How investing in edtech startups can combine profit with purpose

There has been very little innovation with education being one of the most traditional sectors globally where the “service” has been delivered in almost the same way for centuries. In fact, the penetration of digital technologies prior to COVID-19 was low, at only 2-3 per cent, which is well below most other sectors of the modern economy. However, COVID-19 has propelled education technology, commonly known as edtech now, into the mainstream and has removed the main bottlenecks, namely teachers’ resistance to try new digital tools and students’ and parents’ perceptions that education cannot be delivered online.

COVID-19 has been a strong catalyst to the sector

Before the pandemic and the overnight shift to working from home, online learning was operating on the fringes of the offline offerings. In most cases, it complemented the traditional learning process or substituted live tutors where there was no other way to access them. During the crisis, there were no alternatives, and online suddenly became the norm. Adoption and usage has swelled and the demand for edtech solutions has grown at an extraordinary pace, fast-tracking the digitalization of education by five to ten years. With the extra resources, and a vast population of educators and students who are now much more open to digital learning, edtech could transform education as we know it.

Edtech specifically can make the education process more engaging and, therefore, more efficient and effective. We believe it is an interesting sector at the early stages of development. At Credit Suisse, we focus on young innovative companies that disrupt the traditional approach to education, skills and corporate learning. They are predominantly small- to mid-cap in size and are experiencing strong top- and bottom-line growth. Their products and services resonate well with tech-savvy millennials, while also serving the silver economy as we live longer and want to learn and experience more in life.

EdTech in India

In India, EdTech is no longer a sunrise sector, but an industry whose moment has arrived with more than $5 bn in private equity investments over the last five years. Two unicorns have already been created in this space with Byju’s being the most valuable unicorn out of India at a $16.5 bn valuation and Unacademy also entering the elite billion-dollar club recently. There are more than 4,500 startups operating in the edtech space in India currently, an industry that is projected to grow to $30 bn in the next 10 years from the current market size of around $800 mn, according to a recent report by RBSA Advisors.

The pandemic-driven lockdown has given a huge booster shot to the already growing industry with schools moving online and work from home culture poised to become an accepted way of life. As per a recent report by The Ken, since the pandemic broke out, Byju’s alone added 20 million new students on its platform with over 64 million registered students currently.

The key factors leading to the adoption of edtech across the country are a high nationwide internet penetration (~450 mn active internet users as per India Internet 2019 report by IAMAI) and the increasing access to smartphones (smartphone base of over 700 mn) even in rural areas where one can see encouraging online content consumption trends taking shape across demographics. Moreover, a young employable population hungry for training and certification and an expanding demand for reskilling in a world under constant flux means remote learning is a trend which is here to stay even after the economy opens up.

Edtech has the power to transform India paving the roadmap for a level-playing field for education across the country with online platforms delivering the same content to urban and rural populace, the rich and the poor, all castes and creed alike, thereby bridging the divide more efficiently than ever before. The Government of India has realized the power of EdTech in educating India and has launched several programmes like Skill India, SWAYAM, SANKALP, STRIVE, DIKSHA, and National Digital Library among others.

Currently, K-12 is the biggest segment within edtech in India followed by online test preparation and online certification. Going forward, corporate training, teacher training, performance monitoring, AI/ML-based personalization tools, gamification of pedagogy, upskilling on hobbies and interests, as well as vernacular-medium semi-urban and rural population focused products/services among others could throw up a lot of interesting investment opportunities. According to a report by PGA Labs and IVCA, India’s education sector is poised to grow from $117 bn in FY21 to $225 bn by FY25. The industry, therefore, would have something to offer to every investor, be it not-for-profit or private equity.

UN Sustainable Development Goal No. 4

Education contributes to the elimination of poverty and inequality and is the very foundation of socio-economic development. It can be directly linked to prosperity, health, satisfaction, and quality of life in general. Therefore, access to quality education is the UN’s fourth Sustainable Development Goal.

From the perspective of sustainable investing being in line with ESG (environmental, social, and governance) criterion, education falls into the “S” (social) category. However, so far it has been rare to find products to fund that focus on the social component of ESG and as a result, targeting these new opportunities in the education sector makes a whole lot more sense in the current scenario.

While the pandemic has been a shot in the arm for the edtech industry, the current edtech landscape will keep on developing with new products, focusing on providing a more customized and personalized learning experience for users, well after the age of lockdowns and curfews comes to an end. With these seismic changes bringing a new future for the education sector, this is a space investors can leverage if they want to integrate profit with purpose.

(Kirill Pyshkin is Senior Portfolio Manager, Credit Suisse Asset Management. Sandipan Roy is Head of Products for India, Credit Suisse Wealth Management. Views are their own)