Asian edtech startups seize Covid-19 growth window

Singapore

EDUCATION technology, or edtech, is having its moment in the spotlight. As the pandemic has made the value of remote-learning tools clearer than ever, edtech startups are seizing the moment to expand regionally and refine their products.

Recognising this, investors are on the lookout for opportunities. Venture capitalists who spoke to The Business Times are bullish that the sector can sustain its momentum even past Covid-19. But they are also mindful of specific challenges in the fragmented South-east Asian market.

Edtech startups in this region have been under the radar, even with the startup boom. But interest has grown substantially in China and India, and some are optimistic that the trend may be mirrored in South-east Asia.

Intelligence firm Preqin says that Asia-Pacific edtech startups have attracted US$5.78 billion in venture capital, across 166 deals thus far this year. The aggregate deal value is more than three times that of 2019, and 1.5 times that of 2018 (see chart).

The biggest deals however, are concentrated in China and India, such as Chinese unicorn Yuanfudao's US$1.2 billion fundraise in August, and Indian startup Byju's US$500 million Series F round in September.

Preqin did not have sufficient data on South-east Asian deal flow.

One roadblock for South-east Asia's relatively smaller edtech startups has been mainstream adoption. But the pandemic has been a boon in this regard, with edtech platforms enjoying a surge in demand.

One such beneficiary is Chinese online learning platform LingoAce. Its total number of paid customers jumped about five times in the last nine months, said its founder and chief executive, Hugh Yao.

The startup has taken advantage of the surge in demand to expand to two more markets this year: Indonesia in June, followed by Thailand last month.

Mr Yao said: "During Covid-19, every student and parent experienced online education at least once. They understand that this is the new model, and I think the acceptance of online education is increasing. This is a good opportunity for us, and that's why as a company, we want to capture the growth window."

Another Singapore edtech startup, Kalpha, has also chased growth abroad, despite the pandemic. The startup, which has a platform that enables learners to meet offline, launched in Vietnam in July.

User growth thus far has been promising, expanding 50 per cent month on month, said co-founder Jaden Teo.

One of the key tailwinds has been that the pandemic has been fairly contained in Vietnam, which means that offline meet-ups can still happen.

In Singapore, however, Kalpha has been drastically hit by social-distancing measures. The company responded to this by introducing new features to enable virtual meet-ups, said fellow co-founder Jack Soh.

"Kalpha, being a meet-up platform, was affected drastically with all the (Covid-19) restrictions; our numbers were quite devastating... That was a very painful six months. But now, we have built e-wallet and voice-call functions. I would say Kalpha is now in a better state," he said.

With edtech startups gaining more visibility during the pandemic, more investors are making enquiries, said Neo Zhizhong, co-founder and chief executive of Singapore startup Geniebook, which offers online learning for English, mathematics and science. It is backed by Apricot Capital, an investment firm helmed by the family behind Super Group.

Geniebook expanded to Vietnam in the first quarter of this year. Looking ahead, Mr Neo plans to grow cautiously; he has seen that edtech startups have a tough time scaling regionally.

"The challenge would be the fragmentation of the markets. Even within each country, there is a wide gap in learning opportunities for different groups of people... We really have to plan strategically on how we can help one group of students meaningfully before moving on," he said.

Given this reality, Geniebook is looking out for investors who are willing to stay put for the long-term, and not just hunting for the "flavour of the month", Mr Neo said.

Global investors have not been too active in South-east Asian edtech, but they are paying more attention. Ian Chiu, managing director of US-based edtech investor Owl Ventures, is "very active" in looking for opportunities to back edtech startups here.

Mr Chiu said: "The market in South-east Asia is still in a relatively early stage in edtech, and a big part of that is the infrastructure is still coming online ... (But) we're starting to see a number of South-east Asian edtech companies achieve scale. Most are focused on just serving South-east Asia, but there are also a few based in Singapore that serve India as well."

Many South-east Asian investors see edtech as a defensive sector that will remain relevant even after the pandemic.

Ong Peng Tsin, managing partner of Monk's Hill Ventures, noted that there has been more activity across both early and late-stage edtech deals.

"(We) do not yet know the long-term impact of the pandemic on education delivery. (But) we do know that there will be increased demand from parents ... to be able to educate their children in an engaging way. This will sustain demand as Covid-19 makes it more challenging for students to study in schools."

Tan Choon Hong, managing director of private equity firm Northstar Group, noted that adult learning is another edtech segment with plenty of potential.

"(The) adult learning segment offers interesting opportunities in countries like Vietnam, which has a culture of continuous learning and career progression, often related to job-specific certifications. From a market standpoint, Indonesia remains our core focus, given the large student population and severe need for education services," he said.

However, the unit economics of edtech are also challenging, said Chua Joo Hock, managing partner of Vertex Ventures South-east Asia and India.

He said: "You also have to look at who the target audience is. Generally, in countries besides Singapore and Malaysia, the per capita income is low, so how much can you afford to charge? The other thing, of course, is that many of this content requires mobile data; reaching out to the masses could be a bit of a problem."

In addition, many of the region's edtech startups are also largely focused on content generation, which is already a hot sector, noted Chua Kee Lock, also a managing partner at Vertex.

That said, there is still room for more infrastructure players in the edtech space, such as those providing backend software solutions.

Alex Ng, managing director of Singapore edtech accelerator EduSpaze, believes that starting out with a clear monetisation model is the best way for edtech startups to progress. While the challenges may be daunting, he sees resilient demand for language and coding skills in emergent markets such as Indonesia and Vietnam.

Overall, South-east Asia is brimming with potential in edtech, said Owl Ventures' Mr Chiu. It will just be a matter of spotting and refining the unpolished gems.

He added: "I think South-east Asia is uniquely positioned because it has a lot of similarities to both India and China, but is also distinct. We think companies are going to start local and expand to go global."