened interest shown by risk investors to pump in fresh funds at steep valuations contrasts with demand cratering at many cash-guzzling Indian consumer internet businesses as their revenues slumped amid the virus outbreak.
A crush of startups have laid off staff and cut salaries as they anticipate funding to dry up due to the wider uncertainty in the economy. The online education space, though, has become a relatively secure bet, investors said.
“Finally, Indian VCs have found a sector that has real revenues and high gross margins. The excitement around it is justified,” said an investor who has reviewed multiple companies in the segment. “However, the valuations are way ahead of reality and are likely to cause some real concerns in future. VCs who manage to sell secondary shares along the way will see good returns…,” the investor, who did not wish to be named, said.
Though valuations remain high, the fear of missing out has made investors back ed-tech platforms, even as there are expected corrections in later funding rounds.
“These businesses are real and will be ok…the valuations will get to a certain level and then stagnate as the next set of investors will demand real Ebitda…,” the investor added.
Sensing huge opportunity
Vedantu, which recently invested $2 million in online doubt solving platform Instasolv, said the number of subscribers on its platform grew to 1.1 million, with revenues increasing by 80%. The company is hoping Instasolv will help it push further into Tier 3 and Tier 4 cities.
“We have seen a 5X growth on our platform every month,” a spokesperson for Vedantu said in a statement, without commenting on any likely investment from Coatue. Coatue did not respond to ET’s email till press-time Monday.
The high subscriber base of companies such as Vedantu is what is attracting a slug of capital into the sector.
“Covid-19 has accelerated an already ongoing shift to digital education. The number of ed-tech users has doubled in the last four months and the sector has at least gained a year in its evolution. Eager investors looking for green shoots in an otherwise battered economy are being drawn to ed-tech, which is counter-cyclical in the current climate,” said another venture investor, who did not want to be quoted by name as he is not authorised to speak to the media.
The overall K12 segment, or Kindergarten to Class 12, is worth $13 billion and is growing at 10% each year, with ed-tech capturing just 4% of that market with $500 million in revenues, indicating the potential opportunity, Sequoia Capital’s Tejeshwi Sharma tweeted recently.
India ed-tech in perspectiveK12 tuition: $13B growing 10%K12 ed-tech: $500MPenetration: 4%Test prep: $8B grow… https://t.co/Gy8GCylQZJ
— Tejeshwi Sharma (@tejeshwi_sharma) 1591689965000
India’s ed-tech sector will grow to $5 billion in revenues in the next seven years, with a combined market capitalisation totalling $30-40 billion for all Indian ed-tech companies, Sharma added in the Twitter post.