VCCircle Education Investment Summit 2010
The only way to capture the true potential of India’s demographic dividend (the rise in the rate of economic growth due to a rising share of working age people in a population) is unarguably through the “education for all” thesis. India has embarked upon game-changing policy measures such as right to free elementary education to all and Sarva Shiksha Abhiyan, which are now consuming a big share of public spending on education. Challenges remain on the efficacy of education, enrolment statistics and tangible outcomes but such drastic measures have the potential to achieve an undiminished focus on education which will result in multipliers and increased demand in secondary and higher education as also job-oriented vocational training.
While government remains a large spender, 50% of the $86-billion education market is in the private sector domain, according to a report by Kaizen PE, a fund focused on investments in this space, which will benefit from the expansion of market as basic education becomes a rule rather than the exception. From a private equity standpoint, the non-cyclical and recession-proof nature of this business holds that extra carrot.
As a theme, sector watchers will tell you that education holds enormous opportunity given its spread from KG (kindergarten) to PG (post-graduation) and the long demand lifecycle starting as early as age 2 and going up to age 30 in an individual’s lifespan. With a population of 600 million in that age group in India, the opportunity obviously is quite explosive and cannot be serviced by public spending alone. Besides, government education, though subsidized or even free, does not necessarily promise quality of delivery, high enrolment and lower dropouts. So, is private sector the way forward for education in India? Why is it tough to scale in core education? Are regulatory constraints making it an unattractive or challenging play for private players? Is profit still a dirty word in the education business? The core education is most suited to scale but is highly regulated and, ironically, not very high on the PE radar or large-scale private investments and consolidation given the complexities in deal structuring. How to navigate this maze to make a game for this vast spread?
While the KG to PG niche is the standard and core segment in education, what is seeing unprecedented growth is the parallel segment—from test prep, pre-school, corporate and vocational training and offline and online tutoring—riding mainly on inefficiencies in mainstream offerings. This is because a plain vanilla college degree is not landing graduates a job as many of these courses are not aligned to industry needs. Similarly, the huge growth in test preparation tutorial businesses is particularly targeting the coveted streams of engineering, medical and MBA driven by a widespread middle-class aspiration on career choices. But the rosy part of this segment of business is that it is non-regulated and therefore is attractive for great private sector and even private equity play. An analysis of the VCCEdge deal data suggests that a lion’s share of PE deals have gone into the lateral education segment.
In education too, there is a growing demand for ultra premium offerings be it state-of-the-art international schools with plush campuses catering to the well-heeled and residential and finishing schools. What started, in a small way, to cater largely to kids of diplomats, is now increasingly becoming mainstream. Every year, more and more international schools, that charge more than Rs 2 lakh per annum as fees are mushrooming catering to high net worth Indians seeking seamless education (as they get posted in global locations) for their kids. These campuses require a huge capex as they are loaded with frills. Is there a case for investments in high-end schools?
Besides, there is a huge market and spend by students opting for foreign degrees. About 1.5 lakh students travel abroad every year and spend $13 billion on education, says the Kaizen report. Now, with the government proposing the Foreign Universities Bill allowing global varsities to set up campuses in India, it looks like a huge untapped opportunity. Is it for real? Will global campuses see merit in setting shop in India? Will this move drastically reduce the number of students going abroad for degrees?
VCCircle Educating India Investment Summit seeks to delve into some recurrent themes and trends in deal-making in this space and also ways to navigate the regulatory loop that adds a very high level of complexity to doing business. Over two dozen education entrepreneurs, investors, bankers and regulators will head to the classroom to take a capsule course on India’s most compelling yet tough investment theme.