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Edtech start-ups funding down 50% in Q2 2022 from Q1, report says. Insiders blame ‘bad phase’

Funding in Indian start-up ecosystem overall tanked to settle at $6.8 billion in second quarter of this calendar year, down 40% from $11.3 billion in first quarter, says PwC report.

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New Delhi: Funding for education technology in India has declined by 50 per cent in the second quarter (April to June) of this calendar year, according to a PricewaterhouseCoopers (PwC) report released Monday. 

On the whole, funding in the Indian start-up ecosystem also tanked by 40 per cent from $11.3 billion in the first quarter (January to March) to settle at $6.8 billion in the second quarter.

“The decline can be attributed to a global slowdown, decrease in tech stock valuations, inflation and geopolitical instability,” PwC says in the report, titled ‘Startup Deals Tracker — Q2 CY22’. 

Amit Nawka, partner, deals and India start-ups leader at PwC India, said it would take at least a year for the scenario to change. “We expect the overall funding landscape to take 12–18 months to stabilise, during which it would be beneficial for start-ups to increase their ‘funding runway’,” he said.

The term ‘funding runway’ is used to describe the length of time — generally measured in months — for which a start-up can operate before it runs out of cash. 

Edtech experts, meanwhile, told ThePrint that the slowdown of funding was a temporary phenomenon. 

Five sectors  —  fintech, SaaS (software as a service), media and entertainment, logistics and auto tech and D2C (direct to consumer) — received 77 per cent of the total funding for start-ups in the second quarter.

But, barring fintech, media and entertainment, and e-commerce, funding declined across all sectors including edtech. From $915 million in the first quarter, the edtech sector saw total funding fall to $456 million in the second quarter. 

The report mentions two edtech start-ups that made it big in the second quarter — upGrad, which closed a big ticket deal for $225 million, and PhysicsWallah, a platform that caters to students from Class 6 to 12. PhysicsWallah entered the unicorn club this quarter by raising $100 million. A ‘unicorn’ is a start-up valued at over $1 billion. 

While the Indian edtech sector was valued at $750 million in 2020, it is predicted to reach $4 billion by 2025.

‘Temporary phenomenon’ 

Industry experts agreed that the edtech sector was going through a bad phase, but hoped that the slump was temporary. 

“One of the reasons the funding for edtech start-ups has gone down is because there was a lot of wastage by the companies. Now, they are cutting costs…however, the edtech industry’s growth will not go down. It is continuing to grow,” said Lavin Mirchandani, CEO of ConnectEd technology, an edtech platform catering to school students. “The slump in funding looks like a temporary phenomenon, and the industry should overcome it in the next nine to 10 months.”

In June, Unacademy co-founder Gaurav Munjal had posted a series of tweets asserting edtech was here to stay. “Never thought that I’ll have to defend edtech one day,” he said in another tweet. 

Gaurav Perti, founder and CEO of another edtech platform, PurpleTutor, told ThePrint that the decline in funding was nothing new as every market goes through its cycles.  “Edtech or education is an evergreen field. While schools open, the demand for good products will always remain. Unviable business models depending on cash burn will find it difficult. Good businesses will continue to build themselves and continue to get funded,” he asserted.

IvyCap Ventures Advisors Pvt Ltd founder and managing partner Vikram Gupta, an investor in start-ups, also said that the fund crunch was only a temporary phenomenon. 

“True, edtech start-ups, forming a significant part of the Indian ecosystem, are going through a period of slowdown at the moment. However, one must remember that this is only a short-term situation.”  Gupta said. 

“Innovations in the vernacular edtech space, making hybrid models accessible to tier 2 and tier 3 cities, and reduction in the customer acquisition cost, will make significant changes in the space,” he added. 

The report has been updated to correct a typo in the spelling of PurpleTutor 

(Edited by Tony Rai)

Also Read: Edtech created over 75,000 jobs in 5 yrs, cut Covid job crisis, says its self-regulatory body


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