VCs make hay as education shines

For Sandeep Aneja, founder and managing director of Kaizen Private Equity, the decision to invest in a growth-stage private equity fund for education was a natural choice. While in college, this MBA from the Graduate School of Business, Stanford University, had operated an adult education school for factory workers, their spouses and hospital staff. Today, Aneja runs India’s first private equity fund focused on India’s education sector.

The trigger for the venture is the $86-bn education sector in India whose explosive growth and underpenetration presents a fantastic opportunity for investors.  “Education in India is undergoing rapid transformation. It is growing 18 per cent year on year with increasing government support for private participation in the sector,” says Aneja.

Still, a lot more investment–both public and private–is required to reach desired literacy levels. Says Aneja, “We started fund raising in 2010 for a $100-mn portfolio, of which we have already done $60mn. Kaizen also has commitment for its debut fund from International Financial Corporation (IFC), the private investment arm of World Bank, and HDFC, which will help our fund-raising exercise. The fund will look at investing in the range of $5 million to $15 million.”

Aneja is just one of the burgeoning club of venture capitalists who are being lured to education. The relatively unregulated niches in the segment, like the parallel and ancillary, the scope for profits and low risk have made education one of the most lucrative sectors in the Indian economy, says DS Rawat, secretary-general of Assocham whose recent survey of PE and VC firms pegs their planned investment in education at Rs 4,500 crore by 2014.

Education is a red hot sector if deal data is a pointer. Private equity and venture capital investors have pumped $93 million into 10 education companies so far in 2011. The sector saw investments of $190 million across 23 deals in 2010, compared to 10 deals worth $128 million in 2009. Some of the recent large deals in the sector include PremjiInvest’s $43 million investment in Manipal Education and India Equity Partners’ $37 million investment in IL&FS Education and Technology Services. This year has also seen large-ticket deals like Dubai-based QInvest’s deal with FIITJEE and Pearson’s acquisition of TutorVista.

“It is the non-cyclical nature of the business that draws VCs like us to add education as an investment in our portfolio,” says Sanjeev Aggarwal, managing director of Helion Venture Partners. He is spearheading the $100-million corpus to be invested in education and healthcare. The founder and former CEO of Daksh points out how investments in the education sector continued to witness growth even through the 2008-09 downturn, driven by factors such as demand-supply gap, higher spending by consumers, superior quality perception of private sector offerings and government reforms.

Helion has completed two transactions in education. Global Talent Track which is into vocational training for multiple verticals and Hurix, an educational digital content solutions provider whose offerings include e-learning course development for higher education and career segments, creation of educational games, simulations and graphics development. “Typically, we invest $2m-10m in a deal. Our average exposure is $6m-8 m in a particular transaction,” says Aggarwal, who identifies play schools as a business driver alongwith geographical expansion.   

Helion is not the only one attracted to the expansion of education beyond conventional boundaries. Sumit Tayal, director with Helix Investments Advisors India, a $100-m fund with education as a focus, is excited about training and professional programmes in education. The IIM Bangalore alumnus, who has led business consulting teams across sectors including FMCG, agro commodities and IT outsourcing, points to two investments in line with its thinking: MT Educare Ltd and Learning Mate.

Educare, India’s largest chain of K12 tutoring centres, is leveraging its strengths in teacher quality,

teaching method and content to expand into related segments like engineering test preparation, medical test preparation, aptitude test preparation and vocational skills training. Learning Mate Solutions is a provider of end-to-end eLearning education and technology to global publishers and education institutes. “Helix invests $5m-$20m per transaction and we continue to be bullish on the prospects for this sector,” says Tayal.

Education is also spawning innovations in VC funding. Take JGI Ventures’ programme to incubate business ventures among students with a fund base of Rs 500 crore, the Incubating & Developing Entrepreneurial Ability (IDEA) Programme. Says Chenraj Jain, Chairman, JGI, “One of the several factors driving India’s growth will be young entrepreneurial talent. Currently, the lack of angel funding or early stage seed money backed by professional guidance has prevented growth of start-ups. The programme is a response to the urgent need to mould the vast untapped entrepreneurial zest of young India.”

In the past, JGI Ventures has incubated 46 start-ups with a combined turnover of Rs 147 crore.