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When we discuss global economic development, the extraordinary growth of China is often a focal point. During the period from 2000 to 2005, China’s annual per capita GDP growth rate was 8.1 percent, starkly outpacing India's 4.8 percent. This disparity raises an intriguing question: What factors contributed to China's remarkable economic trajectory, and how can these lessons be applied elsewhere?

Some key drivers of China's growth include early economic reforms, a focus on manufacturing and exports, a unique political system, robust infrastructure development, and integration into the global economy. However, a critical, often overlooked factor is the role of women, particularly in the context of China's One Child Policy.

On my recent trip to China, I learnt this from my professor- Dr. Fang Yu and I quizzed a dozen of my friends in China amongst whom only 2 could get it right.

The One Child Policy: A Catalyst for Female Empowerment

Implemented in 1979, the One Child Policy aimed to control China's booming population, perceived as a hindrance to economic growth and improved living standards. But a lesser-discussed outcome of this policy was its profound impact on women's roles in society and the economy.

Under this policy, many parents, regardless of whether they had a son or daughter, poured their resources into ensuring their only child had access to the best possible opportunities. This shift led to increased educational and professional opportunities for women.

一箭双雕 or Yi Jian Shuang Diao, which means kill two birds with one stone! I think One Child Policy contributed to China’s economy in a similar way!

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Increasing Female Workforce Participation

As of 2022, over 60% of females were active in the labor force in China, a significant contrast to the 30% observed in India. This high rate of female labor force participation has been a key contributor to China's rapid economic growth, illustrating how empowering women can lead to broader economic prosperity.

Education: The Pathway to Empowerment

The One Child Policy also indirectly led to more women pursuing higher education. Female enrolment in tertiary education in China grew from about 1.5% in 1978 to over 40% by the 2010s. Specifically, the stricter fertility policies during teenage years induced higher female educational attainment, which in turn led to higher female labor force participation, non-manual occupation, and delayed marriage and childbearing. This expansion of educational opportunities for women paved the way for greater career choices and economic independence.

Empowerment and Autonomy: Beyond the Workforce

This policy not only enhanced women's roles in the workforce but also fostered a sense of empowerment and autonomy. With fewer children to care for, women had more opportunities to focus on personal and professional growth, contributing significantly to the economy. In fact, women contribute to 41% of China's GDP!

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The She Economy: A Consumption Boom

The rise of independent women in China has led to a significant consumption boom.

Household Purchases

Women account for over 70 percent of household purchases in China, encompassing a wide range of goods including luxury items, consumer products, and online shopping. This significant share indicates the powerful role women play in domestic consumption patterns.

Consumption for Personal Needs

A study by JD.com revealed that in 2021, 54 percent of women’s consumption was for their own needs rather than for their families. This shift towards personal consumption includes sectors such as luxury items, education and training, tourism, and health services.

Annual Spending Power

Female annual spending in China was expected to reach around USD 1.2 trillion by 2022, a clear indication of their substantial economic influence. Women are responsible for three-quarters of household purchasing decisions, underscoring their pivotal role in shaping market trends and consumer behaviours.

Looking Ahead: Embracing Female Empowerment

The lessons from China’s experience are clear. Empowering women goes beyond mere inclusion in the workforce; it involves ensuring equal access to high-paying professions and educational opportunities.

• In India, a preference for male children is prevalent among many parents, leading to a cycle where families continue to have children until a son is born. This practice not only results in higher birth rates but also leads to a disproportionate allocation of resources towards male children. This inequality is evident in various spheres, including education and employment opportunities. To unlock India's full economic potential, a paradigm shift is needed. We must take inspiration from China's journey, understanding the crucial role of women's empowerment. It's essential to not just include women in the workforce but also to provide equitable access to high-paying professions.

• China's implementation of the One Child Policy, though aimed at controlling population growth, came with its set of challenges. The cultural preference for male children led to practices like sex selection and abortion. Despite being banned, these practices prevailed, particularly in southern provinces where the policy's enforcement was weaker. Consequently, China experienced a skewed sex ratio of 104.6 males to every 100 females. This imbalance is a stark reminder of the unintended consequences of such demographic policies.

• The One Child Policy significantly influenced China's demographic profile, leading to an aging population with the average age reaching 37 by 2020. Recognizing the challenges posed by an aging population, the Chinese government relaxed the policy in 2015, allowing families to have two children. However, changing societal norms and the increased cost of raising children have made it challenging to reverse the trend. This aspect of China's policy offers a valuable insight into the long-term economic impacts of population control measures and the critical role women play in the economy.

Always excited to discuss more! Shoot me an email- rahul@oldrope.club

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Three years and ten months in the making, I finally had the opportunity to visit China. Over the course of several days, I journeyed through Beijing, Shanghai, and Guangzhou, reconnecting with old friends and immersing myself in the transformations that have unfolded in recent years. There are several takeaways from my trip which I would like to cover in the next few write ups. These insights extend beyond the borders of China and may hold relevance for India and other Southeast Asian markets as consumers evolve and enjoy greater discretionary income.

First up, I discuss about the several large beverage retail chains I came across the country.

Beverage in China - A $230B Market! 🥤

China’s non-alcoholic beverage market can be categorized into tea, bottled water, protein beverage, juice, carbonated beverage, energy and sports beverage, coffee, and others. China’s non-alcoholic beverage market, by retail consumption value, has increased from CN¥900B ($130B) in 2015 to CN¥1,233B ($175B) in 2020. Driven by higher disposable income and continuous product innovation, China’s non-alcoholic beverage market is expected to increase to CN¥1,946B ($278B) by 2025, representing a CAGR of 9.6%.

Here are some of the brands which I had come across during my China trip, and together these companies would have more than 60,000 stores!

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Luckin Coffee (瑞幸咖啡) ☕

Luckin Coffee, the largest coffee chain in China, was founded in 2017 and offers coffee at reasonable prices through grab-and-go stores and a tech-enabled experience. Since the stores are relatively small, rent is lower, which results in lower prices and attractive discounts. Once per week, customers can enjoy a cup of coffee for CN¥9.9 ($1.3); otherwise, coffee typically costs CN¥12-15, which is significantly cheaper than Starbucks. Luckin has primarily opened company-owned and company-operated stores, but has recently expanded into the franchise business.

Number of Stores: 11K+
Estimated Annual Revenue: $3.4B
Valuation: $8.6B
Funding Raised: $550M+

I tried the Coconut Latte and Moutai Latte, and both were really good! The Moutai Latte is a collaboration between Luckin and Kweichow Moutai, one of the biggest alcobev companies in China. It infuses Moutai Baijiu into the coffee, giving it a unique flavor profile. I was also impressed by how many Luckin Coffee stores there were; there was one in every neighborhood we visited, or there was one opening soon.

Cotti Coffee (库迪咖啡) ☕

Started in 2022, Cotti Coffee is one of the fastest growing coffee retail chains in the world. Within a year of launching, they have opened more than 5,000 stores. It has been founded by the founders of Luckin Coffee who had to quit due to the financial fraud for inflating revenues at Luckin. Cotti Coffee is even cheaper than Luckin with products ranging from CN¥9-10 ($1.2/ INR 100).

Number of Stores: 5K+
Estimated Annual Revenue: $500-600M

Cotti Coffee is making itself attractive to franchise partners by eliminating franchise fees, which enables quicker capital recovery. While it has opened stores in major business districts and sponsored city marathon events, Cotti's ultra-low prices are what have truly made the brand famous.

Chagee (霸王茶姬) 🥛

Chagee, a milk tea retail chain founded in 2017 in Yunnan, China, blends traditional products with modern experiences. Its products mainly focus on original leaf fresh milk tea, covering pure tea, fresh fruit tea and related products. Its stores have a modern outlook and its packaging is reminiscent of Christian Dior, appealing to a young audience. Most of Chagee's stores are take-out only. A typical 500ml cup of Chagee milk tea costs CN¥20 ($2.75/INR 230).

Number of stores: 2500+
Chagee has opened stores in other SEA markets like Singapore, Malaysia, etc.
Estimated Annual Revenue: $300M+
Valuation: $400M+
Funding Raised: $50M+

The tea-making process at Chagee is tech-enabled and divided among colleagues. As you can see above, large quantities of tea are prepared in kegs with dispensers on top. This ensures standardization and faster delivery. It felt like ordering tea from a mini factory. I ordered the oolong milk tea, which was blissful. It was the first time I had finished a 500ml cup of tea!

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Ningji Lemon Tea (柠季手打柠檬茶) 🍹

NingJi Lemon Tea, a chain of lemon tea stores founded in 2021, focuses on fresh lemon-based tea drinks. The stores mostly offer takeout, and the overall capex investment is relatively low, enabling quicker payback. NingJi offers flavored lemon tea for around CN¥20 ($2.75).

Number of Stores: 2000+
Estimated Revenue: $200M (Estimated)
Funding Raised: $15-20M

The NingJi Lemon Tea was tasty but unexceptional for the price. It was also a relatively simple product, but the packaging was top-notch and convenient. The beverage-making process was also simplified, with containers filled with the tea.

Mixue Bing Cheng（蜜雪冰城)🧋🍦

MIXUE, an ice cream and tea retail chain founded in 1997, has expanded to over 25,000 stores in China and 3,000 stores overseas. It operates only 47 stores directly, with the rest owned and operated by franchisees. Mixue's indulgent products, such as Boba Sundae, Milk Tea, and Cheese Fruit Tea, are priced at CN¥5-10 ($0.7-1.4).

Number of Stores: 25,000
Estimated Revenue: $4-5B (GMV)
Net Profit: $280M

Most Mixue stores are take-out and offer extremely competitive prices. As a franchise business, the company sold $1.4B worth of raw materials and made $280M in profits in 2021. To achieve quality and taste at such a massive scale, Mixue has highly standardized production processes.

Cha Bai Dao (茶百道) 🥤

Cha Bai Dao, a Chinese tea brand founded in 2008, is one of the largest in the country, serving combinations of tea and fresh fruits. Its products are priced at CN¥15-20 ($2-$2.75). With over 7,000 stores operating largely through franchise partners, Cha Bai Dao generated $2B in revenue (GMV) in 2021, selling $570M in raw materials and making $140M in profits.

Number of Stores: 7000+
Funding: $150M (2020)
Valuation: $2.5B (2020)
Revenue: $2B (GMV)

In 2022, Cha Bai Dao sold 794 million cups of milk tea, generating an average net profit of CN¥1.2 per cup. Despite the competitive market, Cha Bai Dao has been able to build a large and profitable business, largely through its franchise model.

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Hey Tea (喜茶) 🥤

Founded in 2012, Hey Tea is a celebrated Chinese milk tea brand known for its freshly brewed milk tea, fruit and cheese tea with boba. With aesthetically pleasing stores, Hey Tea is extremely popular with the younger generation, often resulting in long wait times. A drink at Hey Tea costs between CN¥18-28 ($2.5-$3.9).

Number of Stores: 2800+
Estimated Revenue: $1B+
Valuation: $9B (2021)
Funding Raised: $600M

We ordered a mango tea and grape tea (see images below) - both tasted really refreshing, although we forgot to customize the added sugar so it was on the sweeter side. Given the long order queue, it took over 10 minutes for us to get the order. The packaging was Instagram-worthy, making HeyTea very popular on social media channels!

Good Me (古茗)🥛

Established in 2010, GuMing is a Chinese tea retail chain that combines China's tea culture with fresh seasonal fruit. It is one of the largest chains in China, with over 8,000 stores. Products are priced from CN¥8-18 ($1.10-$2.50). Some of the top sellers include Soy Milk Tea and Taro Pure Milk Tea.

Number of Stores: 8000+
Estimated Revenue: $2B (GMV)

Guming has raised capital from funds like Sequoia, Coatue and is planning an IPO, just like several other milk tea brands in China.

Naixue (奈雪的茶) 🍇🍵

Started in 2015, Naixue is a modern teahouse chain serving freshly made tea drinks with fruits. Formerly known as Nayuki, the company rebranded to Naixue as Japanese branding lost appeal in China. Naixue is popular for its grab-and-go and dine-in stores, as well as its fresh bakery.

Naixue's tea drinks include fresh fruit teas, milk teas, and pure teas, along with fresh baked goods to complement the tea drink.

Number of Stores: 1360+
Revenue: $620M
Valuation: $850M (Listed)

The pricing of Naixue products range between CN¥10-25 ($1.4-$3.4) due to intense competition from brands like Hey Tea. The first time I tried Naixue (Nayuki) was in 2018 and I really liked the strawberry tea that I became a regular customer during my time in Beijing. If you are in China, highly recommend the strawberry tea.

Naixue recently announced the launch of Naixue Tea Garden, a premium teahouse experience. The pricing will also be premium, reflecting the experiential nature of the offering.

Some insights which would be relevant for similar businesses in India and SEA, as we see the consumption boom happening.

• China's well-developed roads and infrastructure support a grab-and-go culture, which enables beverage companies to operate grab-and-go chains. Customers are accustomed to purchasing drinks and walking while drinking, which is convenient. This also helps to reduce the cost of the product, as the capex and opex per store are lower, and the savings can be passed on to the customer.

• The above-mentioned brands have 60,000 to 70,000 stores in China, and we're not even counting brands with a few hundred stores. To scale to this level and maintain consistency, brands must standardize production centrally and at the store level, so that customers have the same experience regardless of staff skill level.

• Companies cannot open thousands of stores with equity capital alone, so franchise and franchise investor models are essential. Standardization is key to scaling franchise businesses while maintaining quality. Since the business also relies on the franchise partner's abilities, it is crucial to select the right partners who are committed to active growth and have industry experience

  

• The Chinese domestic market has become extremely competitive, leading to a price war, as evidenced by the price ranges. It is difficult to differentiate on taste and build unique IP around the product. There is also stiff competition from beverage brands outside the direct category, such as Luckin, which competes with Chagee and vice versa. To sustain, brands need to constantly innovate in product and marketing. Additionally, local brands are diversifying by opening stores in SEA.

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  If you are keen to exchange learnings in F&B or QSR, drop me a line: rahul@oldrope.club. Look forward to connecting!

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The average Indian household allocates a staggering 25% of its income to food. The question that looms over us daily is: What should we indulge in for breakfast, lunch, or dinner? It’s natural for food services to be one of the largest consumer markets with several entrepreneurs innovating on business model, food technology and packaging, across the world.
Shout out to Xintong Zhang, for providing deep insights on China!

Food Services Market! 🍲

In 2019, India's food consumption reached $670 billion, approximately accounting for 24% of the country's GDP. However, what's striking is that only 10% of this enormous sum is attributed to the food services sector, encompassing restaurant dining and non-home cooked food.

In contrast, both the United States and China boast significantly higher figures, with food services accounting for a substantial 54% and 58% of their respective food consumption markets, making India's potential for growth in this sector all the more evident.

As per RedSeer, India’s Food Services market is ~$65B (2019) and expected to reach $100B by 2025. As the income levels in India are going up, food services market is expected to mature!

Cloud Kitchen Industry 🍽️☁️

In the past, dine-in restaurants began offering food delivery within their local areas as a means to optimise kitchen utilisation and cater to loyal customers seeking convenience. However, restaurants often faced challenges when it came to efficient delivery and effective marketing to expand their customer base. This is where food aggregator platforms stepped in, revolutionising the dining industry by providing a comprehensive solution that combined both discovery and delivery services for these dine-in establishments.

By partnering with food aggregator platforms, restaurants could refocus their efforts on their core competency: crafting delicious meals. These platforms, in turn, facilitated not only serving their existing loyal customers but also acted as a gateway to attracting new patrons. In exchange for their services, these platforms typically charged a commission fee, creating a win-win scenario where restaurants could concentrate on their culinary expertise while reaching a broader audience through the digital marketplace.

This trend led to the emergence of restaurants that solely operate through online platforms, without physical dine-in locations. These are known as "cloud kitchens." Cloud kitchens save on prime real estate costs since they cater exclusively to online orders and can run multiple brands from the same kitchen space.

India's food delivery market, valued at $4.2 billion in 2019, has surged to $5.3 billion in 2022. It is projected to experience remarkable growth, potentially reaching $30 billion within the next 5 to 7 years.

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Challenges in the F&B ecosystem! 🏋️‍♂️

Under Utilisation 📉

Traditional dine-in restaurants often must establish themselves in high-traffic locations, which come with high rent expenses. In addition to managing the kitchen, they also invest significantly in interior decor. As previously discussed, these factors can strain the sustainability of dine-in restaurants due to lower kitchen and staff utilisation. In fact, it's worth noting that more than 60% of restaurants reportedly close their doors within the first year of operation, primarily due to the challenge of managing operating costs in relation to their earnings. This highlights the promising potential that cloud kitchens offer as an alternative.

Demand Generation 💥

Cloud kitchens, benefiting from reduced capital and operational expenses, indeed face intense competition. However, for small restaurant owners, generating demand can be quite challenging due to various factors. These include the algorithms used by the platforms, the effectiveness of marketing campaigns, and discounts, among other variables.

