India’s education sector is seeing hectic entrepreneurial activity and private equity investors are deploying significant capital in this sunrise sector. Funds focusing exclusively on education have emerged. Recently, education company Kaplan announced the formation of Kaplan Ventures, which will invest in the education sector in India and other countries.
There are a few structural drivers to the boom in India’s education sector.
First and unusually, the Indian government has made a commitment to restructuring the policy framework, including the setting up of foreign universities in India. Human Resource Development Minister Kapil Sibal has taken a few steps forward, and some backward, but for now even the mere promise of reform and more openness in the sector is sufficient to generate hope and excitement that spurs investment and business plans.
But some caution would be apt. There is a strong case for regulating the sector and putting in place standards and guidelines for what it takes for an educational institution to be recognized as a university or school. Without sound regulatory norms in the early stages, the education boom may fizzle out to the detriment of investors, entrepreneurs and India’s economy. Regulation, however, should be left to individual school examination boards and professional accreditation bodies as far as possible, distributing rather than concentrating authority.
For instance, there has been a profusion of institutions offering the International Baccalaureate program for high school students. The IB is governed by the IB Organization based in Switzerland, which sets its own standards for what it takes to be an IB school. The government should empower Indian boards to set standards in the same way, for this would allow for competition between boards. Schools, private and government-aided, should be free to choose the board they want to offer, to design the admissions mechanism and to charge the fees they wish.
Second, India is entering a phase of demographic change that has far-reaching consequences for society and the economy. According to research from Deutsche Bank, India will be adding almost a million people to its labor force every single month for the next 20 years till 2030. That’s a staggering number of people, equivalent to the current populations of U.K., Germany, Spain and France combined. The only comparable demographic shift from recent history is the post-World War II baby boom in the United States. Skill development, training and education will be among the first areas where all those consumers will want to put their money.
These trends will only accelerate, making the education sector very attractive for both entrepreneurs and investors. Moreover, without private capital and the participation of entrepreneurs, India simply cannot train and educate a workforce of this size.
While projects such as building full-fledged schools and universities would be beyond the reach of most first-time entrepreneurs and are typically not “fundable” from a venture capital perspective, ancillaries like infrastructure, technology and services are attracting investments.
In 2009, TutorVista, Career Point and FIITJEE were some of the companies offering training for competitive university admission examinations that saw substantial investor interest. The most successful companies in the sector so far have been those that are providing information technology and software solutions to brick-and-mortar institutions. Companies like Educomp Solutions and EdServe Softsystems have combined the high margins of the software business with the scale and opportunity in the education space.
Education is a very large canvas. The challenge is to identify the areas within it that will be the most profitable. As the sector evolves and grows, opportunities which cannot be anticipated today will soon emerge.
Originally Published: WSJ