Seven-year-old Rahul is not sure whether he wants to join KleverKid or not. His mother took him to one of the outlets of this “one-stop shop to find the best possible program, afterschool activity, tutor, or coach for your kid” to survey what they had on offer. “What will they teach me?” asks Rahul. “They don’t even know how to spell clever.”

KleverKid is among a spate of newly emerging companies addressing India’s primary and secondary school sector. Given the poor state of available facilities, there aren’t two ways to look at market demand. “Everyone is enamored of the large size of the market,” says T.V. Mohandas Pai, chairman of Manipal Global Education Services.

In highly populated emerging markets such as India, the real need is for primary and secondary education, or what the U.S. refers to as K-12. But most of the attention seems to be focused on higher education; even the Indian government is holding seminars on how to attract foreign students to Indian colleges. Quality pre-college education has been left to the non-governmental organizations. It doesn’t help that education has been declared a not-for-profit sector.

The statistics are disheartening. According to the latest Annual Status of Education Report (ASER) released last year, India is close to universal enrollment for the age group 6 to 14, with the percentage of children enrolled in school at 96% or above for six years in a row. That’s the good news. The bad news is that reading levels remain low: in Standard III, only a fourth of all children can read a Standard II text fluently. Math continues to be a serious and major source of concern. For example, the percentage of children in Std. II who still cannot recognize numbers up to nine has increased over time from 11.3% in 2009 to 19.5% in 2014. Notes ASER, which studies children in rural India: “Compared to similar figures in 2013, there has been an increase in private school enrollment in almost all states.”

Riding this wave, scores of entrepreneurs in India have emerged in the education space over the past few years. They have partly been spurred by the success of TutorVista, an India-based business targeting the U.S. market that was sold to Pearson for hundreds of millions of dollars. The current crop of entrepreneurs is concentrating more on the homefront. Their focus is not so much on formal schools but on adjuncts to learning.

“The total spending on education in India – both public and private – is around $150 billion. Of this, around $50 billion is in the K-12 space.”–T.V. Mohandas Pai

According to VCCEdge, a research platform for the Indian investment ecosystem, the angel, private equity and venture capital deals in the education sector rose from 27 (valued at $187 million) in 2010 to 49 ($248 million) in 2014. In 2015, there were 51 deals valued at $155 million. The largest was the $40 million invested by Sequoia and Aarin (in which Pai is a partner) in Byju’s Classes. Recently, Byju’s raised another $75 million from Sequoia and Sofina in the biggest 2016 deal in ed-tech in India.

The ticket size of the investments tend to be on the low side. Aside from Byju’s, other relatively big deals in recent years include more than $200 million from two separate deals in 2010 and 2014 by PI Opportunities Fund and Catamaran (owned by N.R. Narayana Murthy of Infosys) in Manipal, $25 million by Mayfield, Helion and Kalaari in Simplilearn, $15 million apiece in Meritnation (Info Edge), iProf (Norwest and IDG), Classteacher (Fidelity Growth) and UpGrad (serial entrepreneur Ronnie Screwvala).

A Big Market

“The education space in India presents a huge opportunity, primarily because it is largely unstructured,” says Pavan Chauhan, co-founder and managing director of Meritnation, an online learning and assessment solutions company in the K-12 segment. “India is an extremely large market for educational offerings. If we look at some stats, India has over 250 million students in schools and over 27 million students in higher education. The poor quality of education in the country coupled with the willingness among the Indian middle class to pay for a good education creates a wonderful opportunity for entrepreneurs to make an impact.”

“The total spending on education in India – both public and private – is around $150 billion,” adds Pai. “Of this, around $50 billion is in the K-12 space. There are two aspects in education. One is the regulatory aspect of running the school — curriculum, pedagogy, teachers. … The second is the process of learning.”

The learning process is a big market for startups to target, continues Pai. “Learning is getting disrupted in a huge way by technology startups. Content is being provided on a multimedia basis; tablets with preloaded contents are being sold; quizzes, tests, online tutoring, personalized tutoring, MOOCs (Massive Open Online Courses), certification courses, and all such things are being tried out.”

India — with its growing need for quality primary and secondary education, the ongoing creation of a technology-based digital nation, and the proper social environment (the Right to Education Act was passed by Parliament in 2009) — should have been a laboratory for such experimentation. But efforts to make improvements have been mixed.

