Edtech firms must work out a code of conduct, says TV Mohandas Pai (2024)

The edtech sector, which has been facing bad press for issues such as mis-selling and mass layoffs amid a sectoral turbulence, needs to form an association and work out a code of conduct, Pai said in conversation with Mint. “Self-regulation is the best regulation."

“The important thing is (edtech companies) have to work out their revenue model. They have to ask: what are we providing our students? Why should they pay us? And what is the extra bit that we are doing?" Pai said.

Edtech firms must find ways to deliver value while ensuring that the costs they incur result in a viable model, he added.

“After covid, people started going back to school, and some of these edtech companies blew up because of governance issues," he said. "School education is different. You have a young person who is growing up, finding their place in the world. Most children need a teacher to talk to them, to tell them what to do and how to work things out. Their ability to self-learn is very limited."

Also read: Longer talktimes, lower incentives: edtech turns up the heat on its employees

Edtech startups have been struggling with falling sales and muted investor sentiment over the past few years. According to data from research platform Tracxn, funding for Indian edtech firms surged from $599 million in 2019 to $4 billion in 2021 as covid forced students to learn from home. However, investment in the sector dropped to about $312 million in 2023, and stands at about $182 million in the first five months of 2024.

Good corporate governance is crucial

Pai also said startups need higher standards of corporate governance, especially once they go public.

Byju’s last year established an advisory panel naming Pai, an investor and former chief financial officer of Infosys, and Rajnish Kumar, a former chairman of the State Bank of India, as members to advise founder Byju Raveendran and assuage investors following a series of board exits as well as financial and legal woes.

Mint reported last month that Pai and Kumar did not intend to continue on the panel after their one-year tenure ends on 30 June. Pai declined to comment on the company’s numerous controversies.

“Good corporate governance means having independent directors on the board who will ensure that all stakeholders' interests are protected. They matter when the company gets into a crisis," he said.

Also read: Beyond Byju's, GSV Ventures sees promise in India's edtech sector

On Wednesday, a majority of Byju’s lenders filed petitions in the US to initiate involuntary Chapter 11 bankruptcy proceedings against three US-based guarantors of a $1.2-billion term loan that edtech firm had taken in 2021. The petitions have been filed against Byju’s reading platform Epic! Creations Inc., Neuron Fuel Inc., and Tangible Play Inc.

Pai, however, cited other startups with corporate governance issues. On Paytm, he said the independent directors should have taken charge of the company when the RBI imposed restrictions on Paytm Payments Bank in March, noting serious violations of rules.

“The independent directors should have told the CEO that they will take charge, set things right and restore confidence. Even today, nobody knows who they are and what they are doing. Corporate governance standards should be higher for all these companies," he added.

Other experts agreed. Prateek Toshniwal, co-founder of IVY Growth Associates, said, “Earlier, entrepreneurs in edtech focused more on building a brand rather than a profitable business, [and ignored] corporate governance. This led to a series of layoffs, accusations of unfair trade practices, and noticeable gaps in bookkeeping. However, due to the recent shifts and valuation corrections, a lot of importance is being put on corporate governance."

A more focused approach could help the edtech sector clear up allegations of poor corporate governance and help them navigate the funding winter more effectively, he added.

Also read: Edtechs have a reality check moment. Will they survive it?

Sagar Gosalia, chief operating officer, JITO Incubation and Innovation Foundation (JIIF), said, "The lessons for startups are: prioritising honesty and transparency in their operations and financial reporting; strengthening organisational structures; optimising operations for efficiency; and prioritising the needs of students."

VC fund in divestment phase

Pai also noted that venture-capital fund Aarin Capital, which he started with Ranjan Pai (chairman of Manipal Education and Medical Group) in 2012, is now in the divesting phase.

“We made 30 investments and helped set up 14 funds, which have invested in 450-500 companies. They have a value of ₹1.5 trillion or so. The fund is not growing, so now we are divesting," he said.

Companies that Aarin was invested in included digital entertainment company Pocket Aces, user engagement and retention platform Wigzo, and learning experience platform EdCast. Notably, the fund was among the earliest to book profits from Byju's.

Also read: Edtech firms bet on upskilling, higher education amid funding gloom

“All the funds we have created are doing well. They are growing independently," he added.

On investment sentiment, Pai said fundraising and valuations will be muted as there is a shortage of foreign money coming in, and Indian investors are wary. “We have more than 1,200 family offices but none are writing big cheques. Our institutions are not investing."