Supply Chain and Training 🔗📚

Suppose a cloud kitchen owner has successfully established a brand specialising in a particular cuisine. To enhance kitchen utilisation, expanding into another cuisine becomes essential. Moreover, scaling the business from one kitchen to multiple locations is a crucial step in achieving further growth. However, this expansion introduces complexities in the supply chain.

Sourcing ingredients for diverse cuisines becomes a challenge, as does ensuring consistency in taste across different kitchens. Additionally, training staff to maintain standardised quality is imperative. It's worth noting that the high turnover rate among kitchen staff is a prevalent issue within the industry, making consistent training and quality assurance an ongoing concern.

House of brands in cloud kitchen! 🏠🏢

In light of the challenges mentioned earlier, companies like REBEL Foods, Cure Foods, and Biryani By Kilo have emerged as pioneers in the industry. They've successfully established multi-brand cloud kitchens across the country, taking advantage of the opportunity to scale up various brands. For instance, REBEL Foods has grown brands like Faasos, Cure Foods has introduced EatFit. They've leveraged partnerships with platforms like Swiggy and Zomato to expand their reach and cater to the evolving demands of the food delivery market.

The companies mentioned operate under a hub-and-spoke model, where the central kitchen (hub) plays a central role in food preparation. The prepared food is then sent to delivery kitchens (spokes) where it is assembled and heated before reaching the customer. This approach ensures consistent taste across different locations and has effectively addressed many challenges.

However, despite raising hundreds of millions in capital, this model has not been profitable (yet). This is because companies must invest substantial capital in establishing and operating multiple delivery kitchens (spokes) across the country. While it solves many issues, the initial investment and ongoing operational costs have presented challenges in achieving significant profitability thus far.

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Why we invested in Dil Foods? ❤️ 🍲

Introducing Dil Foods, a dynamic food-tech company specializing in creating virtual food brands. These brands are distributed through popular food aggregator platforms like Swiggy and Zomato. At V3 Ventures, we recently led Dil Foods’ fundraise of $2M, alongside Mount Judi.

Dil Foods builds amazing food brands across cuisines and produces the food in the central kitchen facility (hub)- pre-fabricated food. It partners with small restaurants (spoke) which serve as local hubs to deliver these cuisines through food aggregator platforms.

Arpita, founder of Dil Foods 👩‍💼

With two years at Swiggy, she understands the challenges faced by small restaurant owners trying to use food aggregator platforms. Before Dil Foods, she started Nutnbolt to help small restaurants build an online presence and grow their cloud kitchen business on Swiggy and Zomato.

After accumulating extensive experience in this field, Arpita decided to establish Dil Foods. Her approach is highly analytical, focusing on the strategic creation of food brands and empowering small restaurants to enhance their operational efficiency. This is made possible through a robust supply chain and sustainable economic practices.

Win-Win 🏆🤝

Dil Foods operates a highly capital-efficient model by collaborating with existing restaurants (spokes) rather than setting up new kitchens. This partnership benefits restaurant partners by generating additional revenue without requiring extra investments in capital expenditure or additional staff. It's a win-win scenario for both parties involved.

Food Quality is top priority 🌟👨‍🍳

In the hub-and-spoke model, maintaining consistent food quality across locations is paramount. The central kitchen prepares food with a high shelf-life, minimizing the preparation required by the restaurant partner's staff at the spoke level. This streamlined process reduces the potential for errors and ensures a uniform taste experience across all locations, while also simplifying operations for the restaurant partner.

Scale Up 🚀

In just one year of operating without external funding, Dil Foods has successfully introduced 8 brands and established partnerships with over 50 restaurants. With their asset-light strategy and strong emphasis on food innovation, we are confident that Dil Foods can continue to expand rapidly in a sustainable manner.

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Here are some notable observations from the Chinese market, where dynamic developments in food innovation and business models are taking place!

Pre-fabricated meal market in China 🍱🇨🇳

The pre-fabricated meal market in China is experiencing significant transformation due to the rapid growth of the food industry. Cost reduction and enhanced efficiency have become paramount concerns, driving the widespread adoption of the hub-and-spoke model. Central kitchens have evolved to a point of maturity, streamlining various processes such as raw material procurement and food processing, previously handled at the spoke level. This strategic shift reduces reliance on skilled chefs and kitchen staff, leading to decreased kitchen space requirements and subsequently lowering labor and rental expenses.

In early 2023, the Chinese government emphasised the importance of elevating standardisation and regulatory measures, particularly in areas like pre-cut vegetables and central kitchens, while actively fostering the development of the pre-fabricated meal industry. Presently, more than 74% of chain restaurant brands in China have established their own central kitchens, while approximately 60% of restaurant brands are embarking on the utilisation of pre-fabricated meal ingredients.

The pre-fabricated meal market in China is approximately $85 billion, with an estimated compound annual growth rate of 13% over the next five years.

Central Kitchen & Chain Stores 🏢🍲

Taking Haidilao as an example, it's a popular Chinese hotpot restaurant chain with 1,371 stores across China.

Haidilao collaborates with Shuhai Supply Chain for ingredient pre-processing and production across all its restaurants. It hase established central kitchens and cold-chain logistics centers in multiple locations to ensure efficient ingredient distribution, granting Haidilao significant purchasing power and cost control capabilities.

Pre-frabricated meals going Omnichannel 🍱📊

Previously, the development of pre-fabricated meals mainly targeted B2B sales. However, the pandemic brought about dine-in restrictions, compelling restaurants to provide pre-fabricated meal options. Customers began ordering pre-assembled ingredients from delivery platforms, reheating and assembling them at home. This not only helped reduce losses from dine-in closures but also introduced a fresh revenue stream. As a result, consumer demand for pre-fabricated meals surged, reshaping dining habits.

Alongside pandemic-induced changes in consumer behavior, shifts in population demographics and household structures have also played a significant role. There is a growing number of single-person and two-person households, along with increased female labor participation. These factors have generated a rising need for convenient dining solutions. Pre-fabricated meals efficiently cater to this trend by offering complex dishes tailored to smaller family sizes.

Furthermore, compared to regular takeout and traditional fast food, major pre-fabricated meal companies prioritise quality control. They ensure the production of safer and healthier products that align with consumer preferences, further fuelling the demand for this convenient dining option.

Weizhixiang Food- Market Leader 👑

Weizhixiang Food, a prominent player in the pre-fabricated meal market, boasts revenue exceeding $100 million. They offer a wide array of over 300 SKUs!

By the year 2022, Weizhixiang Food has established an extensive network comprising 1,695 franchise stores, 705 retail outlets, and 442 wholesale clients. Their retail distribution channels are strategically concentrated in various regional markets, ensuring proximity to consumers. Meanwhile, their wholesale channels primarily cater to hotels, restaurants, local kitchens, and cafeterias.

Furthermore, the company has expanded its reach into the online sales sphere through Taobao (Alibaba) and JD, which are leading e-commerce platforms in China.

With plans to enhance their production capacity, Weizhixiang Food is set to diversify its retail channels by establishing street-side stores and shop-in-shop setups within supermarkets. This strategic move aims to broaden their market presence and accessibility to consumers.

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Observing this trend, can this lead to opportunities for companies like Dil Foods to expand into horeca and omni-channel retail? If you’re building something exciting in food- would love to hear from you! Write to me- rahul@v3.ventures

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My Indian parents need a hot cup of masala tea to start their day, and the practice has continued from our forefathers, even though there have been some modifications in the taste. This would be true for most Indians - with only a small percentage graduating to coffee. India’s per capita tea consumption is 475 cups per year whereas it is only 16 cups for coffee. That being said, the great Indian middle class is moving towards coffee as an indulgence, causing the coffee market to grow rapidly in the country ($1.6B; growing 10% YoY)

While China is different from India (in terms of culture and development) and it’s not fair to compare the two just because of the population size, the two countries share an uncannily similar habit of tea and coffee drinking.

In China, the per capita consumption of coffee is ~12 cups whereas consumption of tea is ~400 cups- indicating a similar gap!

Coffee Market in China ☕ 🇨🇳

China has been pre-dominantly a tea drinking market and has seen several successful retail businesses built around ‘tea’- such as Hey Tea, Naixue, among others. Most of these stores have long queues and waiting time!

Inspite of this, China’s coffee market has evolved deeply on account of the influence of western culture as well as a rising middle class! China’s coffee market is estimated to be around $67B as of 2022 (source) growing 15-20% YoY.

Nestle entered China in 1980s with its instant coffee product and has been instrumental in creating and growing the coffee market. As the middle class in China is rising, it’s evident that the freshly brewed coffee market is growing very fast, with over $20B+ market in 2022!

Supply from Yunnan 🌿

Yunan, a landlocked province in south-west China ranks fourth in Asia and 12th in the world- for coffee production, accounting for 1.5% of the global production. The region currently has the largest coffee planting scale and the largest output in China. The planting area and output accounts for more than 99% of the country's total coffee production. Yunnan mainly grows Arabica coffee, of which Katim is the main variety, which is characterised by strong disease resistance, high yield and good quality.
These characteristics have ensured availability of a strong coffee supply for the country's growing coffee culture.

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Starbucks, Western Influence & the Rising Middle Class! 🇺🇸

Starbucks opened its first store in China in 1999, when it was (and still is) majorly a tea drinking market! Over the past 24 years, Starbucks has become the largest coffee chain in China, which is not only because of the growing coffee market but also due to the company's sincere efforts to localise and adapt to the customers in different parts of China. Starbucks has also integrated with WeChat and Alipay for seamless payments and delivery. Within store, you can order from WeChat and get notified as your coffee is ready!

Today Starbucks operates 6000+ stores in China, making it the company's second largest market after the US.

Moreover, Starbucks charges more than 30 RMB (~$4) for its coffee, which is premium, creating wide space for other local and international brands.

Local Coffee Chains!🥤

People in China like to flaunt their Starbucks cup and you would often see them carrying it around. It would be fair to say, it is not for everyone!

“It is true that a Starbucks latte is more expensive in China than in the United States,” - John Culver, president of Starbucks China (2013)

The premium price point of Starbucks created an opportunity for local coffee chains to go after functional use case of coffee at a reasonable price.

Luckin Coffee, started in October 2017, to provide a reasonably priced coffee to the Chinese consumer- increasing the penetration of coffee consumption in the Chinese market. Moreover, the products resembled milk-tea’s taste, which is more acceptable to the Chinese consumer. "Ruixing 瑞幸" is the Chinese name of the brand- it fits the Chinese people's vision of a happy life, which means this coffee could bring good luck！

Luckin Coffee has taken China’s market by storm and given stiff competition to Starbucks. Out of the 9300+ stores, ~67% stores are company owned, whereas remaining are franchise owned. There are several reasons which led to its wild success!

Pricing

As mentioned above, a 475 ml Starbucks latte costs $4 in China, while a 475 ml latte (post discount) costs almost 10 yuan ($1.7) at Luckin. Moreover, Luckin has heavy discounts and offers, hence average price of a cup of Luckin coffee drops to 10–20 yuan ($1.5–3)

The lower price has allowed a wider group of audience to enjoy coffee more as a functional drink, while at the same time building an aspiration brand around it.

Localisation

Luckin Coffee has played an important role in deepening the coffee market in China by introducing products which would suit the Chinese customer like Brown Sugar Boba Latte (陨石拿铁) by combining ingredients of milk tea (Boba and brown sugar) with coffee latte, Newer Latte (creamy milk latte, 厚乳拿铁), etc.

Luckin has also launched its tea brand- Xiao Lu- which is a series of tea drinks based on tea and mixed with milk or milk tea. Given the low price point and localised menu, Luckin has enabled non-coffee drinkers to also adapt coffee culture and become regular!

Technology

In a brick and mortar business, Luckin has focused on technology intervention to provide seamless experience to customers. When Luckin had launched, it was compulsory to order from Luckin’s app- with the first coffee being free or highly discounted. So, users would download the app to get their first coffee, and in future, all the purchases had to be made through the app- which led to higher retention as well as enabled Luckin to retarget the customers. It made the grab-and-go concept seamless, since the customers order the coffee from the closest outlet while sitting in an office and pick up the coffee once the app updates them of their coffee being ready.

Luckin also uses big data analytics to identify the sites for opening its stores, based on proprietary as well as 3P data. The system would take available information into account, like offline traffic data, competitors and customer profiles- suggesting malls or office complexes which could generate profitability.

Store Concept

Starbucks stores are located in shopping malls or affluent neighbourhoods, providing for an upscale experience, hence the coffee is also priced high. Also, people come to starbucks to hang out, meet with friends, colleagues or hold semi formal business meetings.

Luckin coffee has built ‘grab and go’ stores with limited seating- which enables it to price the coffee lower. Customers can order coffee on the Luckin App in advance and reach the store when it’s ready. This helps the company with lower capex as well as lower operational costs- leading to a faster breakeven.

Franchise model of Luckin! 🏢

Although all stores of Starbucks are company owned, Luckin has over 3000 stores which are franchise owned, out of the 9300. Luckin’s franchise business model is unique as it does not charge a fixed franchise fees from the partner and doesn’t charge royalty based on sales. Instead, it earns profits by sale of raw materials, which is completely controlled by Luckin, and sharing of gross profit if the store’s monthly gross profit is higher than $2800- which ensures its a profit making store! This aligns the franchise partner and Luckin’s incentive- since Luckin only makes money if the franchise partner makes money. With control of entire raw material and the equipment, Luckin is able to control the quality of the product across the stores.

Financial scam and the rebound! 🏀

Luckin Coffee went public on NASDAQ in May 2019, raising $645M! In 2020, a Muddy Water Research report alleged that Luckin had inflated sales of ~$300M. This led to the stock price dropping to $4.8 from $17 and eventually got delisted from NASDAQ in June 2020. Inspite of this, the model continued to work and Luckin made a strong come back in 2 years and is expected to overtake Starbucks in few years!

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Local and global competition! 🏋️‍♂️

Apart from global competition from players like Starbucks, Lavazza, Mc Cafe, etc.- there are several venture backed local coffee companies which are trying to grab a piece of the pie!

In 2021, ~$800M was invested across 16 transactions in China’s coffee sector!

Today, Shanghai has over 8000 coffee shops- beating all other cities across the world! It clearly indicates the China has many micro markets which could accomodate more coffee stores as the middle class keeps rising and the China consumption story plays out and coffee becomes more functional than indulgence. In the next few years, coffee market in China is expected to reach ~$140B! Models like Luckin have also proven that by keeping opex and capex cost on the lower side, profitability can be achieved much faster- making the business viable!

FMCG opportunity 🏭

Not to forget, the largest opportunity lies in the FMCG industry but it has been dominated by legacy players like Nestle, or no? In 2015, Saturn Bird (三顿半) launched its instant coffee which is significantly better than any other instant coffee in the market- given the customer feedback.

Using freeze drying technology, liquid brew is put into small cups, as you can see above. The number denotes the intensity of the roast, 6 being the highest. A customer just needs to pour the cup in milk, hot water or cold water, stir lightly- and coffee dissolves, resembling taste of a freshly brewed coffee! Cost for a single cup comes around ~$1.

The company has raised over $50M and was valued at $625M in the last round of financing in 2021. Annual sales in 2022 are estimated to be $100M+ and it has surpassed Nestle in instant coffee sales on Taobao.

It launched ‘Project Return’, allowing customers to return the cups at offline stores (in partnership), incentivising users by receiving coffee powder in return.

Coffee across SEA! 🌏

Markets like Indonesia, Philippines and Singapore have mature coffee culture, with several companies scaling up with lower capex and lower opex model!

Kopi Kenangan, Indonesia

Founded in 2017, Kopi Kenangan is a billion dollar coffee chain from Indonesia- which has scaled up to 800+ outlets across the country. It has grown through company owned stores, focusing on grab and go- maintaining sustainability through smaller stores and pricing the coffee much lower than international chains like Starbucks

Jago Coffee, Indonesia

Jago Coffee, launched in 2020, is an innovative concept of serving coffee on the wheels, which is essentially organising an unorganised industry in Indonesia. The coffee is even cheaper than Kopi Kenangan since the company does not have to pay high capex or opex costs, since the cart does not need to pay rent and is operated by a single person. Throughput of one cart would be limited, hence Jago will have to launch thousands of cart to build a large business.

Flash Coffee, Singapore

If you are in Singapore, Flash Coffee stores will definitely grab your attention! Founded in 2019, Flash Coffee has over 250 stores across SEA and has raised over $65M since inception. Flash Coffee also operates in the grab and go space- keeping the costs lower and pricing competitive. Customer need to use their app to order coffee, at the store or for delivery- like Luckin coffee, enabling the customers to avoid waiting for their coffee in the store.

Pick Up Coffee

Pick Up Coffee is a Philippines based company, which started operations in 2022 and has opened over 60 outlets across the country. Being value focused, it offers premium coffee at much lower prices than other coffee chains. Again, this has been possible due to the smaller format of the stores- making the business more viable. It has raised over $35M since inception and is currently valued at $120M!