“There is huge potential to use smartphones and tablets as learning devices. Technology is what brings flexibility to learning.”–Byju Raveendran

Byju’s Classes is an example of why it is so difficult to get a fix on the pre-college market. The company, which was started in 2011, entered the primary and secondary education segment in 2014. But it is not restricted to teaching kids how to go through school; it has coaching classes for competitive exams — the joint entrance examination (JEE) for the Indian Institutes of Technology (IITs), for instance.

Like many others of its ilk, Byju’s is hedging its bets. (The IIT entrance exam market is huge. Whole cities — such as Kota in the state of Rajasthan — specialize in coaching classes for the JEE. IIT aspirants spend two years plus there, studying for IIT and acquiring a school-leaving certificate from an affiliated school at the same time. The pressure is so high that every year sees several suicides.)

The pressure starts building up at a young age. The Kotas are the boarding schools of today, only they don’t believe in games or social graces. It’s a difficult choice: on the one side a substandard education (only a handful of private schools in urban areas escape that odium) and on the other, a crammer.

Says Byju’s Classes founder Byju Raveendran: “India is the largest K-12 education system in the world, but we consistently rank low in all global education assessments because of three core problems: Lack of access to good teachers; learning is not personalized — it’s a one-size-fits-all approach because of a 1:35 teacher-student ratio in India (as against 1:14 in the developed world); and, most importantly, memory-based learning driven by fear of exams rather than the love for learning.”

Driven by Technology

“There is huge potential to use smartphones and tablets as learning devices,” adds Raveendran. That, in fact, is the big difference today. The Internet, howsoever limited it is at present, has spread to the far reaches of the country. And smartphone penetration is taking rapid strides. “Technology is what brings flexibility to learning,” says Raveendran.

“Most ed-tech interventions focus on using technology to solve problems,” says Jairaj Bhattacharya, co-founder and CEO of ConveGenius. The startup has more than a foot in both camps. Explains Bhattacharya: “ConveGenius is building two different products under the same technological backbone. One of them focuses on the K-12 space whereas the other focuses on the test prep, employability and skills market for higher age groups.”

“In the past, ed-tech interventions have not been very successful as the innovation and thought leadership came from the West,” adds Bhattacharya. “Products were being designed by top-notch engineers sitting in another part of the world for users based in India or Africa. The innovations have to be bottom up rather than top down, which means companies need to understand the real issues at a community level and develop technologies accordingly.”

“Technology plays an important role in expanding reach, better learning experiences for children by making it customized, relevant and on-demand, and measuring efficacy,” says Viswanathan R., co-founder and CEO of Magic Crate, which builds products for children from ages two-and-a-half to eight.

“Technology has and will continue to play a big role in the K-12 space,” adds Shabnam Aggarwal, CEO of KleverKid, a marketplace for parents and academies to connect, enroll, and leave feedback about their experiences. “When the printer arrived, we thought it would change education; it gave us more books. When the radio arrived we thought it would change education; it gave us more reach. When the TV arrived, it gave us more entertainment and engagement. When the computer arrived, it gave us more access.”

Aggarwal continues: “Now that the smartphone has arrived in the hands of most parents around the world, we should be careful about what we hope it can and cannot do. The phone combined with the Internet has the power to give us access to unique bits of information. We can use technology to help us find the right connections to others; we can use it to build upon fundamentals; and we can use it to communicate. However, technology alone cannot teach us empathy, creativity, or patience. It cannot be our mentor, our supporter, and our challenger. It is simply a powerful tool we can use to enhance and scale what teachers are already doing.”

“The poor quality of education in the country coupled with the willingness among the Indian middle class to pay for a good education creates a wonderful opportunity for entrepreneurs.”–Pavan Chauhan

“Access to the Internet and advances in technology have recently disrupted many sectors, foremost among them being retail, hospitality and banking,” says Vamsi Krishna, CEO and co-founder of Vedantu Innovations, a one-to-one live online tutoring startup. “Now is the turn of the education sector to be disrupted. Startups are introducing new models that are reimagining how education can be imparted and learning can be enhanced.”

“Until very recently, delivery of quality education was tightly controlled by the brick-and-mortar institutes and the physical location of good teachers. What that meant was students had to travel from one place to the other resulting in considerable waste of time and resources. Many children in smaller towns and villages don’t have the privilege of moving to bigger cities due to constrained resources,” Krishna adds. “Clearly, India represents a huge untapped market for any startup that can address the twin challenges of quality and accessibility in the education sector.”

Krishna says that prior to launching Vedantu, “we mentored over 10,000 students at Lakshya Institute, our first entrepreneurial venture which focused on preparing for competitive exams. While the offline model was successful, we felt a personalized approach towards learning would cater to students’ needs in a much better fashion. Thus, we conceptualized Vedantu to bring personalization back into education and to address the basic problem of generalization and the one-size-fits-all mentality prevalent in the education sector today.”

