Education entrepreneurs hear! This is what investors are looking for

Education in India is one of the most sought after sectors for investment. At present, the country has more than 1.4 million schools with over 227 million students enrolled and more than 36,000 higher education institutes. India has one of the largest higher education systems in the world with many new institutes adding up each year. However, there is still a lot of potential for further development in the education system.

Speaking at the India Education entrepreneurship Day organised by TIE, Manish Sisodia, Education Minister of Delhi, said, “There are many gaps in our education system which need to be filled by the edupreneurs.” He asked the investors to identify these gaps and work on bridging them.

There are many investors on a lookout to invest their money on good ideas in the education sector. At the session ‘What investors look for in an education entrepreneur’, Monica Mehta, Director Investments, Omidyar Ventures, said, “We do not prefer ‘me too’ businesses. Many a times we have startups approaching us who themselves are not clear on their goals.” During the session, more of such big investors told us what they look for before investing their funds in any startup. Here’s what they want:

Target market

Successful EdTech startups will target solving specific problems. An effective strategy is the one which supports services or products that serve either the highest end or the lowest end of the education market. For instance, low-cost education and credentialing startups will meet a huge unmet need amongst learners who currently constitute the higher education market.

The non-consumers

This group will not generate much revenue per customer, but platforms or services aimed at this group can operate at scale and therefore, have huge potential. Serving the education needs of high-net-worth-individuals also represents a big and growing opportunity. Edtech startups need to learn to differentiate by income and focus on meeting specific and specialised needs.

Purposeful idea

Any startup that equates the amount of data it collects with a plan to make money is not a business strategy. Education platforms can create huge numbers of data points and the reasonable processing and storage capacity of cloud services such as Amazon S3 depicts wonderful ways that this data can be analysed. If the scaling data serves a specific need, solves a specific problem, for which people will pay to be solved, then it could be accepted or else not. According to Avinash Mehra, Portfolio Manager, Acumen Fund, “We’re ready to invest in EdTech startups but the problem lies in the fact that many startups approaching us have only technology and no education.”

No to ‘Mobile’ or ‘Social’ Buzzwords

Social tools are a feature, not a business, the investors feel. Edtech platforms need to be on mobile devices, but this is more an expense than a path to profits. Social and mobile are tools which may add to the product or service on offer, or they may prove to distract.

Fund Infrastructure

Infrastructure plays a major role in making any institution a success. EdTech startups coming out with innovative ideas to lower the cost for colleges and universities will be looked upon. Figuring out where the campus infrastructure money is being spent, and offering a platform that provides that same service for less money is a big yes by investors. Infrastructure includes storage, security, servers and server management, backups, communications, applications that are still housed on campus and much more. This approach requires a really good understanding of the current campus technology spend, and the ability to form long lasting relationships based on trust with campus tech decision makers.

Years of operation

Investors prefer to back those startups that have been in the business for 2-3 years. In the initial years, it is very dicey to decide if the venture would be profitable. Six years of operation is a decent time for them to judge if they will be profitable in the long run. “A new enterprise aspires profitability. The time we give to an early investor is 5-8 years depending on how fast it grows but we are in a hurry to see whether it is able to make profit or not. We check on the high selling overheads and getting the unit economics in place,” said Monica Mehta. Unit economics refer to finding the key solution to the problem with key people.

Long term investment

The best Edtech startup consists of people looking to build a long range career working at the intersection between education and technology. Edtech startup is a long run investment. Those expecting instant returns should not invest in edtech. People working in edtech should be in the business because they love education, and want to spend their lives in the sector. The motivation in edtech should be the education and not the payout, say investors.

Fund Partnerships

Very often we find partnerships between an Edtech startup and an educational institution. Businesses allow schools or other institutes to do things that they would not be able to do without the expertise and often investments of a for-profit partner. These sorts of partnerships require startups to be staffed by people with good higher educational networks and a strong understanding of higher education norms and values.

Government intervention

According to Gaurav Mehra, Partner, Kaizen PE, “We usually do not enter government startups in education as they can be lumpy. They require large funding orders and involve delayed payments though a certain level of government intervention is required when you come down the pyramid.”

Thus, investors consider various factors before investing in education startups. They need to obtain as much information as possible about the business, the industry and the deal. There are no sure bets, but the more they know, the better their odds of success.