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Insights for India! 🇮🇳

Like China, India is largely a tea drinking market! Over the last 2 decades, coffee culture has been improving, but it is still early days. ‘Filter-coffee’ is popular in the southern parts of the country and Instant coffee has been popular since it provides access to coffee at a lower price. Cafe Coffee Day is an Indian chain, which was the early mover in the coffee retail chain business in India, launched in late ‘90s. Over the last 20 years, the company scaled to thousands of stores and built a brand- but it ran into operational issues and has been struggling recently!

FMCG sector has also played an important role in increasing adoption of coffee in the country. Recently, liquid decoction is becoming popular- providing better instant coffee experience at competitive price of 5-10 cents!

India’s coffee retail chain market is ~$420M (2022) and growing rapidly! Moreover, India is a leading producer of Arabica and Robusta coffee, so there is no reliance on import of high quality coffee beans.

Starbucks has ~340 stores in India with $130M revenue (~$3.2B in China), being one of the largest coffee retail chains in India. There are Indian players like Blue Tokai and Third Wave , which have also opened over 50-100 stores each. The larger format stores have found it difficult to scale so far, unlike China, but they are picking up now.

Third Wave Coffee and Chaayos are Indian brands for coffee and tea respectively, and the price difference is evident- since tea is more functional whereas coffee is premium indulgence! In fact, most of the large outlets in India take over ~2-3 years to recover their capex.

It’s clear that China has ~5 times higher GDP per capita, hence Chinese consumers have a significantly higher disposable income than Indian consumers. Hence, the $3-5 price point for coffee has been one of the bottlenecks for larger Indian consumers to indulge in coffee.

That being said, the Indian middle class is rising fast and we can expect a boom in India’s coffee consumption over the next 15-20 years, looking at the trends in China!

Going forward, it is fair to expect a large coffee chain on the grab-and-go model, serving high-quality, localised coffee at lower prices, making coffee more functional for the Indian consumer!

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If you are making coffee accessible for the masses in India, let’s chat? rahul@oldrope.club

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Over the last few months, I have been receiving pitches from several startups in India and SEA- building in online dating and matchmaking space. I have always wanted to write about the space but found an excuse to delay it. However, witnessing the growing number of founders venturing into this field has convinced me that the time is ripe to finally delve into it.
For those of you who don’t know- I spent over 6 years working with dating and matchmaking startups based in US, SEA and China. Last, I was working with Tantan for internationalision (2017-2020), one of the largest dating apps in the world- which got acquired by a Chinese social network- Momo for ~$800M.

Before the advent of online matchmaking, individuals mainly relied on traditional offline ways of meeting other individuals seeking romantic relationships- matchmaking agencies, social events, family, classified ads etc. There were two key challenges- double co-incidence of needs [whether the other person was looking for a relationship] and limited pool of individuals.

Genesis of Online Dating💻💑

The above challenges created need for a 2 sided online marketplace- where individuals could create a profile and look for matches based on their preferences. One of the earliest examples of online dating platforms was Match.com, which launched in 1995.

Match.com became a success story, reaching over 100K users in first six months, and they moved from an advertisement led business model to a monthly subscription based model.

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Until 2000s

• Match.com became popular- got acquired by IAC for $50M in 1998

• eHarmony was launched in 2000- using a proprietary matching system developed to match highly compatible singles. eHarmony’s matching technology utilizes a lengthy questionnaire, which originally was in excess of 450 questions but since then it has been reduced to about 150.

2000-2004

Friendster started in 2002, as a social networking platform- connecting friends as well as strangers. One of the key use cases was online dating

• Plenty of Fish, launched in 2003- being a free dating platform, whereas other dating apps were paid- aided its success.

2005-2009

• Seeking Arrangement, launched in 2006, focused on niche space for sugar dating- charging high membership fees [~$70pm]

• Grindr, launched in 2009- as a location based dating app for the LGBTQ community- and eventually became the most successful dating platform within the community.

2010-2014

• Tinder, launched in 2012, as a location based dating app- with the swipe left or right feature- making it a viral game. Users are shown photos of nearby potential matches and can swipe right to “like” and left for “nope.”

  

• Hinge, started in 2013, differentiated itself by claiming to be less superficial- by emphasizing on uploading user-generated content in formats, such as photos, videos, and prompts as a way to express personality and appearance.

• Bumble, was founded in 2014- by Whitney Wolfe, after she left Tinder. Bumble was similar to Tinder as it was also a location-based dating app, but there was one key difference: Women had to make the first move.

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Okay…enough of dating apps. Seems like it is a very crowded market, with companies essentially attempting the same thing but with slight variations in their positioning. Still, there are several new apps which are launched every year and are able to attract venture capital!

The global market for online dating and matchmaking is expected to be around ~$7.8B in 2023- growing at a slow pace from here on; given that US contributes for more than 30% of the revenue and it’s reaching saturation. The new dating apps will have to displace existing apps in order to become large companies!

Leading players across the world!🌍

Match- the big daddy of dating! 👨‍👧‍👦

Now-a-days, dating apps start with the vision of finding home in Match’s portfolio. Match.com runs more than 45 brands- and you will find leading players like Tinder, Hinge, OKCupid, etc. competing with each other, but the dollar ultimately is going to MATCH!

In 1999, Match.com was acquired by IAC- a media conglomerate based in US. In end of 2019, IAC decided to spin off all the online dating brands under Match Group.

Tinder was incubated within IAC- and drives ~60% of the revenue of Match group today! It’s very evident from Match Group’s strategy that overtime- older brands become less relevant, hence it’s important to keep trying with newer formats and acquiring companies which could have potential in the future to overtake Tinder.

Just as a case in point, Hinge positioned itself as an anti-tinder app, but it’s actually the same company. Who knows, 10 years later- Hinge brings in a lot more dollar than Tinder.

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The dating paradox! 🤔

One of the key challenges dating and matchmaking apps face is user retention. The sooner you find a match- the better is the experience- and the user would happily uninstall the app. If the user is unable to find the matches- then the user would angrily uninstall the app. Maybe low retention could be one of the key reasons for low revenue multiples- 3-5X [as seen in the chart above].

Moreover, meeting matches online in asian countries is a taboo- so dating apps might not experience strong word of mouth, in spite of great experience.

So, it’s very important to discover the cost of user acquisition- and charge the membership fees such that LTV/CAC makes logical sense.

Globalisation! 🌐

One of the key advantages of matchmaking and dating platforms is the ability to go global! Just like any social network [Facebook, Snapchat, etc.]- dating apps are 2 sided marketplaces, which need to localise marketing efforts in order to capture other global markets.

But- there is a lot more to localisation than just branding and marketing. It also calls for product features and algorithms which are tailored to the culture and demographics of a certain market. What has worked in the US might not work in India?
…this seems like a good segue into our next topic of discussion: Dating and matchmaking in Indian market!

India’s matchmaking and dating market 🇮🇳

Given the size of the population, Indian dating and matchmaking market seems very attractive! With over 35-45M singles in urban India, it is one of the largest markets in dating [in terms of users]. But the revenue of dating and matchmaking apps has been in the range of $250-350M, much lower than the western markets.

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Dating vs Matrimony 💑👰

In the Indian context, the term ‘dating’ typically refers to the process of finding a boyfriend or girlfriend, while ‘matrimony’ is associated with seeking a husband or wife. Matrimony involves active family involvement, whereas dating is often pursued more discreetly. Interestingly, there are less female users using dating apps, compared to matrimony apps.

Arranged marriage, which is the prevailing approach to matchmaking in India, involves utilizing matrimony platforms, family networks, or offline matchmakers to find a suitable spouse. This process usually results in a relatively shorter time between finding the match and the wedding ceremony. It is common for families to prefer matches within the same caste.

In urban areas, there is a growing trend of individuals marrying their boyfriends or girlfriends whom they initially met through dating apps, but still early days!

Matrimony or Dating? 🌹💍

Indian online matrimony industry started in 1997- with Bharat Matrimony, followed by players like Shaadi.com and Jeevansaathi. They provided opportunity to singles [and their families] to look for a match based on filters like caste, region, horoscope, etc. Initially these platforms were used by parents- who would manage their children’s profile- whereas now the positioning is evolving so that some of these profiles are managed by end users.

10 years old Ad- Father is actively involved in finding a match for her daughter

1 year old Ad- Individuals are managing their own matchmaking process

Dating apps started in India around 2014-15- with companies like Woo and Truly Madly- as they raised venture capital hinged on success of Tinder. These companies positioned themselves as casual dating apps and targeted younger audiences.

Seeing the advent of dating apps in India, Tinder set up its base in India in 2016 by setting up local team in the capital city. Tinder’s app was most evolved to take over the Indian market and they went quite big on branding and marketing.

In spite of sincere efforts from the local apps, they spent the marketing dollars to educate users how to use tinder! Then we saw dating apps like Happn [HQ Paris], Bumble [HQ US], Hinge [HQ US], Tantan [HQ China] also launch into the Indian market.

Even after spending big bucks on Indian market- the male: female ratio on dating apps is vastly skewed towards men, for e.g. Tinder’s male: female ratio in India being 93:1. This also leads to poor experience for both, male and female users.

As seen above, the experience is quite bad. Why?

• Due to extremely skewed gender ratio, it leads to poor experience for female users as they are swamped with matches- as and when they create a profile

• Because of this, the retention for females user is poor and makes it costlier to acquire female users. [At scale, it could shoot up to $5-$10/ user].

• Moreover, in India, out of 100 internet users, only 33 are female. This makes it even harder to acquire more female users. [Source]

• This also leads to poor experience for male users since they don’t get matches and they go on to give a low rating to the app.

  

This creates a vicious loop for the dating apps in India!

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Even after that- Tinder and Bumble have proven to be amongst the highest grossing apps in the country. But is that significant? Let’s explore this a bit later.

The above mentioned dating apps have largely focused on the Tier 1 cities and English speaking population. Often India is referred to as a country- constituting of many countries; since people across different provinces have different culture and speak different languages. Apps like frnd have focused on the tier 2-3 market in India with regional languages at play and audio first approach. It monetises via micro-payments for chatting with dating experts, to send virtual gifts in audio rooms, etc. Early success of frnd has inspired many startup founders to build ‘dating app for Bharat’.

There is another segment of apps belonging to the Urban Matrimony segment- somewhere in the middle of dating and traditional matrimony! Apps like Aisle and Betterhalf have focused on individuals belonging in urban regions and looking to find a date to convert into a potential marriage. Even Trulymadly pivoted into focusing on this niche.

Aisle is taking an interesting approach to regional matchmaking- by creating regional apps. They have already launched 4 regional apps, focusing on Malyali, Telegu, Tamil and Kannadigas.

This seems to be inspired from Bharat Matrimony, which runs platforms like Telegu Matrimony, Tamil Matrimony, Kerala Matrimony, etc.

As mentioned above [grossing charts]- Bumble and Tinder make fraction of their global revenue in India. Given their investments, it seems that both the companies have a long term view on Indian market, waiting for the economy to grow and they can reap dividends of investment today.

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Learnings about Indian market! 📚

• Even though Indian weddings are known to be extravagant- all over the world, but the largest matchmaking platform in India is a matrimony platform- worth $162M with $55M in revenue [Bharat Matrimony]. Dating apps in India haven’t been able to grow as much, some of which can be attributed to the Indian culture. How will this evolve? Going forward, I believe matrimony industry will expand further in the near future as we see more individuals going to the internet to look for potential partners. Dating industry could pick up as well- but I feel that it would take more time since it depends on cultural evolution and systemic shifts in society. Incase one really wants to build a dating app- going global could be the way to solve for market size!

• New age matchmaking platforms often find a chicken-egg situation while signing up male users and female users, especially during the cold start phase. My advice would be to onboard high quality male users during the initial period of launch and then onboard female users. Usually female users don’t find good quality matches on other platforms and tend to drop off soon. If the retention for female users is solved, it could solve for the overall growth of the app- during the cold start.

• For global platforms to find success in India, it will be important to adopt to cultural nuances in the market. With Hinge, Match group [also owns Tinder] is trying to solve for the urban matrimony use-case. Also, there are rumors about Match group discussing strategic investment in Shaadi.com- leading matrimony platform in India.

Food for thought: The circle of life of dating apps! 🔄

Dating apps is a funny business. Most of them are solving for the same thing- but still are able to co-exist. Although, it’s interesting to see the evolution of a dating app, which is applicable to most of the products. For example:

• Tinder started as a dating app for university students [niche] looking to find date with attractive partner

• Since the student market is not large enough, and hard to monetize- Tinder needed to find more avenues to grow.

• Eventually, Tinder became a mass app- catering to individuals looking for casual relationships.

• As Tinder became a mass-app, it created opportunity for apps like Hinge, with positioning around serious relationships [new niche]

• If Hinge finds it hard to grow in the niche, it might as well move towards a mass approach. Well, it has already been acquired by the big daddy- MATCH group!
  

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  ---

Happy to chat with founders and operators building social networks and brainstorm! You can reach me here- rahul@oldrope.club

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Digital learning has become an integral part of our lives, and it's one positive outcome of the pandemic. My mother, who completed an online 'Yoga Teaching' course, now delivers virtual yoga classes to her students in India. Surprisingly, most of them are over 50 years old, and if you had asked them about taking an online class in 2019, they would have scoffed at the idea.

After the COVID-19 pandemic, the digital learning market has been growing at an impressive 16% CAGR, as compared to 13% before the pandemic. It is projected to surpass a staggering $400 billion within the next two years [According to HolonIQ].

In fact this growth was projected pre-generative AI era 😉

Adaptive Learning could be new mainstream in Education 🎓

Most of us would agree that every student is unique and should have a personalised learning path. Assessments play an important role in measuring students progress and understanding, and provide targeted support to help students succeed. A teacher is able to provide that support to the students- as they understand the strengths and weaknesses of every student.

Adaptive learning is a technology first educational method to personalise the learning experience of each individual based on their learning needs and abilities. It uses algorithms to analyse a student's performance data, such as quiz scores and time spent on each activity, to adjust the content and pacing of the curriculum. As you reduce the reliance on a human teacher, the potential increases!

Generative AI, the latest trending topic in tech, has the potential to revolutionize education by providing personalized learning to the masses! By leveraging machine learning algorithms and neural networks, generative AI can analyze existing datasets and create new content based on the patterns it detects. And when combined with adaptive learning, the possibilities are endless: imagine an AI tutor that can create custom-tailored lessons based on each student's unique learning style and pace.

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Case for AI Tutor🤖

Availability of Educators! 👩‍🏫

According to UNESCO, there were approximately 1.5 billion students (pre-primary to tertiary education) worldwide in 2020, which is roughly 20% of the world's population. At the same time, there were around 69 million educators in 2020, resulting in an average of 22 students per educator. However, this data would vary significantly depending on the geography, educational streams, and systems.

AI Tutor presents an exciting opportunity, especially for emerging economies like India where the availability of quality educators is low.

Important to note: In emerging economies, parents and students prefer personal tutors because the cost of hiring one is really low, typically around $5-10 per hour. However, this option is only available to the top of the pyramid and not affordable for the masses. Additionally, the technology currently in place has not been able to provide personalization at a mass scale. I believe that the use case of an AI tutor can expand to emerging markets as the quality and consumer appeal of the technology improves.

Affordability in Developed Markets📚

In developed markets, the cost of hiring a tutor is often high. For instance, hiring a native English speaker in the US for language learning costs at least $20 per hour, if not more. This high cost may be unaffordable for some learners, who may have to look for alternative learning platforms that may not be as effective as a personal tutor.

Quality & accuracy at scale with 24X7 Support 💯

‘To err is human’
It's not fair to expect a teacher to always be right, and given the expansive universe, it's not possible to know everything, even when you are an educator of a particular subject. Moreover, human teachers have constraints on availability, location, time zone, and more.

An AI tutor can provide standardisation at scale with on-demand support!

I recorded the video above to showcase ChatGPT’s ability for doubt solving!

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Speak.com- A new way to learn languages 🗣️🌎

Founded in 2017, Speak.com is an AI-first language learning platform that allows students to learn languages without a real tutor, with a focus on conversational English. While there are many language learning apps available, we will explore what sets Speak apart.

Language Learning Market🀄

️The language learning market is expected to grow significantly, largely due to the increasing penetration of digital learning. It is expected to grow 5 times between 2020 and 2025.

Many people are motivated to learn a variety of languages, such as Mandarin, Spanish, German, French, Arabic, Russian, Portuguese, and Japanese, for various reasons such as travel, work, family, or personal interest. However, English is the most commonly learned second language, with an estimated 1.4 billion learners worldwide. English is included in the mandatory national education curriculum in over 75% countries, resulting in increased demand for English learning. By 2025, English learning in digital format is expected to reach $43B! [Source: HolonIQ]

Formats available for Language Learning! 📱

There are many digital learning formats available, but here are the few common ones:

Video Based Learning 💿

Recording content provides a popular way of learning, which is dominated by MOOCs. These are generally self-paced courses that are recorded with high-quality instructors, and can be accessed by many at reasonable prices. However, the element of personalization is often missing, as the course and assessment are typically the same for all students enrolled in the course.

