edtech: Post Byju’s, investors worried about governance at startups: GSV Ventures MD Deborah Quazzo

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Deborah Quazzo, managing partner of edtech investor GSV Ventures, told ET in an interview that recent developments around troubled edtech firm Byju’s has put the spotlight on governance among Indian startups a concern globally.

GSV Ventures has backed Indian edtech unicorns including Eruditus, Lead, PhysicsWallah as well as startups like Classplus.

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“Edtech goes in and out of favour…It’s a really hard sector to get profitable, to maintain growth. It’s also got all sorts of regulatory friction… but the bigger issue we’re hearing is about India…is there (an issue) about transparency or governance. I’d like to argue that it’s the investor’s responsibility to drive those requirements (on corporate governance),” she said.

Bengaluru-based Byju’s, the once-high-flying startup carrying a valuation of $22 billion, is currently looking to raise $200 million in a rights issue at a post-money valuation of $225 million. This is 99% cut to the company’s peak valuation from 2021. The company has come under fire from its investors and lenders for alleged corporate governance lapses and is even facing bankruptcy proceedings.

“The edtech sector in general is tamped down. You’ve seen some difficulties in the public markets in the US…we’re still probably 18-24 months away (from Indian edtech startups going public), including accounting or some folks who are considering redomiciling,” she said. “All the top companies are certainly thinking about it right now”.

ET reported on Tuesday that edtech unicorn Upgrad is aiming for an initial public offering (IPO) in two years.

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“The market is still kind of in a situation where founders are not wanting to take lower prices (valuations) if they can avoid it…and investors sitting back and waiting for prices to where they’re comfortable. It’s still not totally (clear) on how you can generate high returns in many cases,” she said.

Quazzo, who sits on the board of most of the Indian edtech companies that US-based GSV Ventures has backed, also said that the investment firm is soon looking to make its first investment in India in the last 18 months in an early-stage startup.

Consolidation in sector

Talking about potential consolidation in the edtech space, which did not pick as much pace as was expected last year when the sector’s downturn started, Quazzo said that it had to do with a gap in expectations between buyers and sellers. However, she underscored that consolidation in the sector will happen.

“If you’re giving equity (against an acquisition), you have to convince the seller that it’s worth something…and cash is precious. In general, you’re in this disequilibrium. Obviously, Byju’s was a dominant buyer…and they’re not in the market at this point so that’s taken one force out. But it’ll (consolidation) happen. It makes a lot of sense,” she said.

Byju’s had spent well over $2.5 billion in 2021 alone to acquire several firms to bulk up presence across education and reskilling.

“Cash was free (earlier)…we have a couple of companies (in GSV Ventures’ portfolio) that raised money from Tiger Global or SoftBank and went and acquired companies,” Quazzo said.

On growing trends within the edtech space in India, she said that with a large base of affordable schools, the business-to-business (B2B) K-12 segment, in which firms such as Lead operate, presents an opportunity to become a huge space within edtech.

Under this segment, edtech startups offer tech-enabled solutions to schools with a focus on digital learning through an online or hybrid classroom model (both physical and digital).

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