Edtech is having its moment in the sun as are companies in the space that have shored up fresh capital to grow inorganically. Mumbai-headquartered Eruditus, the latest unicorn in the sector, plans to bet on higher education through mergers and acquisitions, staying away from spreading itself too thin by focusing on other verticals from K-12 up to skilling and certification.
Eruditus was founded in 2010 by Harvard Business School graduate Ashwin Damera and INSEAD alumnus Chiatanya Kalipatnapu. The company aims to use $650 million it recently secured to expand presence to geographies including Latin America, Southeast Asia and China and scale its business-to-business (B2B) offering, CEO Damera told TechCircle.
Damera said that the company is mulling an ESOP buyback, after some of the core management and early investors took a partial exit in the $220 million secondary component in the recent round.
How will you deploy the $650 million capital after you close the Series E round?
We have raised $430 million in primary during the round. We continue to look for acquisitions in India and globally.
Secondly, we are seeing a 2.5-time growth year-on-year due to the new courses we have created with our partner universities. So, some will be invested as capex in course creation.
The third area of investment is geographical growth including Latin America, Southeast Asia, China and Africa where we will take around two years to break even. Also, we would like to invest and grow our K-12 business.
Which areas or sectors have you identified for potential M&A?
We are very strong in the US and India, but we can go deeper in these markets.
Also, we will look at the new geographies we plan on entering. The second area is content – if there is a specific skill area where we don’t have an offering, we would like to add to the platform and scale it.
The third area is B2B offering. Today we are a B2C company and student pay us for the certification or course. If we get into larger enterprises, we can find a platform for distribution.
The fourth area is the pathway program which target college going students looking to transfer to a college abroad in their second or third year. This is still higher education but focused at a younger audience.
Our focus will continue to be skilling and higher education with room to play.
How will the B2B offering be structured? How is it different from B2C?
It can play out in two ways. In the first scenario, for example, a bank says it wants 500 people for cybersecurity but is unable to find the talent and decides to train existing employees. We can customise the course as per their requirement.
The other way to do is when a company identifies say 2000 people with high potential and wants to invest in their training. They can select 10-15 courses from our portfolio and let the employees decide which course to take, though the company will reimburse the fee.
B2B has higher margins as there are no marketing costs. At present only 10% of our business is from enterprises and we would like to grow it to 20-25% in the next three to five years. The only challenge is it takes time to close (a sale).
Recently, you had acquired iD Tech for $200 million, marking an entry into K-12 market. Are you planning on going deeper in the vertical?
The way we look at it, we are teaching skills of the future such as coding, AI (artificial intelligence), data science, blockchain, design thinking, etc to adult learners. These are not taught in the universities. I believe that the same skills can be taught to young adults in the K-12 segment.
The idea behind acquiring iD Tech was that we have content, including a course with MIT on full-stack development. We have launched a similar version of the course tailored for younger adults which is shorter, fun, interactive and includes a lot of live teaching. The audience is definitely different which is why acquired a company and that brand will continue to be there and they understand the segment and will continue to build.
Because of the pandemic, a 12-to-15-year-old could easily be learning game design, Java etc. What we are not going to do is teaching K-12 curriculum or math or test-prep for cracking JEE and other competitive exams.
[ Note- iD Tech was acquired by Emeritus, the Singapore-based online arm of Eruditus]
Will the edtech space see only a few large brands calling the shots or will smaller brands continue to exist?
There are three broad areas in edtech – K-12, test-prep and higher education. BYJU’s is a clear leader in K-12 but Vedantu is also an incumbent. When we talk of higher education, Great Learning and upGrad are $600 million and $1 billion deals but there are smaller deals of $10-$30 million happening.
My sense is that each player will have a well-defined core business which will be 70-80% of the revenues and there will be ancillary businesses. It is a bit of a pipedream to have a child in fifth grade learn from a platform and continue on it till they are an adult. There is nothing that ties you to a platform and especially with education and the investment involved, people will shop around.
You said early employees and investors registered partial exits during the round. Are you also considering an ESOP buyback?
We are planning around 1% of ESOP pool liquidation. We are going to add one or two new investors in the coming weeks and initiate an ESOP buyback plan of nearly $30 million a few months after that. But we are yet to plan the details.