Live Learning 💻

One could virtually sit across from a teacher, either in a one-on-one or one-to-many setting. One-on-one or one-to-few arrangements work well because classes can be personalized based on the student's capabilities, but they tend to be expensive. For one-to-many settings, personalization is missing due to the large batch size.

Product First 📱

Products like Duolingo have enabled a gamified learning experience that allows students to learn interactively and enjoyably on demand. While the experience is relatively personalized thanks to AI and technology, it falls short of a live learning experience because the doubt-solving element is missing. It's worth noting, however, that it's definitely the most affordable solution available

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Speak.com’s Product Offering! 💼

With a focus on speaking, Speak aims to help its users become fluent and confident in English.

• The app assigns you a course to begin with based on a simple Q&A

  

  This is a multi-format course that includes video lessons with built-in assessments. These assessments require the user to complete a short speaking assignment. As the lesson progresses, users can do additional exercises to build their vocabulary and chat with an AI tutor in a roleplay scenario.

  So…here’s the coolest thing about Speak.com- the AI Tutor.

  

  Here’s the video of the AI Tutor:

  I tried challenging the AI Tutor towards the end of the conversation but it handled it well!

  OpenAI x Speak.com 🤖

  Speak.com recently announced a financing round of $27M from OpenAI, marking the beginning of an intimate partnership between the two companies.

  With the AI tutor, Speak takes the ChatGPT experience to a whole new level with its flawless speech recognition technology.

  • By utilizing the Whisper Model developed by OpenAI, Speak is able to achieve speech recognition with improved accuracy. Here’s how

  • In addition, Speak's AI Tutor uses GPT-4 to converse with users and provide constant feedback on their English skills, including vocabulary, pronunciation, and grammar.. Here’s how

  

  I can't help but wish I had access to this platform back in 2019 when I was learning Mandarin the old-fashioned way - with flashcards on Quizlet, practicing with friends, and paying as much as $20 per hour for private tuition. I hope they launch a Mandarin course soon, as I know my Mandarin skills have deteriorated from lack of practice.

  This technology is currently audio-based, but there's a high likelihood that soon it will be a "metahuman" mimicking a real tutor on a live class, powered by Generative AI. Imagine sitting in a one-on-one live video class, with all your doubts solved in real-time by an AI tutor that looks and speaks like a human!

  

  The development of AI Tutoring has been a challenge for EdTech startups worldwide, as they were restricted by the limited amount of data available for training. However, this issue is now being addressed at an accelerated pace, and the AI Tutoring industry is rapidly expanding!

Industry leaders are already adopting! 👑

Duolingo has recently introduced a new product called Duolingo MAX, which utilizes the power of GPT-4 to enhance language learning. The product comes with two new exciting features - Explain My Answer and Roleplay. The Explain My Answer feature enables the user to gain a deeper understanding of their response to a particular question, while the Roleplay feature, which is similar to Speak.com's Roleplay function, helps users practice their conversational skills. Source

• Khan Academy has taken a major leap forward in the EdTech space by harnessing the power of GPT-4 to create an innovative AI tutoring interface called Khanmigo, as well as an AI assistant for tachers. Khanmigo serves as a powerful tool for students to better understand complex concepts and to get their doubts clarified. The AI assistant for teachers helps them in developing dynamic lesson plans and engaging hooks. Source

Final thoughts! 📝

• Speak.com has a massive opportunity- as it is consumerizing the technology to efficiently learn languages. It’s great to see the company going deeper into markets like Korea and Japan- and solving the problem market by market. With the rapid pace of tech advancement, it will be critical for Speak.com to swiftly expand into new regions, while addressing the challenges of diverse accents and introducing new languages, in order to fully capitalize on the potential of its technology.

• Previously, it appeared that the COVID pandemic was the turning point for EdTech, but it seems that the true inflection point is happening now. EdTech companies must adapt and make use of this technology in order to remain competitive and provide better learning experiences for students. With Generative AI, doubt solving and personalised learning will never be the same and schools and institutes must embrace this technology to maximize its potential.

• Generative AI, has the potential to significantly impact the field of education. Educators can create personalised and adaptive learning experiences for students, allowing them to learn at their own pace and in their preferred style. Additionally, it can help address issues of access and affordability by providing low-cost or free educational materials that can be customised to meet the needs of individual learners. Overall, generative AI has the potential to revolutionise education and make learning more accessible and effective for students of all backgrounds.
  

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  I would love to hear from you, if you are building at the intersection of AI and education- please shoot me an email: rahul@oldrope.club. You may use ChatGPT to write the email copy! 👀

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Until 2021, Physics Wallah [PW] was not so popular in the EdTech ecosystem even though it was a rage amongst the NEET and JEE aspirants in India. NEET and JEE are the largest entrance exams in India for medical and non-medical streams for UG admissions. Fast forward 2022, PW is gearing up to become the largest EdTech company in India.

Earlier this year, I had written about PW.

Old Rope

Creator Economy meets EdTech- Physics Wallah!🎥📚

Welcome to Old Rope. I write on emerging trends from the East! 🌏 Subscribe to stay updated…

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4 years ago · 6 likes · Rahul Maheshwari

It seems that PW has evolved quite a bit. As per status quo, PW is a hybrid platform across K12, test prep and higher education (skills)- providing affordable education, catering to masses.

YouTube leadership has converted into sales and low CAC! 💰

Both PW and Unacademy started as YouTube channels, gained initial traction in similar ways! Physics Wallah has been able to grow really fast with sustainable economics [~30% net margin], where as Unacademy’s growth is highly unsustainable.

Alakh Pandey, the man behind PW has been able to ensure sustainable growth with low price and mass distribution aided by YouTube. Being the face of the company has been one of the key enablers as well- proof is in the pudding.

By first quarter of 2023, PW has crossed $43M in revenue, and is expecting to close FY23 at $150M, while maintaining steady economics.

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Path to becoming largest EdTech player in India! 🚵

With the current scale and economics, PW is poised to becoming one of the largest player in test prep [JEE and NEET].

For reference, around ~2.5M students appear for JEE and NEET combined. Lets say ~5M students in 11th and 12th grade combined are preparing for the JEE and NEET entrance exam; with $50 ARPU, TAM for PW is ~$250M!

But…having raised first round of funding at $1B+ valuation, there has to be a lot more in store!

With the current offerings, PW is targeting students from 10 years of age (Grade 6) to ~30 years, expanding the TAM with an aim to become a multi billion dollar enterprise.

But the new streams have competition from existing players and Alakh Pandey is not an influencer in other verticals, leaving PW with low defensibility. How are they planning to grow like JEE and NEET in other domains? Let’s deep dive!

PW resonates with the masses across! 🙌

Alakh Pandey started as a YouTube teacher for Physics, under the name ‘Physics Wallah’. In order to increase its success in other categories, the brand name was changed to ‘PW’. PW resonates with the students looking to access quality education at affordable prices across test prep. In fact, students going for upstream coaching centers like Aakash, FIITJEE, etc. are also buying PW’s subscription for supplementary aid.

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PW’s ability to replicate YouTube success with Alakh Pandey at center! 📹

Alakh Pandey got popular for his unique way of teaching physics on his YouTube channel. No one could foresee that PW’s team would be able to replicate this success across other categories!

PW has launched over 35 YouTube channels, with most of the new channels being started since end of 2020. So far, the channels put together have more than 20M subscribers and growing rapidly!

If you observe closely, PW has been able to figure out a playbook for growing a YouTube channel to 1.5M+ subscribers under 12 months.

PW has successfully gamed YouTube, which acts as the top of the funnel for all the new categories. For example, PW launched a YouTube channel for MBA test prep, then posted a video from PW’s main channel to amplify the channel and plans to sustain it with star teachers as seen here.

Even though Alakh Pandey is not the subject matter expert for courses beyond Physics, but he has been able to carve out a brand for himself resonating with affordable education across.

Offline and Online strategy! 🏫

Even though online education can be accessed by masses across at lower prices, there are enough number of students who want to study offline. PW has been doubling down on its offline strategy in innovative ways- Vidyapeeth and Pathshala

Vidyapeeth: It offers offline coaching, just like any other institute at affordable rates: ~$700 per year. FIITJEE charges ~$2200 for the same offering.

W Pathshala: It offers blended offline and online learning, where lectures are streamed in the class room and doubts are cleared by subject matter associates present in the center. These centers act like satellite learning hubs for students.

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PW has also been relying on acquisitions for inorganic growth! 🔏

Given the market conditions, a strong balance sheet and sustainable economics have allowed PW to focus on acquisitions as one of its growth levers. In just 2022, the company announced 4 acquisitions to strengthen its existing business as well as launch new verticals.

• PrepOnline
  Founded in 2019, PrepOnline focusses on preparation for NEET, Board Exams, and state-level government exams, with around 42K paid users. With the acquisition, PW forayed into online competitive exam preparation segment, while deepening NEET and Board Exams prep.

• Altis Vortex
  Founded in 2015, Altis Vortex is a publisher of NCERT-based books for class 11, 12, NEET and CUET-UG Exam preparations and has published over 150 books. With this acquisition, Altis Vortex team will merge with PW’s editorial team to create relevant study materials.

• Freeco
  Founded in 2020, FreeCo is a doubt-solving and resource management company providing text solutions, video solutions, and textbook solutions using automation to help students and enhance their learning experience. This acquisition has strengthened PW’s content and editorial team.

• iNeuron
  Founded in 2020, iNeuron is a tech upskilling startup, running cohort based courses with star teachers driving demand from YouTube, with ~$9M ARR. It has been catering to college students and professionals. PW has acquired the company in a cash and stock deal, valuing it around $31M. iNeuron will drive the upskilling vertical at PW- PW Skills.

PW’s strategy team is actively seeking acquisition targets to grow fast. Industry talks suggest that PW might acquire an after-school tutoring startup for coding to double down on PW Skills.

We have seen Unacademy, BYJU’s and many other EdTech startups grow inorganically through M&As- but it has come at a huge cost! For example- Unacademy had to shut down the K12 business because they couldn’t integrate it. BYJU’s had a hard time managing White Hat Jr- which became the biggest loss leader for its overall business. One of the most common problems in such acquisitions has been the early resignation of the founders of the acquired companies.

Although PW has been doing value deals and hasn’t given crazy valuations [unlike many of its peers], it will be exciting to watch how it ensures the teams of the targets stick around for long!

Challenges surrounding PW! 🏋️‍♂️

• Will Alakh Pandey be able to sustain his brand as an educator for all kinds of affordable learning? PW got popular due to Alakh’s style of teaching Physics. He has figured out a way to scale this strategy beyond Physics and scaling up many other unrelated categories through his own brand. The early signs of this strategy are mind boggling!

• We have seen BYJU’s struggling due to rapid expansion. How will PW navigate moving away from its core? With YouTube strategy, launching new categories doesn’t come with a huge cost. As the category scales up, PW can pour in more resources, which safeguards the downside already. In terms of M&A, it’s good to see that PW is not paying crazy multiples and conserving cash- taking advantage of market conditions. Integration is yet to be seen, as we will witness as PW Skills grows further.

• Can PW navigate fundraising going ahead? Being a profitable company, which is growing fast, and having raised $100M- PW is not in a dire need of capital. That being said, PW has really big ambition and to achieve it in next few years- $100M might not be enough and PW might have to raise more to capture the opportunity that lies ahead of it. Given the market conditions and the ‘so-called EdTech winter’, it will be exciting to watch as PW figures out future fundraising.

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PW is a very unique EdTech company- adding value to students in the affordable segment across after school tutoring, coaching, and up-skilling- an underserved market. I really hope it stays true its values and enable high quality education to reach the grassroots.

Happy Holidays to everyone! Feel free to reach out for a chat- rahul@oldrope.club :)

Moreover, it went public in April 2022- raising ~$25M at ~$100M to continue acquiring assets using cash and debt.

Veranda- Vernacular Learning Platform for ‘Bharat’ 🇮🇳

Veranda Learning offers comprehensive long term and short term preparatory courses for competitive exams, professional upskilling- through online, offline hybrid and offline blended formats; across tier 1, 2, 3 cities- with languages like English, Tamil, Telugu, Malayalam, Kannada and Hindi.

• Competitive exams courses include government exams like UPSC, Banking, Insurance, etc., test-prep for JEE, NEET, CAT, etc.

• Professional upskilling courses include Chartered Accountant, Company Secretary, Software training, etc.

• Online learning comprises of recorded videos and online live instructor led learning model- allowing students to engage in self paced learning as well as personalised learning.

• Offline Hybrid comprises of classroom teaching in centres supported with online assessments and access to self-paced learning material to enhance recall and retention.

• Offline Blended comprises of twin teacher model, where a centre would deliver the course with LMS study material and a dedicated mentor in classroom for assisting students. This model helps increase access in smaller towns and cities.

The offline delivery happens with the help of franchise partners, keeping the model asset light!

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India’s Education Opportunity is massive! 🦕

India’s education opportunity is massive, expected to grow to $225B by 2025!

India’s spending target has been over 6% but it has been spending only around 2.8%, though the budget estimate for FY21 pegs it at 3.5%. Hence, private intervention at various levels has been very important.

Seemingly, there is large opportunity outside K12 as well!

Veranda’s active acquisition timeline to capture skilling and test prep market! ⌛

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Legacy brands in Veranda’s portfolio! ✨

RACE Chennai

Established In: 2012
Courses: Banking, SSC, TNPSC
Geographies: Tamil Nadu, Kerala, Karnataka, Punjab
Delivery: Online + Offline [25 Franchise Centers]
Languages: Tamil, Telugu, Malayalam, Kannada, English and Hindi
Revenue (FY 2020): $6M
Acquisition Valuation: ~$14M

Edureka

Established In: 2012
Courses: Software Upskilling, Data Science, etc.
Geographies: India, USA
Delivery: Online
Languages: English
Revenue (FY 2021): $10M
Acquisition Valuation: $33M

T.I.M.E.

Established In: 1992
Courses: CAT, GATE, GMAT, JEE, NEET + Pre School Chain
Geographies: PAN India
Delivery: Online + Offline [~188 Franchise Centres + ~220 Pre Schools]
Revenue (FY 2021): $15M
Acquisition Valuation: $36M

JK Shah Classes

Established. In: 2000
Courses: CA, CS, CFA
Geographies: PAN India
Delivery: Online + Offline [65 centres]
Revenue (FY 2022): $12M (EBITDA: ~$5M)
Acquisition Value: $53M [Acquired 76%]

Veranda has acquired 76% in JK Shah Classes, leaving 34% to be acquired at ~10X EBITDA multiple of FY 2025, trying to incentivise the management for future.

Potential for synergies! 👭

The companies acquired by Veranda have been slow at growing, so it will be important for Veranda [as a group] to enable the acquired companies grow further.

• Centralisation of admin functions
  The most basic synergy would be to centralise functions like HR and Finance which could bring in some efficiency in the cost structure.

• Offline-Online
  Veranda has a robust LMS which can be leveraged by companies to diversify the delivery of courses in the online, offline hybrid and offline blended mode.

• Expansion across geographies
  Given the strong regional offline presence of companies, Veranda can use the existing real estate to increase the course offerings in the same centre, there by increasing the ultilization of the centres and enabling faster geographical expansion.

Indian EdTech market has been a hotbed of M&As 🔥

Various growth stage EdTech companies have been eyeing M&As as a way to fuel growth. M&As have been able to support:

• Expansion of current business offering

• Vertical integration

• Addition of new categories and diversification of business

It’s important to note that M&As have also caused distraction for the core businesses- as it has been seen in the case of BYJU’s and White Hat Jr, Unacademy and Swiflearn/ Mastree. Moreover, it is difficult to retain the management of the acquired companies- Unacademy is a case in point, where founders of companies like Neostencil, Wifi Study, Handa Ka Funda, etc.

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Final thoughts! 🖊️

• In April 2022, Veranda Learning went public- raising $25M at a valuation of $100M. The stock listed at 16% premium- with only 2 companies in its portfolio- RACE and Edureka and 6 months revenue of less than $2M.

  The promoters of the company- Kalapathi Sureth, Kalapathi Aghoram and Kalapthi Ganesh have built software upskilling company- SSI in 1992, which grew to be one of the world’s largest education networks for vocational training in the private sector. SSI later acquired Aptech and grew into a global provider of education, and went on to become the first Indian IT company to be listed on the London Stock Exchange. Since then Kalapathi family has been involved in various businesses.

• Unlike EdTech unicorns of India, Veranda has been buying profitable assets at EBITDA multiples of 8-12 with strong brand presence in their respective verticals. Since the acquired assets have been struggling to grow, the jury remains if Veranda can turn around their growth trajectory.

• For Veranda’s growth, it is important to retain the key management of the targets. Most M&A’s fail due to integration issues, which is a critical risk here since the group company is relying majorly on inorganic growth to grow further.

• Does it make sense to retain the brand of targets? The companies acquired have been building for decades and have established its name in specific categories. Re-branding exercise has to be done in a thoughtful manner- so that the group can benefit from a common brand but also leverage the existing brand presence of the companies.

• Strong offline presence and a conscious hybrid learning approach can increase avenues of growth as well as reduce pressure on marketing.

