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Anirudh A Damani

Anirudh A Damani, Managing Partner – Artha Venture Fund

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The Topsy-Turvy Indian Edtech Sector

With the edtech industry doing the exact opposite of the playbook on how to build a business, the result would always be a damp squib, even in their best-case scenarios

The Topsy-Turvy Indian Edtech Sector
The Topsy-Turvy Indian Edtech Sector

It was June 2022 when India’s edtech ecosystem was celebrating the seventh entrant of its unicorn club, PhysicsWallah. The media sang songs about the fantastic business Alakh Pandey bootstrapped from a YouTube channel into a 1900-employee company that was profitable from the beginning. I will explain later the importance of the latter part of that sentence.

Now, if one searches ‘Indian edtech’ on Google, the first page provides articles about the layoff of over 7,000 employees by Indian edtech firms, why the edtech bubble is bursting, and which startups may do well in the edtech ‘winter.’ 

So, how does an industry that was widely expected to reach a $10.50 billion market size in 2025 with 40 million paying customers across over 1000 universities and 42000 colleges suddenly find itself facing existential questions? Why would the limelight of success turn into a spotlight of interrogation?


A critical question facing every edtech startup founder raising venture capital is how quickly they would grab the winning slice of the limited amount of paying customers. Investors and founders know that India is a market where the top two players take away 80-90 per cent of shareholder value creation of that space. Therefore founders and investors needed to cement the numero uno position at (seemingly) any cost. Founders committed to winning at all costs, and investors committed to financing without asking (too) many questions. It was capitalism at its finest.

Each player estimated a specific cost to acquire a customer (CAC), to determine how much money was required to win. A good rule of thumb was to start their CAC at 50 per cent of the revenue brought in by the customer and to taper that to 20%. The expectation was that a satisfied customer would continue to return for future classes and might refer friends and family, helping the brand grow organically. The best businesses got built on this model, which worked well initially. However, things started to go horribly wrong.

I safely guess that if I added up the total number of paying customers predicted for 2025 for the top 10 most funded Indian edtech startups, it would add up to 3-4 times the entire available customer base! Consequentially, as more players entered the fray, the estimated CAC was not bringing in the predicted result. So, the founder had to increase their CAC, or the competition would triumph in a winner-takes-all situation. Before long, their CAC reached astronomical proportions; I’ve seen it at well over 150 per cent of the revenue from the 1st sale. I am sure there are models with much higher CACs than that.

When founders could no longer afford to increase their CAC, they began tinkering with revenues. The startups offered free trials, money-back guarantees, and, in some cases, even interest-free buy now pay later schemes. If nothing else worked, they began accepting payments as a percentage of future income! However, in a rush to land grab, the soil got destroyed.

While they were willing to pay, customers started getting bombarded with freebies; they felt stupid to pay. So, they started window shopping like the mass market these strategies would attract. As a result, the customer willing to pay got treated like freeloaders. It destroyed the customer experience, clouded the brand positioning in the customers’ minds, and contaminated the KPIs for the business.

Let’s look at an alternative route. What if edtech startups focussed on a niche, addressing a specific problem that no one else could easily replicate and focussed on delivering a high Net Promoter Score (NPS) customer experience with positive unit economics from the first sale? 

In this case, they could replace venture capital with customer capital. In the bargain, they would own a significantly higher chunk of the business and have the power to chart their destiny like PhysicsWallah, where Alakh and Prateek own 86.50 per cent of a Rs 7800 crore startup.

With the edtech industry doing the exact opposite of the playbook on how to build a business, the result would always be a damp squib, even in their best-case scenarios. The issue wasn’t with the industry since the schools hadn’t reopened, and the Indian customers were willing to pay.

Ironically, edtech startups upsold their business to investors while deeply discounting it to customers. I would not be writing this op-ed if they had done the opposite.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house


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