23 things we can expect from Ed-Tech companies and founders in 2023.
This is written in jest. I do not claim to have insight into individual companies. Statements in quotes are what we can expect to hear, and statements without quotes are industry trends we can expect to see.
1) Valuation to meet reality. Gently. In 2022, revs of x and losses of 4x fetched a valuation of 40x. In FY23, revs should go to 1.2x and losses to 0.4x. Co will forecast revs of 1.5x profits of 0.2x for FY24 and hint at IPO. The market should laugh & pay 4-7 times the revs for this.
2) “We are not Byjus”: Several Ed-Tech companies will be keen to emphasize that they are not Byjus. The fact that they mentioned Byjus valuation multiples 17 times per hour while fund-raising is a mere quirk. Unfortunately for Byjus, they will not be able to use this defense.
3) Founders will show Pointless Interest in Various Other Things. In other news, the word of the year is PIVOT.
4) “We do not have heavy exposure to K-12”: K-12 has been demoted quicker than a 40+ heroine offered mother roles in Tamil movies. Hardly 18 months ago, K-12 was the FOMO sub-vertical in Ed-Tech.
5) Profitability’s cousins: We will get cash profitability, adjusted profitability, profits before exceptional items, cash profits ex of capex, adjusted EBITDA, near-term profitability and any-qtr-now profitability, and even profitability including non-operational revenues.
6) “We are not Classplus”: Classplus is the KL Rahul (from T20) that prevents uncomfortable questions from coming near Rohit Sharma or Pant.
7) FY22 and CY22 will be deliberately mixed-up: Companies will post 2022 results and say that 2022 was tough for Ed-Tech because of post-pandemic headwinds. FY22 numbers are for the 12-month period ending Mar 2022 – the period saw the pandemic tailwind, not the post-pandemic headwind.
8) “We are not Vedantu”: See Classplus.
9) Down-rounds: Some will have a down round before too many pivots – these may survive. I hope some of my competitors postpone down rounds for as long as possible.
10) “YouTube is not a threat”: YouTube is and will continue to be India’s (and the world’s) best Ed-Tech Player. YouTube may not get many revs from this Ed-tech play, but YouTube will strangle Ed-Tech by dampening its pricing power. Forever.
11) Non-operational revenues to the peak. Cos have money, they hoard it in a bid to ‘extend the ramp’. They refuse to accept failure, interest rates are high, so non-operational revenues spike. Non-op revenues being 50% of standalone revenues should warm the hearts of investors.
12) “We draw a line“: There will be more drawing of lines than a Kindergarten class in a scribbling contest. Worst-is-behind-us, we-will-now-look-ahead, annus-horribilis – these terms may also be used.
13) Niche companies show green shoots: High IP assets in corner of Education is what Ed-Tech should have been about all along. These are super-useful, have a loyal base & fill a gap. This is the Mittelstand of Ed-Tech. This already exists. This will show signs of life. I hope.
14) “IPO in 12-18 months”: Once adjusted EBITDA profitability is ‘near’, our behemoths will start talking IPO.
15) Size matters less: Refer to Niche companies. You teach lovely non-routine math to 1000 students per year priced at $100 per term. There is no way a large company can take that market away from you. You can survive and thrive. I am betting the house on this. Literally.
16) “We are bullish on Ed-Tech.” Oh, are we going to hear this? Like the crypto bros with Luna exposure, some friends are going to be bullish to death. The writing may be on the wall but someone who was last valued at 40x revenues cannot afford to let the language slip.
17) Ed-Tech shops raised capital at 10x revs, bought at 3x revs, then raised at 20x and bought at 5x, then raised at 40x and bought at 7x. Were effectively short their own firm and long new assets. Looked as easy as printing money. The asset is now at 4x revs, the math gets unstuck.
18) “Raising money from Qatar/Saudi/UAE” Jiska koi nahin hai, uska middle-east hai. They bought the WC for god’s sake. And then Cristiano Ronaldo. This will be the go-to phrase when optimism has to be peddled for 3 more months.
19) Suing: There will be more suing than in a tailor shop facing the pre-Diwali rush. Late-stage investors will whine about misleading presentations, early investors will raise hell about terms given to late-stage investors, and CEOs will whine about VCs not backing them.
20) “We are offering a blended model.” We will see more blends than a busy bartender on a rave weekend. Modest revenue, high loss online company valued at 30x revs will look to acquire/build offline to amp up growth. Best offline companies are valued at 4x revenues. Go figure.
22) “Winter is going to be longer than expected” – This will be said to prepare the market for a down-round. Some VCs will participate in down-rounds as a way of showing solidarity, some will do this in order to paper over cracks, and several will do this while also looking for exits.
23) Ed-tech will talk optimism & bullishness, will chomp funds like a thoroughbred slaughtering a wedding meal, whine about winter like a Chennai family with socks on in Nov and be as clueless as deer caught under headlights. Just like 2022 then. Plus ca change and all that.
Rajesh – Math teacher, Entrepreneur in that order.