  

  Looking at Veranda’s stock- doesn’t look like EdTech winter 😃

  ---

  If you are building in Education, looking to acquire/ get acquired, feel free to reach out- rahul@oldrope.club

  Shout out to Yash Jain for flagging this exciting company!

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China’s $1.8T fresh product [F&V, Meat] and grocery market used to be very attractive for entrepreneurs and investors, with billions of dollars invested in the last 5-7 years. Given the internet penetration, it is estimated that one out of ten households in China purchases grocery online.

However, one of the largest companies in this space has recently been winding up- which poses a big question to the thesis of e-commerce for fresh produce and groceries coupled with quick commerce.

Mei Ri You Xuan/ Miss Fresh [每日优选]

Started in 2015, Miss Fresh proclaims to be the inventor of the distributed mini warehouse [DMW] model- an approach where fulfilment and distribution of goods happens from multiple smaller, strategically located warehouses instead of a few large warehouses. By March 2021, Miss Fresh opened up 631 mini warehouses across 16 cities in China and was able to deliver fresh produce and FMCG products within 39 minutes on an average.

Intense competition and failing unit economics!⛷️

Due to intense competition fuelled by immense capital, delivery time came down from 120 mins in 2015 to 39 mins in 2021- free for the customer!

The fulfilment expenses, gross margins and marketing expenses have not improved enough for the business to be sustainable!

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Sloppy IPO! 🥴

Miss Fresh raised over $1.7B from the top tier investors such as Tiger Global, Tencent, etc. and then went public in June 2021- raising $273M and valued at ~$2.5B- which was very underwhelming given its last private round was at a much higher valuation.

Ding Dong Mai Cai [叮咚买菜】

Competing toe to toe with Miss Fresh- Ding Dong Mai Cai [DDMC]- founded in 2017, focusing in fast delivery of fresh produce and expanded to daily groceries- targeting to deliver within 30 minutes. Surprisingly, it reported profitable Q2 2022- with around 1000 mini warehouses doing fulfilment.

DDMC has shown ‘some’ improvement in unit economics 🐌

DDMC has raised over $1.3B, with the public listing valuing the company at $6.6B in June’21- which has come down to less than $1B today.

As we can see above, DDMC has demonstrated improvement in gross margins as well as reduction in fulfilment and marketing costs, translating to first profitable quarter. PS: It had to raise $1.3B+ and reach a scale of ~$1B+ worth of orders every quarter to demonstrate profitability. Even after this, the company is valued at $930M [1/6th of its listing valuation].

Unit Economics of a high performing warehouse for DDMC 📦

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What worked well for DDMC? ✨

• Over time, DDMC has shut down its non-performing warehouses which has reduced the overall rental and maintenance costs. Further, with increase in GMV, the utilisation rate has improved leading to reduction in overall fulfilment costs.

• Due to the slow down of other players like Miss Fresh, DDMC got an opportunity to increase revenue with marketing expense decreasing- hence capturing more marketshare efficiently- last man standing!

• Product mix has a strong impact on the gross margin- as DDMC has focused on fresh product where greater margin pool is available, than just FMCG items.

The jury is still out on DDMC as it is yet to demonstrate continued sustainable economics while growing steadily.

Learnings for India and SEA! 🇮🇳🇮🇩🇻🇳

• Quick commerce is a very exciting proposition for the customers but it’s also fuelled by discounts and subsidised deliveries. It’s interesting to see that customers are only loyal to prices and delivery time- so it boils down to the VC funding available to burn in order to achieve both. It’s the race to the last company standing…

• To sustain the economics, it will be important for companies to improve supply chain and move towards fresh over FMCG so that the gross margins could be healthier.

• Investors who are paying 3-5 times of GMV should look at China market comps and note that the largest player in China is valued at 0.3 times GMV!
  

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Always up for feedback and chat here- rahul@oldrope.club

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As we enter the bear market, there is a lot of talk around 'cash flow positivity' - a term is prone to abuse. In EdTech, companies collect money upfront for a service delivered over time. In fact, this ‘negative working capital cycle’ is an ideal situation for any business. However, when companies over-optimise on this cycle, the advantage can backfire.

Eg.: A buys a guitar live learning course of 6 months for $600, where A attends one class per week and the teacher gets paid $10 per class. For the first month, the cash collected is $600 against $40 payments towards the teacher. Now, if the company spends remaining $560 on marketing…how will it pay for the teacher's compensation for the remaining 5 months? We have a case-in-point: VIP Peilian’s owner XiaoYinKa.

VIP Peilian and XiaoYinKa [VIP 陪练和小音咖] 🎹

VIP Peilian was one of the largest live tutoring platform for music in China, having raised over $165M and reached $360M revenue run-rate. I had covered it here:

Old Rope

VIP Peilian: Largest One on One Music Tutoring Platform with ~$360M annual revenue run rate

After writing about Meishubao- live art tutoring platform, I wanted to keep the flow going and write about one of the largest live music (piano) tutoring platform from China- VIP Peilian (VIP陪练). Compared to art, this does not seem unusual since YouTube has ample video content for teaching music and it’s often the natural avenue for beginners. VIP Peili…

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5 years ago · 8 likes · 2 comments · Rahul Maheshwari

In April ‘22, VIP Peilian was acquired by XiaoYinKa Group, one of the largest offline platforms for music learning for children aged 4-16, to build the largest O2O platform for music education.

While music education did not face adverse impact of China’s double reduction policy for after-school tutoring, general investor interest in online education became scarce. This created challenges for VIP Peilian growth.

Due to the pandemic and China’s 0 covid policy, growth became a challenge over the last 2 years for XiaoYinKa Group as well. Hence, acquiring VIP Peilian to form a stronger group company made sense for XiaoYinKa, for capitalising on building the strongest O2O brand in the country.

XiaoYinKa students left stranded 🎓

In June ’22, the news broke out that XiaoYinKa had been unable to pay its teachers for months, leading to the company being unable to fulfil the classes for which students/ parents had already paid. Consequently, parents started asking for refunds, only to find out that the company is unable to honour the promise of refunds as well. As on date, it owes ~$90M to parents!

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What went wrong? 🫠

XiaoYinKa was charging customers $30/class and paying teachers $37/ class in order to gain market share. Also, by giving excessive discount on class pricing, they were incentivising parents to buy more classes at once. This increased their collection revenue upfront, which allowed them to sustain teacher payouts, but meant that at some point they would need outside investment if the cash collected is less than the payouts for that month. As the XiaoYinKa group could not raise external capital to resolve this issue, it got trapped.

Here is a simulation of what likely happened:

Let’s imagine that an average package is of 40 classes (1:1) with customers paying up $30 per class and teachers receiving $37 per class - seems counterintuitive. As the company is adding more students, it’s bringing in cash which is helping company fund the teacher payment and marketing (30% of collection). Trouble comes up when new user acquisition takes a hit and there is no external source of funding, but the classes from previous cohorts have to be conducted, even as the company does not have enough money in the bank to fund the operations.

General problem in Education! 😶‍🌫️

While the above may seem an unusual case, where the teacher cost per class is higher than the price of the class, but this is just another marketing tactic. Several other companies in education are spending more on marketing (say 65% of collection). Here is an adjusted version of Simulation 1, with varied ‘Teacher Cost per Class’ and ‘Marketing Cost’:

Companies are using the money they owe teachers (or other variable costs) to fund growth, a system that could collapse if the growth hits a standstill. This creates a vicious cycle, where if teachers aren’t paid in time, they would not deliver the classes, which would further lead to students asking for refunds.

This can only be solved with external funding and/or improvement in the future marketing costs - both of which are not working in EdTech’s favour currently.

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Emergency fund to the rescue! 🏥

It should become a practice for companies to create an exigency fund for situations where they could run out of cash to process future liabilities. To maintain discipline in business, companies could potentially set out the future teacher payments (liabilities) in another fund, so it is not used in other activities such as marketing, operations; and in the event of slowdown in business, teacher’s salaries (or other variable costs) are not compromised.

Lots to Learn for B2C EdTech Players, Investors and Regulators! 🤓

• Uncertain environment calls for business discipline as EdTech sector is going through adjustments and investors are also waiting and watching to arrive at the new normal. In turbulent times, companies must ensure highest degree of business discipline, which entails focusing on unit economics, optimising on marketing spend, and being cautious about accounting practices. Future growth should not happen by compromising on present.

• Don’t treat cash collected like revenue.
  It is a blessing in disguise that most of the direct to customer EdTech companies have upfront collection of cash for service which has to be delivered in future. Sometimes companies treat this cash like revenue [though accrued revenue is much lower], which could lead to ignorance on spending.

  

  It would be ideal if accrued revenue is calculated correctly [according to services rendered] and the focus is always to increase accrued revenue and achieve EBITDA level profitability, instead of just focusing on cash flow. Auditors should also be careful in the similar manner.

  

• Regulators could step in!
  It would not be surprising that regulators step in and create policies to avoid cases of default - for teachers as well as students. Given that it is hard earned money of parents, companies should not use this money in a negligent way.

  In China, there is regulation where educational institutes have to sign custody agreement with a bank to open a special account for prepaid funds - the prepaid account should be separated from their daily operation account. Bank will allocate funds to the institutes according to the progress of service delivered. In case of abnormal suspension of the institute, the tuition fees of the students can be fully refunded from the bank, ensuring the interests of the trainees and their parents to the maximum extent.

“It may sound strange, but many champions are made champions by setbacks.” — Bob Richards

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Would love to hear back on your thoughts! You can write to me here: rahul@oldrope.club
Shout out to my friend- Zhang Xintong for the insights from China!

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With influx of $16B in 2020 and $21B in 2021, it has been an exciting few years for EdTech investors, founders and stakeholders, with leading players likely gunning for IPO. However, the slowdown in capital markets is bound to affect most of the EdTech companies too, with varied degree of impact.

Although pandemic brought tough times all across the globe, but it also created opportunities- especially in EdTech. We witnessed disruptions across content delivery, hybrid learning, personalised tutoring, EdTech infra, etc- with lots of capital at disposal.

Public Markets have been brutal recently! 📉

With so much dry powder with PE VC firms, why are we expecting a slow down? Well, the public markets have been giving lowering exit expectations, and things are trickling down to the basics.

Several EdTech companies went public in 2021, and correction in valuation is stark.

At the same time it is very interesting to note that the companies are performing at their peak!

So…it seems investors are expecting that opening up of the world- schools, colleges, etc. might have adverse impact on EdTech companies…which may (or not) be true?!

It’s also important to note that some of these companies were over-valued last year…and now the valuations are correcting.

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Private Markets follow Public Markets 🚶

Until last month or so, EdTech companies were raising capital at 20-100X of their ‘Annualized Revenue Run-rate’ (where ARR is often calculated creatively). Most recently I came across a live learning platform which raised capital at $100M valuation, with ~$3M booking revenue run-rate.

The above multiples are not sustainable, as the private market valuations are inching towards the public markets, in the range of 5-10X, depending on the business model. Hence, it will be important for founders to adjust their expectations.

In spite of the funding raised, many companies have not been able to build capital efficient businesses, which has led to massive lay offs across some well capitalised EdTech companies.

In their heyday, EdTech companies were building multiple businesses and hiring incessantly. This led to growth at the cost of sustainability, loads of confusion and inefficiency. The recent slow down has given a reality check, coupled with an opportunity to readjust towards sustainability.

Macros…are fine?

There is a general perception that EdTech is going through a reset since the world is opening up. Will the students and parents still opt for online tutoring?

Since we are going through recession and increase in interest rates, consumer spending is expected to come down. Will this reduce the spending on education?

Overall, the innovation and investments have enabled the stakeholders [in education] realise the net positive of EdTech and I expect it to continue for the long term.

• Students and parents across the world were locked down for almost 2 years, allowing EdTech companies to innovate on delivery of education. Since education was being delivered in a digital first fashion, it allowed for data collection leading to personalisation (to some extent). In the post covid era, we are seeing students learn online and offline, picking best of both worlds!

• Working professionals’ up-skilling became even more interesting as learning online became the new normal and people could take time out of their ‘work from home’ routines. With awareness in the environment, we can see interest from more working professionals towards up-skilling as it translates into better salary, career switch, etc.

• Schools, universities and offline institutes saw their status-quo being challenged, but then EdTech infra came to rescue. Not only the institutions were able to operate in the covid world, but also explore hybrid learning- a key stepping stone in the sector, going forward.

That being said, access still remains limited with bottlenecks around internet connectivity, mobile device penetration and affordability in emerging economies.

Not only in EdTech, but we are seeing a slowdown in venture capital across.

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How to plan for the months ahead? 📒

Given that raising money is going to be hard in the next few quarters, it is very important to chart out strategy to stay afloat and make it to the other side of the river.

• Most EdTech companies (consumer facing) are suffering a CAC problem, where the contribution margin are squeezed out, often -ve! Companies should start focusing on increasing their gross margin by optimising on cost of teaching and delivery, and solve distribution which can further improve contribution margin.

  

  Scale is important….but not at the cost of negative contribution margin.

• Distribution first plays (like Quizziz, Brainly, etc.) have inherent advantage of high gross margins, but they need to optimize for monetization, sooner than later. Since some of the players will have no monetisation built in, the best way forward could be to partner with other EdTech companies which have not been able to solve for top of the funnel. For example, live tutoring platforms are looking for cheaper lead acquisition sources, and traffic heavy platforms are looking for ways of monetizing the traffic.

  

  If you are looking to explore such synergies, feel free to reach me: rahul@oldrope.club. Will try to match-make!

• Consumer spending is likely to reduce, as we have entered phase of high inflation.
  

  

  Education spending in ‘must to study’ segments is less likely to be affected but there could be some impact in ‘good to study’ segments. For example: Parents would still spend money for after school tutoring to prepare for exams, but might not take that extra curricular French class, if there is limited budget available.

If your company is operating in ‘good to have’ segment, it will be important to assess demand, by looking at the trend of CAC, talking to end users, etc. and plan diversification, if possible.

Given companies are at different points in their journey, let’s help plan contextually 🪧

NG: Starting Up

For founders looking to startup in EdTech, it’s important to be cognisant of the macro environment- slow fundraising, schools opening up, reduction in consumer spending etc. Therefore, it is important to solve unique problems, for example- the billion dollar CAC problem; and operate in ‘must-to-study’ verticals which have high demand. Moreover, there are various opportunities in the Ed-Infra space which is a lot more capital efficient, and is expected to gain momentum in hybrid environment.

A+: Well Capitalised

For companies which have figured out a cashflow positive model OR raised capital for 3 years or more runway, it’s a special time to be building. Given the slowdown, a lot of companies are in stress and are looking for a buyer- this could be one of the best times to acquire great assets at reasonable valuations. It is also a good time to hire great talent, given the layoffs and hiring freeze across. Lastly, it is important to scale in sustainable fashion as the cost of acquisition is expected to reduce, given that incumbents will reduce spends.

B+: Low Runway

For companies with high burn and low runway, it is obvious to optimize for net cashflows and making it alive through the tough times. Assuming raising primary capital is not an option, considering revenue based finance can be of use and force one to build business in capital efficient manner. In some cases, it would also mean pivoting verticals from ‘good-to-study’ to ‘must-to-study’.

C+: Capital Crunch

For companies with last few months of money in the bank, and no foresight of funding, it will be important to explore plan B i.e. M&A. There are many companies which have been able to raise funding in the last two years and have long runway- actively looking for inorganic growth opportunities. For the least, it will be good to build relationships with different players across and explore synergies as the runway hits the 3 months mark. If you are exploring M&A opportunities, feel free to drop me a line: rahul@oldrope.club; I will try to do my best.

Summing up! ✍️

Broadly, these are exciting times for EdTech sector, as companies and founders are being tested on various levels- agility, capital efficiency and perseverance. Companies which will be able to cross the chasm will build for the steady state of Education- which will neither be completely online or offline. Changing macro environment will handsomely reward the players which will make it to the other side- enabling them to build for the next billion learners.

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Wishing everyone lots of luck as they build during tough times, feel free to reach me, if you think I can help: rahul@oldope.club

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For an average person, education is a passport to a better future. There are several examples of individuals born into economically underprivileged families being able to raise their families into financial security upon receiving quality education. Unfortunately, in emerging markets like India, the access to education is skewed towards the privileged, leading to a vicious cycle of rich getting richer...

In the last few years, we have seen immense innovation in education across technology as well as business, but not as much on affordability.

Over 70% Indian Households survive on less than $8500 annually 🇮🇳

There are over ~300M households in India, with 1.4M schools and 250-300M K12 students. According to 2018 statistics, 76% households belong to lower and lower-middle class. For the students belonging to these households, it’s not an easy ride to reach the upper middle class income levels and onwards, given the extent of privatisation in education system.

There is cut-throat competition across different levels in Indian education system that has made after-school/ test-prep tutoring necessary for students to succeed in competitive exams.

Given the above, affordable and accessible means of education will be very important for the progression of the society and provide for a levelling field going forward.

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EdTech companies are marketing machines!💰

EdTech companies have been blessed by venture capital, and especially the ones focusing on direct-to-parent/ student. A lot of this capital is ultimately used in acquiring the customer, and since the marketing budget from different companies is chasing the same user, the cost of acquiring a user is increasing rapidly.

