Venture investing in education in India

2:45 AM Suvir Sujan 4 Comments

Every entrepreneur I meet in the pre school and vocational training space include k-12 schools in their future business plan. One also keeps hearing of business families opening schools and universities across the country. When I recently heard that an entrepreneur who was selling sweets in North India decided to open a university with the spare cash and land available, I asked myself the question "Is this a bubble?"

While there is no argument that education is a big need in the country, I am not sure if there is really an opportunity for a venture capital firm to invest in this sector. The reasons are the following :

1. Teacher dependency. Attracting and retaining talented teaching faculty is not a trivial task. Scaling faculty across locations is even more of a challenge. I remember when I went to school, not evey faculty member was top notch. If a single school cannot maintain quality across faculty, how do you scale this to different classes and geographies?
2. Capital intensity - Purchase of land and/or building/leasing of property can be suck up capital. If the amount of capital is high at the outset, then it defeats the venture capital model of low capital-high return.
3. Regulatory environment - Certain laws prevent investors from investing in the educational institutes. Investors try and work around this by investing in a management company. There is inherent risk in that model as the school that gives the teaching contract to the management company could potentially reneg on that.
4. Lack of gauranteed jobs - Given the plethora of universities and vocational institutes cropping up, there is pressure to fill seats which sometimes dilutes the quality of candidates admitted. Many of these students who graduate cannot get placed as they don't meet the quality criteria of the employer. In the vocational training sector, many jobs don't require formal education/diplomas unlike the western world (ie. plumber, carpenter, courier, etc) and hence make these institutes less viable.


Santhosh said...

Interesting views. We are a 3-yr old start up that requires some counselling & help. Would you be willing?

Aakash said...

While I agree that there is probably a bubble in the industry, but would not that be industry evolution as well (and Indians are known for "Bhed-Chaal")..but some of the folks are working on interesting a case-by-case approach is a must. Regulatory environment is still a challenge.

BedrajTrips said...

Good observations, when you are looking at 'traditional education'.

You are writing about education and have interests in technology... Merge them together... And may be, you have a strong reason to invest in education!!!

Let me try to build a business model in education around the 4 points as to why a VC should not invest in education...

1. Teacher dependency - scaling across geographies - yes, this is a challenge but can be mitigated if the teachers for the whole of India or the globe operate from one school... If they can be mentored by the same set of mentors on a daily baisis - one-on-one. Get them to work as coaches rather than teachers... But firstly, do not catch teachers for this job... Catch industry specialists and pay them industry salaries ... not teacher salaries...

2. Capital intensity - You do not need to have your land, building or property... all you need is a basic office with high bandwidth and enough conference rooms for the teacher to interact with the students globally - online of course! the capital will move from fixed outflows to monthly or Qtrly outflows based on the revenue inflows... Yes, Amazon AWS, SkyTap, Element K, or your own investment (DimDim) etc, can be used to replace fixed outlays.

3. Regulatory environment - leave the traditional education and move into preparing industry ready working professionals where the universities do not have a syllabus and no rule stands in your way... Unfortunately, in Bombay alone, there are 68k commerce graduates that pass out of Mumbai University. What do they do? They are hired (well, only a few) as freshers and trained by industry in various roles... Why can't an education company train them in their roles during their studies of commerce? Does this also not work in the case of engineers who run in hoards to the IT industry? Can a regulatory body allow a VC to invest in either of these?

4. Lack of guaranteed Jobs - yes, this is true for a player like that of NIIT and the likes... If you are truly building talent that is industry ready, where is the gap? You should have a back-2-back arrangement with the industry to take in 'x' number of resources that are billable from day 1. Which industry will refuse it? Which company will refuse it? In my interaction with companies, they are ready to pay a certain percentage of their investments on training to the company, who can give them trained manpower.

If you find this discussion interesting, let's catch up for a cup of coffee someday... Am located in Bombay...

Dhananjay said...

I know of upcoming models which addresses all the genuine concerns shown by you!

I firmly believe that the technology ecosystem being created right now in India, especially IP-STB (My hobby !), is expected to start merging education + technology to provide 2 solutions:

1. Virtual education
2. Creation of Teacher base

A spectrum of 5-7 years from Angel stage to Exit should be good enough for early movers to create a good case for VCs to invest...