Edtech, food delivery spaces attract bulk of investments

Consumer internet companies attracted investments of $3.5 billion between January and August, about 34% lower than a year ago, data sourced from market research firm Tracxn showed. Investments, which had slowed considerably in May and June, falling below $170 million, gathered pace in July and August when firms raised close to $800 million. Of this, online education companies Byju’s, Vedantu, Eruditus and Toppr together secured close to $400 million from investors like DST Global, Coatue Management and Chan Zuckerberg Initiative. In September so far, Byju’s, Unacademy and Zomato have collectively raised over $750 million.

Edtech firms have seen their valuations soar as more students have signed up for online classes post the pandemic. Byju’s valuation doubled to nearly $11 billion from around $5.5 billion in July 2019. Eruditus’ valuation jumped to $800 million post its latest $113-million fund raise from around $400 million when Sequoia Capital led a $40-million investment round in the company early last year.

Atit Danak, principal at Zinnov Consulting, believes as people become more receptive to the idea of remote education, the ed-tech space will continue to be favoured by investors. The shortage of quality teachers and low teacher-to-student ratio in schools will spur the shift to hybrid learning that focuses more on skills and outcomes, not rote learning. “In fact, what happened in the digital payments and e-commerce sectors has happened in the EdTech sector and there is a fundamental shift in consumer perception as well as behaviour,” Danak said. However, the EdTech sector is still a tough market because of the low numbers of educators, affordability and access challenges, he said.

After a brief lull, the food delivery space is seeing some deals led by Zomato. The firm closed a $62.44-million funding from Temasek in August. The sector seems to have made a turnaround —Zomato’s GMV (gross merchandise value) for the food delivery business recovered to nearly 60% of pre-Covid levels in July from a two-year low in the last week of March.

Rehan Yar Khan, managing partner at Orion Venture Partners and VC sector co-chair at IVCA, said funds will continue to pour into online only businesses like ed-tech, gaming and online to offline segments like e-commerce, food delivery on the back of consumer interest. “Instead of going to restaurants, malls, people are turning to online gaming, social apps like Zoom for recreation and ordering food online,” Khan said.

In July, deal levels have largely recovered but the capital remained concentrated only in these two sectors. Companies in the hospitality and logistics space will see fund flows only when sales revive and they may see a drop in their valuations. Ankur Pahwa, partner at EY, said sectors like agri-tech and health-tech are also expected to see traction in terms of deals going ahead. However, firms operating in segments like mobility and travel will continue to see operating pressure.