Even after charging ~$500, EdTech platforms are finding it hard to make money because of increasing CAC.
Moreover, the tier 2-price conscious-user is often neglected by the platforms as they have not focused on localising for regional languages.
PS: India has over 22 official regional languages.

Decentralisation of EdTech- meet Physics Wallah (PW) 🪃

In 2014, Alakh Pandey started a YouTube channel teaching Physics and Chemistry to students and gained popularity overtime for test prep content for JEE and NEET (science entrance exams). After building traction over YouTube and credibility- PW launched a platform in 2020- providing recorded and live content to the students.

This is classic case of star teacher model where Alakh Pandey has built massive following on YouTube, expanded across subjects and then converted the free YouTube students for paid courses- offering notes, recorded lectures and 1:many live classes at the most affordable prices.

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PW makes money while acquiring user whereas other EdTechs burn money!💰🔥

With the YouTube brand, PW has reduced its reliance on performance marketing, further reducing the cost of user acquisition- which is happening through youtube funnel.

On average- PW YouTube videos seem to get ~1M views of high intent learners [with high rate of conversion on PW platform]. Instead of investing money on user acquisition, PW is making ad revenue from YouTube.

Pricing → Most affordable test prep platform! 🏷️

My favourite thing about PW is pricing - it is the most affordable education platform pan-India. PW courses are naturally a better choice for the segment looking for affordable options.

Even after mass pricing, PW’s unit economics are very healthy, with over 95% gross margin and negligible CAC.

With this pricing, it has enabled masses to access quality education and at the same time PW operates as a profitable and capital efficient venture.

PW Ecosystem- Online Merged Offline (OMO) 💻👩‍🏫

With advent of Covid, learners have realised that learning will happen in a hybrid mode. With the offline centers, PW is also capitalising on the OMO approach which is gaining popularity among EdTech companies, and enabling the user to choose the preferred medium of learning.

Old Rope

EdTech in post Covid era- OMO (Online Merge Offline)

Covid 19 accelerated growth of online-first education platforms and EdTech received massive interest from investors, in India as well as globally. During March-June 2020, when lockdowns, were imposed, the annual revenue run-rate of online first EdTech companies grew by manifolds and they were able to raise capital at high valuations…

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5 years ago · 8 likes · Rahul Maheshwari

Key man risk? Maybe 🤔

As the name suggests, Physics Wallah denotes Alakh Pandey, who is popular in students for teaching Physics. As the platform pursues diversification across courses, the users might not be as excited to learn from other instructors as Alakh Sir. Intuitively, an individual is not scalable...but the jury is out.
In fact, it has been seen in some institutes that when the star teacher moves out, the students also follow the teacher.

The star teacher model is not unique to India, but is proven globally!

Anecdotally, BYJU’s also started on Byju Raveendran’s credibility as a teacher and has become a household name across the world.

As I write this, PW is raising its first venture capital round of ~$100M at unicorn valuation.

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There is a rage of EdTech Creators! 🔥

Infact, Entri.app- venture funded vernacular EdTech platform has acquired TS Madaan- YouTube channel for English learning.

There are other successful creators globally venturing into EdTech. Most of us have seen Nas Daily- channel started by Nuseir Yassin- creating general knowledge content across the world- with 7M subscribers on YouTube and 23M on Facebook.

In 2021, Nuseir announced the launch of his EdTech company- Nas Academy- a managed marketplace of courses by successful creators in their respective domains.

It’s the obvious next step in the journey of a popular creator focusing on education content, to monetize their knowledge, since the biggest challenge is distribution...which is solved by these creators.

Creator Economy can challenge the status quo of EdTech industry! 📽️

Journey> Outcome

It’s really difficult to become an influencer, if the target is to become one. Unless one enjoys the journey of content creation, it’s not feasible to expect massive following and views as the the first leg of the journey is usually slow and sluggish. Individuals who enjoy the journey are able to maintain the consistency and cross the chasm and see results.

Revenue unlock

With platforms like Kajabi (Teachmore), anyone can start an EdTech business with a few clicks. This creates a massive opportunity for educators on YouTube to not just rely on ad revenue but also monetize their viewership by providing live classes, premium content, etc.

Distribution, distribution and distribution!

Relevance of creators imparting education online- on channels like YouTube, Telegram, etc. will always be there since they are solving for a painstaking problem of distribution/ customer acquisition cost- something which EdTech companies have been struggling with.

Early-stage VCs betting on creators?

Gaming studios bet on games, record labels bet on artists and so on- with a hit and miss approach. Should early stage VCs consider taking bets on creators before they have blossomed? Food for thought.

Always up for a chat- reach me on rahul@oldrope.club 🧋

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When you live abroad, there is always a longing for belongingness. Often, we find immigrant communities to be more close knit- gathering for social and cultural events, living in same neighborhoods, etc.

It’s estimated that there are over 60M China origin population (including descendants, source) across the world, making it the largest immigrant population. This has opened up opportunities for Chinese brands to export local snacks, medicine, liquor etc. Most interestingly- this has opened up export of Chinese language (Mandarin)!

Mandarin is the official language of China- spoken by ~1.1B people across the world. That is 16% of the world, not too far from English!

Say NiHao (你好) to Lingoace! 🙋‍♂️

Lingoace (LA), a Singapore based EdTech company- has built the largest live tutoring platform for kids in foreign countries (outside of China) to learn Chinese language- tapping on to the Chinese diaspora. It delivers classes in 1:1 or 1:few (4-6) format.

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LA is operating in a market that could be $15B 🌍

• There are over 60M China origin individuals across the world- 10% in North America, 18% in other parts of Asia, 60% in SEA, and 6% in Europe and Australia.

• Chinese parents want their children to be able to speak fluent Chinese so that they are able to interact with their family back home and stay close to the roots.

• China is the second largest economy in the world and poses great opportunities for career- and Chinese language is sort-of-necessary to be successful in China’s job market. There is a natural pull for China origin individuals to move to China and be part of ‘hot’ job market or pursue entrepreneurship.

Landscape is very fragmented! 🧩

There are many traditional and new age avenues for kids as well as adults to learn Chinese:

Confucius Centers

Confucius Institutes are public educational and cultural promotion programs funded and arranged currently by the Chinese government- often in collaboration with host country schools. There are over 550+ Confucius institutes across 160+ countries.

Due to the involvement of government, there have been controversies around it and the model is heavily dependent on local partnerships in the host countries.

Mom and Pop Schools

There are various local institutes which offer Chinese language training in their local neighborhood. Many of them have also started conducting online classes due to the pandemic.

These platforms are usually constrained by supply of teachers and have a higher cost of operating due to the offline infrastructure.

The aunty-uncle tutor!

Given family and friends back in China, parents are able to find references within personal networks to find tutors who could teach online.
Usually, these classes are expensive and aren’t very well structured due to lack of well researched curriculum.

Online Platforms

There are several platforms which have been offering mandarin as one of the languages.

Tutor marketplaces usually don’t have high ownership of the experience and curriculum, which is why there was a gap for a mandarin focused platform with end to end ownership.

I also bought credits to practice my Mandarin with a teacher on iTalki but 80% of my credits have gone unused!

Chinese EdTechs

Due to China government’s double reduction policy (双减政策), after-school tutoring platforms in China have seen business scale down overnight.

Old Rope

Impact of China’s EdTech Ban on Emerging Economies 🇮🇳🇮🇩🇻🇳

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5 years ago · 11 likes · Rahul Maheshwari

Some platforms like Wukong, Zhangmen, etc. have started Mandarin tutoring courses for Chinese diaspora, riding on the LA wave.

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Some unique channels for user acquisition! 👨‍👩‍👧

WeChat Marketing

LA has access to a unique channel of advertising- WeChat- equivalent of Facebook and Whatsapp in China, owned by Tencent. Chinese diaspora actively uses WeChat and through performance marketing on WeChat- it is much easier to target Chinese origin individuals abroad. In fact, organic growth efforts in Chinese social media can enable a great funnel for LA!

Facebook, Google

Facebook and Google are the most common channels for EdTech companies across the world.

Referral

Referral is also a common strategy for user acquisition used by EdTech companies, just that it could work even better for platforms like LA since it drives FOMO in the community and leads to adoption from one family to another.

Lingoace provides a wholesome Mandarin learning experience! 🧑‍💻

Pillars of Lingoace:

• Tutor Supply

  LA has built it’s supply side strength in China with native speakers who are well qualified. There is a high bar of recruitment followed by training and quality check to ensure a high quality experience for students.

  

• Programs and Curriculum

  LA has created standard programs with in-house experts which cater to students of all kind:

  • Early learners: Can’t speak the language

  • Advanced learners: Already have grip over the language

  • International Learners: Want to study Chinese as a second language

  

  Moreover, there are special courses built according to the curriculum of Ministry of Education (Singapore)

  

• Platform

  The platform is tech enabled which reduces the operational bandwidth for the team and enables a standard experience for the students. Parents purchase credits for the class, which they can use by scheduling the classes with the teacher through the dashboard. Classes are interactive and fun- supported by high quality visuals. The classes are followed by interactive home assignments for practice.

  

  

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Pricing starts from $15 for 1:1 class! 🏷️

• Parents need to spend at least $750 while buying the credits!

  

• Localised pricing with 1:1 and 1:few classes in markets like Indonesia, Singapore etc.

  

• Study now, pay later!

  

Lingoace might be operating on ~20% contribution margin on first purchase! 🧧

• Assuming 55 classes on first purchase (2nd package), this would last a student ~6 months, if he or she is attending the class twice per week

• With teacher supply from China, assuming, a teacher would cost ~$11/- per hour, alongside guarantee of demand, leading to ~60% gross margin

• With renewal of courses after the 6 months period, unit economics per customer can improve significantly since renewal cost would be significantly lower than CAC

• Unit economics would see some improvement in 1:4-1:6 format as well

Growth levers in future 🪴

Beyond Chinese Diaspora

Given that 1/6th of the world speaks Chinese language, it is a great skill to have. This tailwind can enable LA to expand beyond Chinese Diaspora which is evident from some course offerings and their marketing material.

Adults

There is a strong demand for Chinese language learning in adult population across the world, expected to reach ~100M learners. This could be a natural next step for LA to conquer the market.

English Learning

English learning seems to be a strong upsell opportunity for the existing user base of LA and also to go beyond the Chinese diaspora. It has already launched a product play in this direction and also listed english live classes on the website.

Giants like VIPKid, Dada ABC had to shut down their China focused offerings last year after strict regulations of Chinese government. This has led to massive unemployment of native English tutors across the world. It seems to be a good time for LA to tap on the readily available supply as they diversify into English learning.

Learnings from Lingoace! 📕🇨🇳

Niche opportunity might not be niche

Prima facie, live tutoring for Chinese language might look like a niche market, but going global and deep might provide for a large enough market. That being said, it seems like a winner-take-most-market, given the strong brand recognition in an audience of 60-70M people.

Focus on quality and command pricing

LA built superior experience for students, parents and teachers which has enabled them to command premium pricing and dominate the market by building a strong global brand.

Next big opportunity? Indian Diaspora?

After Chinese, Indian diaspora is the second largest- over 30M+ people, with fast growth! There is a strong sense of belongingness in the Indian community, and you can often find them living in common neighborhoods. Indian origin kids are already doing classes to learn local languages with tutors from home, cultural courses in nearby hubs, etc.

In fact, the Indian economy is growing rapidly (produced over 46 unicorn startups in 2021 alone)- which could influence the Indian diaspora to consider moving back to the country. India is already witnessing early signs of reverse immigration.
That being said, unlike China, India has many languages- Hindi is only spoken by ~520M people, followed by Bengali, spoken by ~100M people and so on. This could create some challenges on demand and supply side...but food for thought- Lingoace for Indian Culture?

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As a high school student preparing for exams, there were times when I wanted to seek help for a particular question or concept, even when I had the solution in front of me. In fact, 80-90% of students are not self-learners and need help of a teacher or a mentor. Furthering that insight, some students are strong in certain subjects, and not so strong in other subjects, hence the need for in-person doubt solving. 

Find Filo- Tutor under 90 seconds! ⌚

Meet ‘Filo’- a New Delhi based EdTech company, which connects students and teachers under 60 seconds to enable real time doubt solving. Not to mention, it’s one of my favourite EdTech platforms!

Currently, the platform has tutors with expertise in the following subjects:

Alongside users in India, the platform seems to be growing in the Middle East as well! 

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Potential of Tutoring Marketplace 🇮🇳👩‍🏫

India is home to 250M students in K12, making it one of the largest student markets. 

Given Filo’s proposition, let’s assume its relevant for students through grade 6 to higher education. 

Demand Side- Students

Globally, there are an estimated 1B learners in upper primary- tertiary education!

Amongst this, over ~25% population can speak English, so ~250M students could be English speakers!

Supply Side- Tutors

Tutors for Filo comprise of several personas:

• Teachers: Individuals who have been teaching in schools, universities, and can take up additional part-time assignments (for grade 6 and onwards)

• University Students: Students (let’s say in top 5%) can teach on Filo for additional income and utilize their free time.

• Homemakers: Well-educated individuals who are on a break or prefer the flexibility of Filo’s set up.
  With 160M home makers in India, we can assume that at least 1% are capable of teaching on Filo

Conservatively, ~8M tutors are available in the Indian market alone!

There are several ways of evaluating supply:

• To Filo’s advantage, Indian supply has some unique benefits! Indian tutors cannot service just Indian students, but also students from other English-speaking markets.

  Note: After US, India has the maximum number of English speakers in the world (125M+)!

Old Rope

Next Big Export from India- EdTech 🧑‍💻🇮🇳🌏

Welcome to Old Rope. I write on emerging trends from the East! 🌏 Subscribe to stay updated…

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5 years ago · 7 likes · 1 comment · Rahul Maheshwari

• To expand globally, supply of similar persona in different markets will be available to cater to local students.
  For example, markets like Vietnam, Indonesia, etc. might prefer local tutors.

In spite of the total potential number of teachers being impressive in its own, when compared against the number of students, it seems to be a bottleneck! I have a thought experiment on how to solve that, let’s go into this a bit later in the blog.

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Student Product Demo: Match with a tutor in few seconds! 📱

The first time I was testing Filo, I literally jumped out of my seat because it matched me with a tutor within few seconds, and the tutor was able to solve my doubt within minutes.
I felt…maybe it was by chance, so I tried again, and it was still the same.

Here’s a product demo I have recorded for OldRope readers…don’t judge! 😅

Until now, I have tested Filo a dozen times and it has never disappointed!

Teacher Product ensures smooth onboarding! 👨‍💻

After discovering the landing page of ‘Tutor Page’ of Filo, tutoring aspirants can apply to be a tutor through the Filo Tutor page.

Overall, the onboarding seems impressive. After completing the details, verification takes upto 48 hours (can be fast tracked in near future). However, a tutor can start receiving calls irrespective of verification being pending. All calls are recorded in Filo’s database, which enables better QC. Based on the tutor’s existing performance and rating, the system can match tutors and students in future.

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Teacher Payout 💰

Since the calls usually last for 8-12 minutes, the tutors have to be paid accordingly; but at the same time it’s important to align incentives with tutors so they don’t unnecessarily elongate the calls.

Teachers are paid as follows:

Tutors are incentivized to not extend the calls beyond 15 minutes, otherwise the price is not calculated proportionately (but logarithmically). This means that a tutor doing 4 calls for 15 minutes will receive an hourly price, but a tutor doing one call for 1 hour would receive a lesser amount.

Monetisation: How does Filo make money? 💸

Currently, Filo is a freemium offering with a cap on number of tutor calls a user can do.

So, here is a steady state model with assumptions:

• Let’s say Filo has 1M paid subscribers with $5 ARPU monthly; Monthly Revenue: $5M

• For this model to work, we can consider an 20-80 rule, where 20% users are actively using the platform after paying whereas 80% users are not as active.

  

• This would lead to gross margin/ take rate of 22%

  

Subsequently, there will be spend on customer acquisition and teacher acquisition to arrive towards contribution margin.

It’s important to note that several assumptions might not be true at steady state, you could also play around with assumptions 😉

For Filo to monetize well, it will be crucial to increase ARPU potential and find the right inflection point to switch from a per tutor session model to a subscription model to arrive at a blended gross margin of 50-60%.

One of the prominent tutor marketplaces, Nerdy, also has gross margins of 66%. Filo is a mass, low ARPU product, and Nerdy is a high ARPU product - it is important to have higher gross margin profile in tutoring marketplaces.

Doubt Solving is a strong hook, so Filo can likely solve for top of the funnel with engagement through its amazing product experience, and explore upsells like:

• 1:1 Live Tutoring

• 1: many Live Tutoring

• Recorded Courses

Since Filo will have various data points on students, it can contextually upsell the above streams without additional marketing costs!

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Doubt Solving Ecosystem is Global and Deep! 🌐

There are 3 sub-segments where we can find companies that could fall into doubt solving domain.

