Education Investments in India – 2013 (Part 1)

It is more than a year since we took a close look at the education investment landscape in India. In this post and a couple of subsequent ones, I would like to cover the following:

• Quick update on investment landscape in education in India
• How do we split up the education sector and market potential across sub-sectors
• What are the challenges for each of these sub-sectors
• How does this compare to what’s happening in the US

India investment landscape for Education

If we look across all VC and PE investments in India it has held more or less steady in the last few years with about 20 investments and about $200M being invested annually (data below courtesy Venture Intelligence)

If you leave out Private Equity investments (growth stage) and look at only Venture Capital and Angel investments the number for 2012 was about 15 investments (and $55M total invested).

Now, let’s dive deeper into what’s happening across the various sub-sectors of Education. For the purpose of this discussion, let’s look at the following sub-sectors: Test Preparation, K12, Higher Education & corporate training and Skills/Certification training

In this post, I will take a closer look at Test Preparation and in subsequent blogs we can dive deeper into other sub-sectors.

Test Preparation

Test Preparation companies are focused on helping students prepare for various entrance exams for engineering, medical, management and other professional streams. This is probably one of the largest organized sub-sectors within education and has emerged strongly over the past decade. To set the context, there are about 1.2M students who take the engineering entrance exam and about 350K who take the medical entrance exam alone in India. The total addressable market for this sector is safely north of Rs 3500 Cr in revenue potential. Here is a good blog by education entrepreneur Jayadev Gopalakrishnan pegging the market conservatively at about Rs 4000 Cr. There are two public companies in this space – Career Point and MT Educare and at least 5 other with revenue >Rs100Cr.

In the blog above, Jayadev points out three major trends – exams going online, exams consolidating (JEE Main as an example where there were multiple entrance exams earlier) and renewed importance of Board exams.

We believe that all three are important and hence companies that embrace technologies such as tablet and online practice systems and offer integrated test preparation have an edge. Integrated test prep refers to programs such as FITJEE and ACE-Deeksha that provide integrated board and entrance test preparation thereby using the students time more efficiently without having to shuttle between school and tuitions (for test prep) and using the extra time to effectively practice online or with tablets (full disclosure: ACE is an Accel Partner India’s portfolio company)

One of the pleasures of being an investor in education is that I get to meet entrepreneurs trying to disrupt test preparation using technology. A few companies that are doing outstanding work in this regard are Edutor (tablet learning), Vedantu (online and tablet), Embibe and Toppr (both provide online/tablet based test prep). These are just a few off the top of my head – I have met at least a dozen other interesting startups in the space.

A few challenges that startups that are taking the technology route need to think through:

• Platform providers: If you are a technology platform provider to test preparation companies you would need to ensure that you are deeply embedded into the test prep companies ecosystem and that you will not be easily switched out. A good measure of this – most test prep companies charge >Rs25K per student/year, what fraction of that are you able to retain?
• Primary vs Supplementary: For startups that are aiming to go direct to students and selling their solution as a primary test preparation tool, based on numbers I have been able to gather 70-80% of the 1.2M test takers go to some kind of coaching for test preparation. These students are already bombarded with practice tests from their test prep institute and do not have time to use supplementary tools. And so, for your tool to be used by the student, it might be necessary to get it integrated into the test prep institutes curriculum.
• Addressable market: You need to be able to command > Rs10,000 per student/year so that if 40% of students use your technology solution that is a Rs 500 Cr market (1.2M*40%*Rs10,000)
• Distribution: And finally, how will you acquire your student customer? Will it be through coaching institutes or by directly marketing to them? If its direct marketing (online and offline) what will be the cost of customer acquisition and will your revenue per customer (over the two years of preparation) support that customer acquisition cost?

Through the Edustars program (applications open through 15th November), we hope to discover that next great disruption in the Test Prep market using technology. The above questions are meant for you to think through the basics of building that business so that we can quickly get past these questions and onto building a company that touches millions of students over the coming decade. Would love to hear your questions and get your feedback on the Test Prep topic.

Will touch upon the other three topics in the next blog post: K12, Higher Education & corporate training, Skills/Certification training.