Edtech Startups Emerge As Oasis Of Deals Amid Covid-Induced Funding Drought

Edtech startups have seen a record jump in fundraising as investors hunt for firms expected to benefit from the pandemic-driven online learning boom.

Already this year education-focused startups have raised twice the funds they did in all of 2019. Venture capital firms have invested about $795 million in Byju's, Unacademy, Vedantu, InterviewBit Academy and Doubtnut.com, according to data provided by Venture intelligence. That compares with the $108 million these startups raised during the same period a year ago and a total $408 million through 2019 via about 42 deals, the data showed.

“We had never thought edtech will become so big and expected that to happen in the next 4-5 years,” Anirudh Damani, managing partner at early stage fund Artha Venture Fund, told BloombergQuint over the phone. “But Covid has broken those barriers and has given edtech startups their scale now.”

That's happening at a time when both the number of deals and overall funds raised by Indian startups have declined so far this year. Data provided by Venture Intelligence showed that the number of deals declined by nearly a third year-on-year to 272, while total capital invested fell by more than a tenth year-on-year to $4.1 billion.

That's because as the pandemic started to spread globally in February, it halted new investments. Blocking of investments from China only made it worse.

Sectors witnessing increased investor interest, albeit at a lower level than last year, are healthcare, travel, fintech and real estate. In e-commerce, which used to be the darling of investors, the number of deals halved to 32, while deal size dropped from $1.2 billion in the first half of 2019 to about $393 million this year.

The data showed that investments in early-stage startups, which were already reeling under stress on account of a pre-Covid economic slowdown in India, took the biggest hit as deals of up to $2 million fell nearly 43%. The number of deals, too, fell from 172 to 128. This is by far the worst decline in the early stage sector in the last four years.

Transactions of deals between $2-25 million reduced by a fourth. As far as overall seed-stage funding is concerned, the number of deals were down from 139 in 2019 to about 85 this year.

However, larger deals, in growth-stage rounds, involving investments of $25 million and above, remained steady at 37.

Damani said he's seeing signs of revival in early stage funding. “We have started to see deal-making coming back into the ecosystem in pockets, and are back to be doing two deals a day as far as early stage deals are concerned.”

Sanjay Nath, co-founder of Blume Ventures, an early stage venture fund that has backed startups such as Leverage Edu, Unacademy, Grey Orange, Dunzo, and others said that 2020 is going to be tough for startups looking to raise funds. It might take some time for the deal making spree to return, he said, as Covid-19 has ushered in a “new normal”.

But Nath agreed that deal making has revived in some pockets.

He said the recent H1-B visa ban in the U.S. and the ongoing trade war with China will further result in a greater opportunity for Indian startups to build technology solutions, and enable more homegrown companies to drive innovation aggressively.