• Live doubt solving with experts

• OCR based doubt solving library

• 1:1 Tutoring Marketplaces

For a focused discussion, lets look further into first two sub-segments.

Live Doubt Solving Platforms

Filo stands out as the only company which can match students with tutors under 90 seconds! None of the above platforms have been able to achieve this, in spite of multi-million dollars in the bank.

Another interesting data point is Filo’s Play Store reviews. Even at scale, Filo stands out with 4.3 stars ratings - this talks volumes about Filo being able to match students and tutors really well!

OCR Based Doubt Solving Libraries

Doubtnut and Filo could have fierce competition, or maybe not?!

Doubtnut is one of the prime doubt solving destinations for test-prep in India. However, most students are not self-learners, and prefer a tutor/ mentor to guide them through a solution.
Hence, I feel Doubtnut is for self-learners/ relatively motivated students, whereas Filo is for students who prefer guided learning.

One could argue that Doubtnut can also build a tutor marketplace like Filo…but I think it needs a different DNA, skill set and operations.

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Thought Experiment on scalability of Filo! 📈

Prima facie, as mentioned above, teacher availability could be a bottleneck in scaling Filo, along with ensuring standardized quality. However, these issues would only exist if we limit the tutor supply to top quartile tutors. What if an average university student could also become a tutor?

In fact, it’s quite possible. Once a student pushes a question, Filo could use OCR (like Doubtnut) and present the solution to the tutor on the tutor app. So an average university student with basic subject knowledge could also become a star tutor and guide the student, effectively acting as a mentor.

Challenges and opportunities ahead of Filo! 🏃

• Expansion in non-English speaking markets
  As Filo grows beyond India, there is obvious expansion in English-speaking markets where the existing tutor supply from India can be leveraged. However, for growing in not-so-obvious markets, Filo will have to figure out expansion in non-English markets like Indonesia, Vietnam, LATAM, etc., especially building deep tutor supply. This would make the company defensible as it stands against other live doubt solving companies.

• Contribution Margin Positive Model
  Given the current price points, it seems difficult to arrive at a contribution margin positive model. It will be important to solve this with appropriate pricing, expansion in other markets (leveraging cost arbitrage of tutors), and upselling.

• AI tutor is coming!
  Although still early, but there are several companies building personalized tutoring and doubt solving to give a live tutoring experience without a real teacher. Early days, but important to prepare and invest in R&D in this direction.

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As 2021 comes to an end, I wanted to cover a company I’ve been eyeing from the sidelines throughout this year. Meet Roblox - founded in 2004, it is a platform for game developers to create virtual experiences (games) for users globally! With a library of 20M games, Roblox entertains over 50M DAUs with a whopping $509M revenue in Q3 ’21.

Roblox’ history dates to 1989 (and EdTech), when David Baszuck launched ‘Interactive Physics’ a 2D simulated physics laboratory where users could drag parts, hinges, ropes, and springs to create and measure physics experiments on their PC.

Interactive Physics was acquired by MSC Software for $20M and laid foundation for Roblox.

“Students across the world used Interactive Physics to see how two cars would crash, or how they could build destructible houses. In starting Roblox in 2004, we wanted to replicate the inspiration of imagination and creativity we saw in Interactive Physics on a much grander scale by ushering in a new category of human interaction that did not exist at the time.”  - Roblox Prospectus

Roblox Economy - Marketplace of experiences on the cloud!

Roblox presents a classic case of creator economy with strong communities on both the sides of the market.

• Developers from across the world can build immersive experiences in the Roblox metaverse by using ‘Roblox Studio’.

  

• Individuals can access these experiences, play with their friends, strangers and socialise in the virtual world.

  

• Robux ($R)- Roblox’s currency can be bought on its platform and can be used to access premium features (such as skins, weapons, and collectibles) within the experience/ game. Since a premium subscriber spends time in the developer’s experience, the developer earns a pro-rated share of the user’s monthly subscription fee.

  

Developers are incentivised to build high quality experiences (‘UGC’), which attracts more users to engage with these experiences and invite more friends. This in turn enables higher reach and better monetisation for creators, incentivising them to build more experiences, and the flywheel kicks in!

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With $500M+ revenue in Q3 2021, Roblox is valued at ~$60B

The rapid growth of the company is a testament to Roblox’s stellar flywheel, jumping from $4B valuation to $60B valuation within a year!

As is evident from the above, Roblox has been growing rapidly, with efficiency in sales and marketing, and infrastructure costs with scale. Its cost of revenue still remains high as there is a significant commission payout (30%) to App Store/ Play Store on each Robux purchase.

75% of American children in the 9-12 year age band use Roblox! The potential for Roblox to build depth in APAC is immense along with expanding to above 13 year age groups - the company seems to be acting on it!

Around 10% developers on Roblox are earning developers, with only 0.01% developers earning more than $10K annually. There is immense potential to enable the long tail developers to earn more as their experiences mature.

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Roblox economy has uncanny parallels with Web3 world!

• Creators can build experiences in Roblox’ metaverse, similar to Sandbox and Decentraland - two of the coolest Web3 metaverse projects.

• As mentioned above, users can access experiences and spend Robux (which is like a fungible token) to pay the creators for certain premium access. Similarly, Sandbox has SAND token, while Decentraland has MANA token. That being said, SAND and MANA can be traded on crypto exchanges, unlike Robux…yet!

• Users can purchase unique accessories in Roblox for use in the games or hold as collectibles and trade in the future. Similarly, in Sandbox users can buy NFTs for virtual goods which can be used in experiences or traded.

Given the audience of Roblox, EdTech is a prominent use case!

It is no surprise that the company recently also announced its focus on education (here).

Teacher Tool

Roblox is an amazing teacher tool for creating immersive learning experiences forstudents (also the inception of the company).
For example, teachers can build games to teach alphabets:

Metaversity

With advent of online learning, there is potential for schools and universities to host classes in the metaverse. Roblox is also adding spatial audio to make the experience more immersive - and this could be a good substitute for Zoom university!

Learn Coding and Design

No doubt children love to participate in Roblox experiences…how about creating one? There are several platforms that have officially partnered with Roblox to teach coding by building Roblox experiences and games.

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Roblox aspires to connect 1B people in the metaverse!

• Since a significant portion of Roblox's users are often represented as ‘GenZ’, it will be interesting to see how Roblox shapes up when these users grow up and start making independent purchase decisions. It is possible that the virtual world will have much more significance than the real world, where owning a rare Nike sneaker in the metaverse would be more valuable than owning one in the real world. Maybe…

• As these users start earning (thereby increasing their spending capacity), if they continue to be hooked to the metaverse, it could mean a lot more revenue for Roblox (and similar companies). With the amount of investment going into metaverse, I believe Roblox is likely to stay relevant over the next decade or so.

• With spatial audio becoming a reality, Roblox could become an official place to hang out, hold meet ups, and even for work meetings.

  

  “Within the next two or three years, I predict most virtual meetings will move from 2D camera image grids to the metaverse, a 3D space with digital avatars,”  - Bill Gates.

• Roblox is also becoming a destination for artists to host global concerts as well as launch albums in the metaverse and interact with their fans without any physical bottlenecks. Lil Nas X hosted his concert on Roblox in November 2020, which was viewed over 33M times! The largest concert I have been to was…just 75K people!
  

Paris Hilton has created a virtual island ‘Paris World’ on Roblox, and will be DJing there on New Year’s eve! Are you joining the party?

• Roblox has become an important destination for brands to stay relevant. They are partnering directly with Roblox or with game developers for integration into their experiences. For example, Nascarpartnered with Badimo (Roblox Developer) for integration in Jail Break game.

  

  Some brands are also building their own experiences. For example, Nike has an experience in Roblox called NIKELAND. The company plans to eventually integrate in-play moments that emulate global sporting events.

  

  Imagine discovering a cool sneaker in the NIKELAND and being able to purchase it within the metaverse, with a virtual and real piece of it. Is this a peek into the future of retail?

Going forward, one aspect that Roblox and similar companies should watch out for is content moderation, especially as platforms are now gearing for more real time conversations using spatial audio. Given the dominant age group of the audience, it will be critical to maintain Roblox as a safe space.

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Which Roblox experience you want to try as we transition to 2022? Greetings to all my readers for an exciting year ahead. Stay safe!

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Over the last few weeks, I have spent considerable time  studying Web3, and I am particularly excited about the humanization of apps built on blockchain (‘Dapps’). So far, most of the apps built in the Web3 universe are more accustomed to crypto-natives, but going forward the value is going to be unlocked in real world cases, where the end user need not understand Web3 to avail its benefits.

One of the exciting use cases could be a Teacher DAO - to solve some painstaking problems for teachers as well as fundamental issues in the education system. 

What is a DAO? 🧐

 A decentralized autonomous organization (DAO), is an organization represented by rules encoded as a computer program (smart contract) that is transparent, controlled by the organization members and not influenced by a central authority.

A DAO "enables online communities to form, pool resources, and coordinate towards common goals - all run trustlessly via code." -Ali Ahaya, a16z

Governance in DAOs plays an important role in empowering the community to vote upon proposals and take crucial decisions without letting any central authority to take control. 

Recently, 17K individuals came together as ‘Constitution DAO’ to purchase one of the 13 surviving original copies of the American Constitution, pooling together over $40M (more here). The power of communities is astronomical, which is why DAOs will be implemented across industries to solve real world problems.

Teacher Creator Community 👨‍🏫🎨

The teacher community has a tremendous scope to help each other in up skilling, job search, exchange pedagogy, lesson plans, etc.e, and ultimately transcend to improved learning outcomes for students. 

Teachers are an important part of the creator economy - designing tricks and tips, pedagogy and lesson plans for better learning experience for students. At the same time, teachers often look up content and resources online which they can use for particular topics. 

Platforms like YouTube, Pinterest, Quizizz, etc. have content hosted by teachers across the world, like:

However, there are times when teachers do not get credit or monetary benefits for the resources they create.

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Platforms like ‘Teachers Pay Teachers’ have solved the problem of monetization, as it is a marketplace of teaching resources. It has enabled teachers to sell unique content, with some teachers making up to $1M annually. 

But…it is not all that rosy. There are several instances of plagiarism on Teachers Pay Teachers, simple because there are always some bad actors in every community.

Due to lack of monetization and plagiarism, teachers are disincentivized to share their uniquely created resources. Moreover, it also disincentivizes teachers to come up with new innovative material to use in their classrooms. This can potentially hinder innovative learning experiences for students. 

This problem can be solved to some extent by setting up the right system of incentivization, in a decentralized manner, where governance lies with the community.   

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Teacher DAO - a powerful teacher community, by the teachers, for the teachers 🌐

Ownership 📝

Decentralised platform built on blockchain, where teachers (authors) can share free as well as paid content, as NFTs.

NFTs → A non-fungible token is a unique and non-interchangeable unit of data stored on a digital ledger. NFTs can be associated with reproducible digital files such as photos, videos, and audio.

This would ensure that authors of content have a unique identity and can sell/ rent several copies of their content to other teachers.
Teachers can also collaborate with teachers on the platform and host content together. 

Monetisation ₿

For the paid content, teachers (authors) can receive tokens <$TEACHER> which they could either exchange for fiat money or purchase content by other teachers (authors). 

Incentivisation ✨

Natural question: How do you ensure that teachers do not screenshot the content and circulate it without credits?

One of the most exciting things about DAOs is that it helps re-imagining incentive structures within organisations.

This can be solved (not foolproof) with setting up incentivization through smart contracts. As teachers (consumers) use content of teachers (authors) on the platform, their ranking on the platform improves and access to more free content opens up, with time and activity. At the same time, if a teacher is accused of misconduct (plagiarism) by other teachers, the community can decide to reduce/ revoke access for the teacher. 

Portfolio Creation 🖼️

Just like artists, teachers can also have their digital resumes created on chains which can further help them find relevant jobs, as with advent of EdTech, there is a strong case for ‘meta-versity’.

Building a DAO might seem very complicated but we have projects like Aragon which provides a platform to build DAO.

There are several other use-cases of Web3 which have been identified in EdTech- like learn to earn [earn rewards in tokens for completion of learning milestones], credentials [transcripts issued by universities on blockchain], metaversity [learning experiences built in metaverse], etc.

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Would love to chat more about other real-world use-cases of Web3, or if you are planning to build Teacher DAO 😉

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A teacher, instructor or an educator helps students acquire knowledge. We encounter teachers during school, college, and in out-of-school tutoring. A majority of the students are not self-learners; hence a teacher’s role is critical, despite content and study material being widely available. Moreover, teachers also act as doubt solvers for students, including self-learners.

There are ~100M teachers for ~1.7B students across the world 🗺️

It is evident that there are inadequate qualified teachers in most parts of the world, especially Sub-Saharan Africa and South Asia.

Due to the nature of the industry (competition), tutoring platforms end up spending more money on sales and marketing than teachers. This is probably not the best argument, but ironical right?

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Problems faced by teachers 😫

Inadequate Training [Professional Development 🧑‍🏫]

Due to limited resources, especially in South-Asia and Africa, 30-50% teachers are not qualified enough. This ultimately translates into inadequate learning outcomes for the students, which coupled with a perpetual shortage of teachers creates a vicious cycle. 

Managing Curriculum, Engagement and Assessment [Time ⏱️, Curriculum 📚]

Although it’s not necessarily the teacher’s mandate to create curriculum, but it is important for teachers to organize and plan learning in a manner that ensures high engagement. It’s often time consuming to create simulations, activities, cases studies, etc. as part of lesson plan, alongside managing assessments. 

Administration [Time ⏱️]

It is counterintuitive that teachers must spend a lot of time performing admin tasks such as taking attendance, organizing parent-teacher meetings, broadcasting circulars, creating reports of activities, etc. This is counter-productive and takes away time from the teachers’ focus area.

Low Pay [Income Generation 💰]

Teaching, especially in K12, is not a very rewarding job. For example, on an average, a teacher in India gets a salary of $275 per month, whereas a software developer gets a salary of $800 per month [source: Glassdoor]. This further discourages people from considering  teaching as a first priority profession.

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There are several companies that are working on some of the above problems and have tapped on the opportunity in the following way-

Teacher’s Pay Teachers (TPT) 💰⏱️📚

Founded in 2006, TPT is the largest marketplace in the US for the teachers and by the teachers for exchanging resources like worksheets, assessments, activities, etc. TPT has 5M+ pieces of content with a community of 7M+ educators in K12. 

• TPT has successfully enabled teachers to share and access each other’s content, which helps save time, maximizes support for students, and enables mutual learning.

• It helps teachers monetize the content they have created - top sellers on TPT can make up to a few million dollars per year (Source).

Icing on the cake- Easel: TPT recently launched a teacher tool- Easel, which is a platform for teachers to host interactive live classes and manage assessments. This tool seems to be a good initiative in fostering the teacher community at TPT.

NearPod ⏱️📚

Founded in 2012, Nearpod is a platform for teachers to make their classes interactive. It raised $50M and recently got acquired by Renaissance Learning for $650M. It enables interactive online and offline learning with videos, slides and gamification, along with formative assessment tools. It also has pre-made lessons that can be used by teachers with an option to control customisation.

Nearpod is used in all 50 states in the US across more than 1800 school districts. Globally, the platform is used by over 1M teachers.

• Teachers need several tools to build an interactive class and effectively deliver the curriculum. Nearpod acts as a one-stop shop for the same, with deep integrations with other platforms that teachers would usually use, like YouTube, Google Slides, etc. This saves significant time for the teacher, along with better learning outcomes for the students.

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Remind ⏱️

Founded in 2011, Remind is a communication platform for teachers, students, and parents. It has raised $60M+ and has 30M MAUs. Teachers can create an account, link it to their respective schools, add the students in their class, and start communicating with students and parents.

Presentation about Remind’s product.

• Remind’s platform eases teachers’ lives by reducing the administrative effort needed at their end. This has two fold benefits- it not only saves time but also helps teacher focus on what they are good at- teaching. 

ClassIn ⏱️

Founded in 2014 in Beijing, China, Classin is an enterprise grade platform for teachers for delivering classes in an online format. Classin has built a verticalized zoom for teaching, which is used by individual teachers, EdTech companies and schools for virtual classrooms. It has raised over $265M from top VC funds from China. Due to the EdTech regulations in China, ClassIn’s business focus has shifted towards SEA (Vietnam, Indonesia, Philippines, etc.)

• Classin helps teachers with tools to have an engaging classroom experience virtually with a lot more control with them, compared to zoom. It also reduces administration hassle, giving more time in the teacher’s hand.

Quizizz ⏱️📚

Founded in 2015, Quizizz is a freemium formative assessments tool for teachers- making classroom experience interactive and gamified, and providing teachers and students with key insights. Having raised over $47M, it hosts 2M+ teachers on the platform globally.

Quizizz has professionally and user generated content (quizzes), which can be used by teachers to aid their classes, without creating new ones. Even students can use it to practice at their own pace.

