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Education offers lucrative returns and easy exits, say panellists at VCCircle summit

Shah Junaid/VCCircle
Panellists at the VCCircle Summit. From L to R: Willpoole, Pankaj Makkar, Steve Hardgrave, Imran Jafar, Sandeep Sinha and Sandeep Aneja

Education is poised to be a game changer in the investment landscape in India due to the country's huge population and the sector can equally mint money and provide profitable exits to the investors, said panellists at News Corp VCCircle Education Investment Summit 2016.

Thought there might be regulatory constraints limiting investments and a lack of policies or political will hampering the development of the sector, investors are willing to bet on the sector, which is currently contributing only 3.4% to the Indian GDP.

“Money can be made in the sector and it also ensures exit,” said Imran Jafar, general partner at education-focused private equity firm Gaja Capital. 

He referred to the success of Gaja Capital’s investee firm Career Launcher which is set to re-file its draft red herring prospectus (DRHP) for its initial public offering (IPO) with the capital markets regulator Securities and Exchange Board of India (SEBI) next month.

Steve Hardgrave, CEO of Varthana, said the investment firm has zeroed in on India for impact. “The demographic situation is insane here. This huge window needs to be addressed,” Hardgrave said.

Will Poole, co-founder of Unitus Seed Fund, which typically invests in the early stage firms, said it put money in companies targeting “large low income population.”

The panellists also explained their eagerness for choosing education among the preferred sectors, at least in the first four-five years.

Jafar said return on investment in the space is very lucrative. “Our best investment gave us 28 times returns on the actual capital and the worst case will be three times,” he said.

Hardgrave is excited over the Indian mindset of giving utmost importance to expenditure on education. “Even the low income population in the country is allocating 15-20% of its monthly earnings on education,” he said.

However, Sandeep Sinha of Lumis Partners acknowledged the existence of demotivating factors. “There is nothing like no recession, strong macros and huge volume always. It can be otherwise in some cases,” Sinha said.

The panellists also cited examples to prove that their investments have actually led to the growth of companies they have invested in.

In this regard, Poole said Unitus Seed Fund’s investee firm Cue Learn, a Delhi-based ed-tech startup, has now even gone to micro-franchising without even compromising the quality and reaping profits by turning asset light.

According to Jafar, Gaja Capital’s portfolio firm education services company CL Educate, best known for its erstwhile test prep brand Career Launcher, has grown immensely in last 20 years as it constantly adapted itself to the needs of the market.

The panellists also spelled out the criteria that may attract investors to put money in the space. “A company should be growing at 20% year on year and must be catering to large population in terms of geography,” Poole said.

Sandeep Aneja, managing partner of Kaizen Private Equity, said scaling up is essential, but it should also bring quality. “Scaling coupled with quality will also ensure sustainability, especially in terms of school and college education,” Aneja said.

Earlier in the day, Roopa Kudva, MD of Omidyar India Network Advisors, said Omidyar is looking at sector-level infrastructure rather than market innovations.

“To transform an entire sector, we need to not just invest in market innovators, but also in firms that help develop sector-level infrastructure and institutions that address needed policy reform”, Kudva, who delivered the keynote address at the panel, said.

She said Omidyar Network invests in promising, early stage innovations with the potential to provide high-quality, scalable education solutions to low- and middle-income segments. 

Kudva also identified three areas of investment for Omidyar in the near future. “There are three areas in education that particularly excite us. These are education technology for differentiated learning in K-12, innovative school models and connected skilling,” she said.

Sinha said growth must be also viewable from investors’ perspective. “A lot of investors track 

month-on-month growth before deciding on tranches. As long as we have a reasonable view of growth, it is fine with us,” he said.

However, the panellists opined that as investments have just started picking up in the space, educationists and educational institutions need to be given sufficient time to grow.

The investors also warned that trends such as changes in consumer behaviour, a great propensity in risk taking and a desire for working in flexible hours are very much evident among the educational institutes and education service providers across the globe and the Indian counterparts can’t afford to lag behind.

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