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Education set to turn hotter for VCs

business Updated: Jan 10, 2010 21:28 IST
Devraj Uchil

Fund houses are flocking back, and where better to invest than in education, which has become a sunshine industry in the last few years.

Experts say there is a huge demand-supply gap in education, and increased spending on quality education is likely to triple the fund flow in the sector compared to last year.

“The education sector has the potential of being another IT sector for India,” said Ved Prakash Arya, chief executive officer and managing director of Milestone Capital. The market size of the sector is very large at over $15 billion (Rs 68,000 crore). The year 2009 saw at least $500 million (over Rs 2,200 crore) fund investment in this sector. It is likely to be 2-3 times of that this year, say experts.

“The demand supply gap in education sector is huge. Also vocational training and specialised learning are opening up, which is an area of interest for fund houses,” said Arya.

As per a report of VC Circle, venture capital (VC) and private equity (PE) funds are keen on investing in sectors immune to recession.

The education sector has found favour among 71 per cent of fund houses and investors, it says— up by 10 per cent from the previous year.

India has a big youth population and its massive need for quality education is not comparable with any nation. “Education as a sector is not well-capitalised. In that sense it is yet to be ‘discovered’ by the market, making it attractive for investors,” said Sumeet Mehta, Chief Executive Officer of Zee Learn. “High GDP growth rate has increased the ability of Indians to spend on quality education.”

Experts feel education as a sector needs a huge dose of innovation. “We need models that are more adaptable, scalable and innovative. If funding flows into right sector, it would improve access to quality education,” said Mehta.

Benefits of fund flow are likely to go to low hanging fruits first — unregulated, scalable areas such as pre-school and online education. Regulated but scalable areas such as private tuition and higher/ specialised education would come next, said experts.

“School and college in India are highly regulated. For benefits of VC and PE funding to go to these areas, (the regulations) would have to go or lower,” said Mehta.