Why Are EdTech Startups in India Failing?

Siddhesh Surve -

EdTech in India today is witnessing severe setbacks, as evidenced by the challenges of leading startups turned unicorns Byju’s and PhysicsWallah:

  • PhysicsWallah, long lauded for its unique approach to online education, experienced a steep loss in profitability, with net profit dropping by a startling 91% in the fiscal year ending March 31, 2023. Despite a tremendous increase in operating revenue, the company's profitability has declined dramatically, prompting questions about its long-term viability.

Source: (1)

  • Similarly, Byju's, a dominating force of EdTech in India, had its valuation plummet from an eye-popping $22 billion to a measly $1 billion. This downward spiral in price, along with persistent governance and financial issues, has cast doubt on the company's prospects for growth.

Source: (2)

Mistakes of EdTech Startups in India

  1. Overreliance on Pandemic-Driven Growth

Many EdTech startups saw an increase in demand during the COVID-19 pandemic, capitalising on the move to online learning. However, this expansion was essentially temporary, driven by exceptional circumstances rather than long-term market forces.

Startups that thrived during the pandemic are now faced with the difficulty of maintaining members and producing income in a post-pandemic environment where traditional modalities of instruction are returning.

  1. Lack of Sustainable Business Models

The rapid growth of EdTech startups, aided by investor funding, frequently outpaced the creation of strong business models. Many organisations prioritised user acquisition over profitability, resulting in unsustainable growth rates.

PhysicsWallah's stunning loss in net profit despite a huge growth in revenue highlights the need for EdTech businesses to focus on developing long-term monetization methods.

  1. High Customer Acquisition Costs

Given the competitive environment and requirement for ongoing investment in marketing and user engagement, EdTech firms encountered substantial obstacles in recruiting and retaining consumers.

Byju's, which was previously valued at $22 billion, has seen periodic valuation cuts, expressing concerns about its capacity to gain and maintain customers in the face of increasing competition and shifting consumer tastes.

  1. Governance and Operational Challenges

Governance and operational concerns have emerged as major roadblocks for EdTech startups, undermining investor trust and compounding internal challenges.

Byju's stormy Annual General Meeting, which featured shareholder protests and worries about auditor difficulties, demonstrates the governance challenges that EdTech businesses face.

  1. Regulatory Scrutiny and Compliance Issues

Regulatory scrutiny, particularly in areas such as foreign exchange management, complicates the operational environment for EdTech startups.

Byju's recent show-cause notice from the Enforcement Directorate, citing Foreign Exchange Management Act violations totalling ₹9,000 crores, highlights the regulatory risks faced even unicorns in the EdTech sector.

Is a Comeback Possible for these EdTech Unicorns?

In response to these mistakes, EdTech startups are taking substantial steps to improve operational efficiency and revenue. Byju, for example, has started an extensive reorganisation operation comprising workforce cutbacks and measures to reduce expenses. 

But will it be helpful? 

The challenges that EdTech startups in India confront emphasise the need for a better strategic shift that focuses on long-term growth, prudent financial management and regulatory compliance. All this while keeping user engagement and EdTech services on priority over marketing and mass customer acquisitions.