The amount of private equity (PE) money chasing India’s education firms is growing again. After a 30% drop in 2015, investments in the sector are up 25% year to date with $208 million raised across 42 deals, according to VCCircle, a news and data provider focused on startups and funding.
The most sought-after firms in the education sector are those providing test-prep apps and services. These firms alone have raised $140 million from PE firms this year, more than six times the amount invested in 2015. The interest from PE comes at a time when India is staring at a massive skills gap among graduates. Despite its burgeoning number of educational institutions that churn out some five million graduates every year, not all of them are actually employable, various studies have found. And the Indian government’s spending on education as a proportion of GDP isn’t on par with the global average of 4.9%, says Nita Kapoor, CEO of News Corp-owned VCCircle.
“There is a clear link between India’s skill gap and the funding gap in our education sector,” Kapoor said in a statement. “[P]rivate investments can take place only when delivery of quality education results in business value creation.”
This year, global firms were pretty optimistic about Indian test-prep companies. For instance, the Chan Zuckerberg Initiative, the philanthropic body launched by Facebook CEO Mark Zuckerberg and his wife Priscilla Chan, invested $50 million in Byju’s, an education-tech startup, in September. Byju’s has an app for test-prep and K-12 education.
Another education firm, Resonance, which conducts training classes for the joint entrance examination required for admission to the elite Indian Institutes of Technology is reportedly in talks with PE heavyweight KKR to raise money. It already has investments from global firms like CLSA Capital Partners.