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Education Awaits Next Chapter In Investment

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Education, a sector much in demand by private equity (PE) and venture capital (VC) firms in 2011, has been largely overlooked by investors in the first half of 2012. Industry sources say the funding in H1, 2012, dropped by as much as 50 per cent compared with the same period in 2011.

In the first half of 2011, PE and VC investors had pumped in about $100 million into the education space. In August 2011, the Associated Chambers of Commerce and Industry (Assocham) came out with a report anticipating Rs 4,500-crore worth investments by PE and VC firms in education by 2014.

But the sudden drop in 2012 has not been totally unexpected. The global economic scenario and regulatory uncertainty have played their role in subduing the investment climate this year. "There is a steep drop in the number of deals this year given the economic scenario and the fact that education sector has matured in India," says Bharat Gulia, senior manager, education practice, Ernst & Young.

Though Gulia expects the second half to attract higher investments into the education space, Indian Venture Capital Association (IVCA) president Mahendra Swarup does not see any improvement until there is clarity in the regulatory environment.

"The year is going to be slow for investments in education space as most of the investors who like the space have already put in their money and bigger private equity firms are not yet hot on this sector," says Swarup. "Second round of funding for most of the companies is becoming tough," he adds.

Experts believe increased competition and too many players entering the education domain also caused investments to slow down a little.

Whether it is the much debated Right to Educations Bill or confusion around University Grants Commission (UGC) regulations on collaboration between foreign universities and India or other regulatory hurdles; such issues have made larger PE investors to overlook the education space.

Gulia, however, believes investors are still ready to invest in categories related to consumers and since India has a population of more than 600 million in 0-24 age bracket, the spend on education is very high.

"Due to regulatory issues there is reluctance to investment in core education and so most of investor lies in non-core education space," says Gulia, who is expecting companies in the content development, supplement education and pre-school area to attract some funds in second half of the year.

Classteacher Learning, whose solutions encompass digital classrooms, science and language labs and web based learning, got $15 million funding from Fidelity Growth Partners India in June 2011. It is expecting to raise another $25 million in next few months.

"Last year a lot of funding has gone into teacher technology like whiteboards etc but the next round of funds will go into development of content for students, education apps and technologies like classpads etc," says Classteacher Learning Systems CEO Rohit Pande.

Pande will utilise the next round of funds to increase penetration of its educational tablets — for school students — introduced in January 2012.

Pande agrees that raising funds this year is difficult than what it was last year. "Volume growth in education sector is still there but investors now are looking for profitable growth. There is still a market for innovation and that will continue to attract funding," he adds.

Pande has company in Kunal Bhadoo, Chairman & CEO, Kunskapsskolan Eduventures. "There is a volatility in the overall market and we will see restricted funding but people are still bullish about the education sector which is recession proff and does not see boom and bust," says Bhadoo. But the market is mature and innovative ideas will drive funding just like his venture did. Sweden's largest non-governmental school Kunskapsskolan has set up Kunskapsskolan Eduventures Pvt Ltd — a joint venture between Kunskapsskolan Education and Gyandarshan Eduventures — to open its first Kunskapsskolan School at Gurgaon by April 2013, offering K12 education to Indian and international students.

Universal Business School, a premium green B-school founded by Tarun Anand is also looking to raise debt funding of Rs 8 to Rs 10 crore in next 6 months. The institute recently received funding of $1 million. "The investment environment is drying up, across the board people are holding back and sitting on cash. The only worry is that paucity of funds at this growth stage in education sector will impact 2014-2015," says Anand. "Earlier people were investing across the board but now they have realised it is a long-term play, so the old wild days of investment are gone," he adds.