• Quizizz helps the teachers with an easy to use tool to make formative assessments fun in and outside the classroom. Moreover, there is a plethora of content available for teachers, which helps teachers borrow existing assessments (also created by teachers) on the platform and use it in their classrooms. The content layer has made the platform defensible against other tools, making quizizz a popular platform in teacher community

Kajabi ⏱️💰

Founded in 2010, Kajabi is a platform for digital entrepreneurs to create and sell engaging content in the form of online courses or coaching programs. It enables instructors to turn into entrepreneurs by helping them monetize, just how Shopify has been an enabler for brands to sell online. As of October, 2020, Kajabi has reached $60M in ARR and $1B+ in recorded transactions, and raised a whooping $550M+ at $2B+ valuation. 

• Kajabi helps instructors to monetize, making it easy to build, market and sell (collect payments) their content/ courses. Here are examples of Kajabi entrepreneurs: Amy Porter and Sophia Amoruso. 

From the above companies, there are few business models which are commonly observed

• SAAS for Teachers
  Premium or freemium offering for teachers, where the users pay monthly or annually for using the tool/ content. 

• Commission
  Platforms that help teachers monetise their content can also charge a take rate from the teachers. 

• Bottom-Up SAAS for School
  As the teachers build profiles on the platforms, they mention the schools in their respective profiles. Once there is a skew from a certain school, the platform can reach out to the school and sell a bundled software offering, integrating with the school’s usual workflow. 

• T2S (Teacher to Students)
  It can be said that the way to a student’s /parent’s heart is through a teacher (teachers are influencers for parents and students). Through teachers, platforms have access to distribute products to students/ parents in a contextual way- given that there are data points about the students which can be leveraged. 

Some other exciting companies in teacher tech- Amplify 📚, Teachmint, Hotmart ⏱️💰 and Kahoot ⏱️📚. There seems to be an untapped opportunity in the teacher professional development space, although it could be more operational intensive than most of the software first models. 

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The ASU+GSV Summit has launched the 2022 GSV Cup and I’m excited to be a judge for the same! The GSV Cup is the world’s largest pitch competition for early stage EdTech startups with upwards of $1M in prizes! Apply now.

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One of the key expectations of booking a stay from a branded hotel chain platform, like Oyo is Standard Experience! While selecting a school for their little ones, parents have lot of trouble- seek references from peer parents, understand pedagogy, fee payment, etc. Imagine deciding on a school from a nationally recognized brand- where most of the above parameters are standard with little or no information asymmetry. Let’s find out how LEAD School is building a nationally recognized education brand!  

India has over 1.4M schools with only 49.5% students accessing public education! 🎒

Pupil to Teacher ratio in India is almost double of China, indicating lower quality of education.

One of my favorite Ted Talks, explaining the importance of Education for economic growth.

• Overall, ~$35B is spent on private schools tuition fees in India. ~80% students in private unaided schools attend low income private schools, also known as ‘Affordable Private Schools’. These schools usually cost below INR 20,000 or $273 annually, and sustain entirely on fees paid by parents.

• Due to pandemic, online education has proven to be revolutionary but has also caused fatigue; students and parents have expressed strong desire to return to the offline mode. In steady state, I feel learning would be done in hybrid mode- online merged offline- best of both the worlds.

  Old Rope

  EdTech in post Covid era- OMO (Online Merge Offline)

  Covid 19 accelerated growth of online-first education platforms and EdTech received massive interest from investors, in India as well as globally. During March-June 2020, when lockdowns, were imposed, the annual revenue run-rate of online first EdTech companies grew by manifolds and they were able to raise capital at high valuations…

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  5 years ago · 8 likes · Rahul Maheshwari

There seems to be a significant gap in public education infrastructure in India, hence private intervention is important.

• Majority schools in India operate like SMBs with lack of learning resources and digitization. Management of schools on paper records or excel files with data sitting in silos- doesn’t provide for any intelligence but inefficiency.

• ‘Unqualified teachers’ is a common problem plagued by lack of standard curriculum, even though the government provides standards through NCERT.

• Communication between parents, students and teachers happen across platforms like whatsapp, google classroom, emails etc. It’s difficult for parents to track the performance of their children.

• Most importantly, while deciding on school admission, parents have to run around and seek references to validate the quality of school, teachers, learning environment, etc. which is a tiresome process coupled with information asymmetry.

“When you educate one person you can change a life, when you educate many you can change the world”- Shai Reshef

LEAD School: Admissions to Assessment 🖥️

LEAD School has built a SAAS platform offering system essential ERP for education, helping low income private schools manage ‘admissions to assessment’.

With LEAD's Nucleus Academic system, the school administration can easily allocate teachers, manage lectures, assessments, add/remove subjects and manage learning resources and access curriculum developed by experts.

LEAD builds curriculum for the schools in order to provide for a standardized pedagogy for teachers and a wholesome experience for students.

LEAD is solving a complex problem! 🤯

System essential SAAS becoming a consumer brand? 👪

LEAD’s TV Campaign- Inviting parents to join a LEAD Powered School

With the most recent campaigns of LEAD, it seems that apart from solving the infrastructure gap for schools, it also wants to solve for demand generation with LEAD’s branding. If LEAD powered schools are perceived to have a consistent and superior experience across, then it would ease decision making for parents- in terms of choosing between a LEAD powered school and a regular school.

If LEAD is able to build a branded chain of schools, remaining asset light, it could be a very promising business opportunity, since schools in India have high LTV, as students tend to spend several years in same school. It could also enable LEAD to move to a take rate business model rather than a fixed micro SAAS fees of $40 per student per year.

B2B2C Distribution Potential with data layer? 📈

LEAD has access to a large base of students and parents who are actively using the platform. It’s natural for the parents to seek for after tutoring support, in India. Moreover, LEAD has tons of data about the students and their performance across subjects, so it can contextually recommend courses which can help students strengthen their weak areas and so on. The key hypothesis here is incurring $0 CAC, unlike other B2C EdTech companies.

17ZuoYe from China tried to build $0 CAC B2B2C distribution but couldn’t get it right. Here are some learnings from their model.

Old Rope

The billion dollar Google Classroom of China- 17 Zuo Ye (一起作业）

Online education platforms have witnessed expedited growth on account of the Covid-19 pandemic. As an example, Google Classroom doubled its userbase to over 100M active users (with free access) across the world. 17 Zuo Ye, with over 54M registered students, has also been positively impacted by the pandemic, with higher adoption of the after-school class…

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5 years ago · 6 likes · Rahul Maheshwari

Can BYJU’s do it? 😈

The NITI Aayog launched an initiative in partnership with EdTech giant BYJU’S, under which students of Classes 6-12 in government schools across 112 ‘Aspirational Districts’ will get free access to the company’s “premium learning resources”.

BYJU’s key motivation to build a LEAD School model:

• High CAC for their existing business model can be reduced by distributing to schools

• Availability of content and curriculum from existing business

• Strong national brand in education

Risks/ concerns on the LEAD School Model 🧐

• Revenue Collection
  LEAD Schools targets schools which operate like SMBs and have tight cashflows. Hence, there is a need to ensure timely collection which could get tricky at times, especially Covid.

  

  That said, if the school consistently misses payments, it could lose access to LEAD’s platform which would lead to lot of trouble due to high dependency on LEAD.  

• Scale Up
  Due to B2B sales to school and a large feet on street team, the scale up is relatively gradual, unlike B2C platforms. It could take several weeks to convert a school to sign a 3 year contract with LEAD. Growth is not just a function of marketing but well managed sales efforts, operations and collections.

• Consumer DNA?
  LEAD’s larger play seems to be the oyo-fication of the model, but that needs different kind of skills and mind set. Company needs to rope in leadership with deep experience of building consumer brands and inherit a consumer DNA.

LEAD School has been able to solve a very complex problem with an all-rounded solution and has clear potential to build a consumer brand- empowering education across the country.

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Oldrope turns 1! 🕯️

This newsletter marks 1 year anniversary of Old Rope. Over the last year, I have been consistently writing my thoughts on EdTech, Consumer Tech China, SEA, etc. and it wouldn’t have been possible without constant support and feedback of my readers and well-wishers! Thank you 🙏

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India’s EdTech market in 2020 stood at $2.8B, and is expected to reach $10B by 2025 (source). While the numbers look promising on their own,  a comparison of the market opportunity with China (before the EdTech ban) shows that there is a long way to go.

Although India has ~300M students, whereas China has ~200M students, due to factors such as internet penetration, access to mobile phones and consumer spending, China’s EdTech market is ~20X larger than the Indian EdTech market (as of 2020).

In spite of this, the Indian EdTech companies continue to be blessed with capital, with reports of more global capital being infused, especially after the Chinese government’s stringent curbs on EdTech. 

Old Rope

Impact of China’s EdTech Ban on Emerging Economies 🇮🇳🇮🇩🇻🇳

Welcome to Old Rope. I write on emerging trends from the East! 🌏 Subscribe to stay updated…

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5 years ago · 11 likes · Rahul Maheshwari

Indian EdTech companies are attracting global investors, not just because of ~300M+ students in India, but the ~1.5B students across the world. It is apparent that the Indian EdTech players are building for the world - and seemingly Education could be the next big export from India.

India is the software superpower of the world! 🌏

It is a needless reiteration that India is the software hub of the world, just like China is for manufacturing. In fact, India ranked third as the most attractive investment destination for technology transactions in the world (Source: EY’s 14th biannual Global Capital Confidence Barometer).

India is home to some of the largest IT companies in the world!

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Key drivers: language, internet access tech-talent, and price arbitrage 🚀

• Language
  After the US, India has the second largest population of English speakers at about 125-150M. This enables individuals to work on global projects and collaborate with clients across the world.

• Tech-Talent
  According to industry estimates, ~1.5M engineers graduate in India every year. India’s tech workforce is mature for global technology, with immense push for digital skilling in the IT services.

• Price Arbitrage
  Of the 1.5M engineering graduates every year, only 0.25M are able to find good jobs. Due to the high supply of tech-talent, it is affordable for global tech companies to outsource work to India.

Global EdTech Market: $227B+ 💸

Indian EdTech companies are building for the world and targeting a $227B+ market, which is expected to reach $400B+ by 2025.

Fun fact: EdTech is the only industry where an Indian company (BYJU’s) is #1 globally. After raising $1.5B at a $21B valuation in August 2021, BYJU’s is in talks to go public at $40-50B valuation.

BYJU’s international geographies account for 70% business!

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Tutoring, Content and EdTech Infra are most relevant themes for Indian players 📈

Tutoring 🧑‍🏫

• As mentioned above, India is home to 125-150M English speakers. Hence, Indian EdTech companies have the potential to build tutoring capacity for the English native markets.

• India has over ~10M teachers, which is not even enough for 300M students in India. But there is a huge potential for up-skilling individuals to become teachers for global markets and teach online. India’s female labor participation is ~16% (source) and online tutoring opportunities at scale can potentially improve this. 

• Indians are recognized across the world for excellence in subjects like Math, Science, etc. which adds credibility to platforms offering STEM courses. 

• Indian teachers can deliver live tutoring at affordable hourly rates, like $4-6/ hour, which provides significant cost advantage compared to international teachers, hence Indian EdTech companies can outcompete their international peers in live tutoring.

BYJU’s Future School

BYJU’s acquired WhiteHatJr, a live coding platform in mid 2020 for $300M to start a global live tutoring business. It launched ‘BYJU’s Future School’ to teach math, coding and music across the world in live-tutoring format. As per industry estimates, currently BYJU’s Future School, which has over 18K teachers, does ~$20M monthly revenue with 70% business across international markets.

Cuemath

Cuemath is a Bangalore-based soon-to-be-unicorn Math live tutoring company. It is similar to the digital version of Kumon- Established in 1958, it’s a Japanese offline math tutoring platform centered around personalized worksheets with 4M+ students across the world.

Cuemath launched in international markets in 2020 and has been successfully growing business in North America. 

Content 💿

• In higher-ed and up-skilling, Indian EdTech companies can launch content focused products in the domestic market. After achieving PMF, these products can travel across borders, to English native markets without needing to localize.

• Content can also be acquired in partnership with international universities which is in high demand in India, as well as global markets. 

Eruditus

Headquartered in Mumbai, Eruditus partners with global universities to offer executive and certificate courses to students across the world. In August, 2021, it raised $650M at a $3.2B valuation led by Accel and Softbank. With over $350M annualized revenue, Eruditus has only ~5% of its business in India. 

Also, it is one of the few EdTech companies in the world that has successfully launched business in China.

Simplilearn

Simplilearn is a global up-skilling platform focusing on digital economy skills- AI, Machine Learning, Digital Marketing, Dev Ops etc. In July 2021, Blackstone acquired a 60% controlling stake in Simplilearn for $250M. 

Delivery of courses happen in MOOC + Cohort Based format.

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EdTech Infra ⚒️

• With so much development in EdTech, infrastructure has become fundamentally important. Just like how fin-tech infra is critical for enabling payments, similarly EdTech-infra is crucial for delivering for EdTech at scale and allowing entrepreneurs to build innovative EdTech propositions. 

• Some interesting analogies could be:
  Shopify ($186B) is an e-commerce platform for companies to build their e-commerce stores and sell online.
  Stripe ($95B) is a suite of payment APIs that powers commerce for online businesses. 
  Plaid ($13.4B) enables all companies to build fin-tech solutions like lending, payments, wealth, etc.

• EdTech infra companies are product and distribution first, with less reliance on high CAC spends. Indian tech talent, as discussed above, is credible globally to build SAAS products. 

• I am most excited about opportunities in this space, since companies can hyper scale with small teams, traveling vertically and horizontally (geographically). 

Teachmint

Headquartered in Bangalore, Teachmint is a platform for teachers and coaching institutes to launch their digital classroom. Started in March 2020, the company has raised over $40M and is rumoured to be raising another $70M at $500M valuation. 

Teachmint is planning to aggressively expand in emerging markets like Indonesia, Vietnam, Africa, etc. to help teachers and institutes manage their business – online or offline. 

Quizizz

Based out of Bangalore, Quizizz is a tool for teachers and corporates for creating and distributing gamified quizzes. Started in 2015, the company reached over 50M MAUs, with $0 CAC, across the world with a small team of 20 individuals (2020). It raised $31.5M in June 2021 at a ~$300M valuation, led by Tiger Global.

Final Thoughts 💭

• Indian SAAS companies have a huge potential to compete in the global tech ecosystem, but EdTech companies from India are set to outperform their global peers. 

• Indian EdTech companies should have a global mindset from inception, even though the GTM can be prioritized strategically. 

• It is essential to pick themes and value propositions that might have wider applicability beyond domestic borders. For example, it’s very difficult to compete with local test prep platforms because of deeper localization needed on the course curriculum and pedagogy. 

• To initiate localization beyond domestic markets, it is important to build a global team and hire local country managers who can provide unique insights about the respective markets. 

• Lastly, none of the material above is intended to suggest that EdTech companies should ignore local opportunities in India. In fact, it is the need of the hour to take the advances of EdTech to the underprivileged population for K12 as well as up-skilling, and contribute to social and economic development.

If you are an EdTech founder, looking to access global markets, feel free to reach out for a chat!

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Bonus-  Brightchamps, one of the fast-growing global co-curricular learning companies, is hiring! If you can relate to the ‘global-EdTech from India’ thesis and are looking to build along similar lines, why not reach out to Brightchamps team - recruitment@brightchamps.com

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Higher education companies have been in news recently. Some headlines:

Emeritus, executive education platform, raised $650M from Accel and Softbank at $3.2B valuation.

Upgrad, higher education platform raised $185M from Temasek at $1.2B valuation.

Coursera, one of the most popular MOOC platforms, raised $519M in its IPO, valuing the company at $5.86B

As seen above, the platforms have focused on ‘white-collar workers’. The underprivileged part of the economy - blue and grey collar workers are yet to benefit from the rapid advances in EdTech.

Blue Collar and Grey Collar Workers👷‍♀️

The term ‘blue and grey collar’ refers to working class individuals who provide unskilled or semi-skilled labor, in segments including manufacturing, security, customer care, delivery, etc.

The market in context is India 🇮🇳 but the learnings are applicable to most emerging economies! 🇮🇩 🇻🇳 🇧🇷

Supply> Demand? ⚖️

It’s estimated that there are about 400M blue/grey collar workers in India. Although the above jobs are very important, due to high supply (than demand), the salaries are quite low.

Delhi’s per capital income for 2020 was $400 per month (source). Hence, minimum wage set by the government is considerably low and in practical cases, are often not abided by the employers due to high supply of labor. Needless to mention, this has only worsened due to Covid.

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Problems of Blue Collar Workers 😣

• Automation is a threat to the blue collar workers as they will be driven out of job. This can already be seen in several sectors like manufacturing, logistics, customer service, etc.

  

• Government jobs accessible through entrance exams are very competitive with very low probability of success.

• Government’s vocational training programs are managed by ITI (Industrial Training Institutes)- 13.3K in number- both public and private, providing training to only ~1.9M people across 126 trades.

  

• Offline training market is fragmented and dominated by Mom-and-Pop stores which lack standardisation. Some of these institutes guarantee jobs but are accused of scamming individuals who pay high amount of fees and are unable to find a placement.

  

Inequitable Wealth Distribution 💰