Apart from personalization, the two technology-related buzzwords are mobility and gamification. Says Bhattacharya: “Our main focus areas are content aggregation and gamification.”

“Meritnation invests heavily in gamifying all key activities across the site,” adds Chauhan. “A student can earn merit points and badges of honor and achievement on the site, all of which can be showcased in our Hall of Fame. This contributes to making studies fun and easy.” On mobility, he says that Meritnation is at the forefront of mobile education with a range of apps available on both iOS and Android. “The fact that your entire syllabus with animated videos, social learning, gamification, tests and more can fit into your pocket enables learning anytime, anyplace like never before,” says Chauhan.

“We are using competitive gaming to help students benchmark themselves with others and then help them improve over time,” explains Shrikant Latkar, founder of Oust, a gaming platform that helps students compete and learn. Students continuously play five-question quiz games with other students and peers to see where they stand. By applying the core concepts of competitive gaming to learning, our goal is to help students improve their performance and realize their dreams (from education to employment).”

“I visited 40 odd schools primarily in Tier 2 and Tier 3 cities,” says Latkar, who set up Oust in Cupertino in January 2015. “The enthusiasm for learning is growing every single day. Access to technology is improving and solutions that work online and offline will be critical to win. Students across all economic levels have access to mobile phones. We are primarily targeting smaller towns because students there can benefit the most by competing with their more privileged peers in the cities.”

Adds Chauhan: “Online education can be a gateway to unlimited knowledge and learning, especially connecting students in remote parts of the country to highly qualified and skilled teachers in the urban centers.”

Limited by Regulations

But the startups are finding out that doing business is not as simple as learning ABC. India’s Business Standard reported that education startups are finding it difficult to scale up and meet their targets. Some of them are on the verge of handing out pink slips to their employees after investors pulled the plug on funding. “Education is a tough sector to raise funds as it is fragmented and large.” An associated problem is that both promoter and investors expect e-commerce style valuations, which is highly improbable.

“The biggest opportunities in India today lie in the B2C space; B2B models have been done to death and are in a state of decline as seen in the huge drop in market cap of once-market leaders like Educomp,” says Viswanathan. “These opportunities could be in early-childhood, learning-at-home products for children (the space that Magic Crate is in), to online tutoring (companies like Vedantu), to marketplaces that connect students with tutors via smartphones.”

“Meritnation invests heavily in gamifying all key activities. … This contributes to making studies fun and easy.”–Pavan Chauhan

As such, this is not a domain that lends itself to repeat purchase. So the only solution is to expand the market. There are some established brandnames already, but they largely cater to the competitive exam category. Byju may have made the leap, but will others be as versatile? They are on a good wicket anyway; some 50% of the entrants to the IITs come through such classes. But they suffer from a brick-and-mortar hangover and geographical limitations; most are unknown outside their base city.

“The biggest challenge is marketing,” says Pai. “How do you reach the student and how do you ensure stickiness? There is so much competition in this space and the cost of acquiring a student and sustaining revenues is very high. The marketing costs are very high. Also, you have to build annuity streams and invest upfront which is very expensive. And content creation has to be a continuous process because more and more people are creating content.”

“The challenges are numerous, from the high costs of customer acquisition to resistance to the adoption of technology by the supply side — teachers, tutors, trainers — leading to inconsistent customer experience,” says Viswanathan.

Then there are the regulations. The main restriction is that schools must be not-for-profit ventures. “Education in India as per law cannot be run for profit,” says Chauhan. “Recently however, there has been an increasing push by the government towards engaging the private sector as a partner for achieving the goal of universalization of elementary education. This is a favorable development.”

“I fully support for-profit education,” says Pai. “As long as the education is effective and the children get good education, I don’t think we should bother if it is a for-profit or not-for-profit. The not-for-profit model is a socialist fetish. The politicians have got into it early. Some of them are running large chains which offer indifferent quality. Many have become centers of power, and money gets siphoned off. Some companies have invested in running schools and universities in a for-profit model through a very convoluted structure. But that is not right and will not work because some regulations may come in and they could be shut down.”

But the business of education will not close down anytime soon. From big league philanthropists such as Azim Premji to serial investors such as Ratan Tata (he has recently steered the Tata trusts to a tieup with Khan Academy to create tailormade content for India), they are all eyeing the education turf. Says Raveendran: “The real fun is not in creating a billion-dollar company, but in making an impact in the way millions think and learn.”