VCs conservative on edtech, content firms: Coursera CEO

: The downfall of Byju’s, once a $22 billion giant and India’s leading edtech startup, has sent ripples across the tech industry, triggering caution among venture capital (VC) and private equity (PE) funds. This has let to a persistently challenging market, Jeff Maggioncalda, chief executive officer of US based edtech firm Coursera, said in an interview with “How the Byju’s crash affected the overall edtech industry depends on the stage each company is at, and where in edtech it caters to.

Edtech in India and China are not looking good these days. China had their policy changes, and India has had challenges, too. From during the covid 19 pandemic and now, financing went from as much money as one could ask for at incredibly high valuation, to much higher conservatism," Maggioncalda said.

The worst, according to him, are content creator based edtech startups. “No investor will presently invest in local content firms—the language is no longer a differentiator, and neither is content domain expertise. New startups have no distribution, making this one of the worst segments to be in—especially in edtech’s parlance," he added.

In early 2022, Byju’s was gearing up for an initial public offering (IPO) with a reported valuation of about $40 billion. However, it witnessed a swift downturn in its fortunes the following year. On Thursday, BlackRock slashed Byju’s valuation to a mere $1 billion, down by over 95%. The investment firm, which holds a 1% stake in the edtech firm, however, did not offer a reason behind the sharp devaluation of what was once India’s startup poster boy.

The reported reasons for Byju’s downfall, include corporate misgovernance, mounting debt exceeding $1 billion, high profile exits, including three board members, auditor Deloitte, and chief financial officer Ajay Goel. Its struggle to secure the capital needed in today’s cautious edtech landscape has also led to the devaluation, Maggioncalda said.

However, this has not impacted some of the other major players in the edtech sector. Coursera, for instance, expects consistent global growth despite challenges. “We’ve done over 20% revenue growth last year, and we add 5 6 million new users every quarter. This has remained steady. We have $700 million of cash, we have no debt, and we’ll be profitable by the fourth quarter of this year." For the September quarter, Coursera reported revenues of $165,540, up 21.4% sequentially, while its net loss declined by nearly 11% to $32,090.

The firm is trying to script a turnaround by the end of 2024. Coursera follows a January to December financial year. The company’s stock price on the New York Stock Exchange has more than doubled. Starting from a one year low of $9.91, Coursera shares were trading at $19.38 at the time of publishing this report.

The company is exploring inorganic growth avenues to boost profitability, amid the challenging environment for small startups to secure funding. “Not just us, every company is likely to look for it. The rate of innovation is unprecedented, but not all of it can happen in house. Much of it is happening adjacent to us, and larger firms will use M&As as R&D strategy.

That makes sense for us, as well," he added. The company’s India operations make for its second largest consumer market, which had 22.6 million users—behind only the US with 26 million users. To boost this further, Coursera announced support to offer over 4,000 educational courses on its platform in Hindi, the first Indian language of 18 non English languages that it supports on its platform right now.

While generative AI was a direct aiding factor in this, Maggioncalda said that upcoming regulations could be a key factor in determining the company’s future in India. “Governance is required as economies develop, and people get wealthier. Hence, we need more regulations to curb uncontrolled information spread by what recent headlines labelled as ‘finfluencers’, or independent financial advisors.

The US already has this under its Financial Advisors’ Act, and it tells you what you can or cannot say about giving investment advice. Similar regulations will have to come into existence in India as well," he said. However, not all could be smooth sailing, Coursera’s September quarter regulatory filing with the US SEC highlighted.

“Recent Indian regulation relating to online higher education requires, among other things, that learning platforms utilized by Indian universities to offer online degrees be approved by a technical committee of the Indian regulator. Seeking such approval could be a complex and time consuming process, since the requirement is new, and as such there is no certainty as to the timing and standard of review for international platforms, or even whether international platforms are permitted to apply for approval.

In addition, we may lack the knowledge and resources to successfully pursue an application without the support of one or more of our Indian university partners. International education laws and regulations may prohibit or restrict the delivery of online education by extraterritorial entities, or local policies or practice may favour local providers.

India’s Ministry of Education recently announced its intention to launch in 2023 the National Digital University (“NDU") of India, which would allow students to accumulate and combine credits from different higher education institutions, which may negatively impact our ability to effectively expand our degree business in India going forward," the regulatory filing said..