Edtech’s year of reckoning: VC funding falls 55% in a year dotted with challenges

Edtech was one of the worst hit sectors in 2022 with funding slowing down, business models questioned, and mass layoffs plaguing the sector. Venture funding in India’s edtech startups more than halved from $4 billion in 2021 to $1.8 billion in 2022, according to PwC’s Startup Deals Tracker - CY22. This was lower than even 2020, when total edtech funding stood at $2 billion.

Even the number of funding deals in the year dropped to 52 from 88 in 2021, according to PwC. Interestingly, most of the edtech investments were pocketed by startups in the K-12 segment, which continued to be the most challenged.

Almost half of the sector’s total funding went to decacorn BYJU’S, which raised over $1 billion during the year. This was followed by upGrad that grabbed $225 million, and LEAD School and PhysicsWallah, which pocketed $100 million each from investors. Cumulatively, these five startups accounted for three-fourths of the overall edtech funding in 2022.

Despite a tough year, with offline education making a return and online learning platforms compelled to revisit their products and business models, edtech remained one of the top five funded sectors in India. It ranked fourth after SaaS, fintech, logistics and auto tech, in terms of dollars invested, according to PwC.

D2C, meanwhile, was the fifth-most funded sector. Together, these made up approximately 71 per cent of the total funding in CY22 in value terms, PwC stated in its report. Meanwhile, overall VC funding in India declined ~33 per cent to $24 billion in 2022, compared to $35 billion in 2021.

Amit Nawka, Partner - Deals & India Startups Leader, PwC India, said, “Despite the funding slowdown, some areas like SaaS and early-stage funding have remained upbeat. With significant dry powder waiting to be invested, it seems likely that the funding scenario will begin to normalise after 2-3 quarters. Until then however, many start-ups are using this time to tighten operating models and optimize their cash runway by deferring discretionary spends and investments.”

The funding slowdown wasn’t India’s problem alone though. A separate report by Tracxn indicates that China suffered the worst funding slowdown, with venture capital investments dipping 54 per cent in 2022. The US, the UK, and other parts of Europe too witnessed a 28.8 per cent, 18.8 per cent, and 24.6 per cent fall in VC funding, respectively.

Also Read: upGrad CEO Arjun Mohan quits amid growth-related challenges in the company