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By Arushi Jain and Prateek Kumar Singh

The superior man understands what is right;

The inferior man understands what will sell.

-Confusius

Commercial Setup of a Private Ed-Tech Entity in Post K-12 Segment

COVID 19 redefined Education and it emerged as EdTech. Entrepreneurs and Investors supported the requirement and lead to creation of sustainable commercial models. We looked at the Regulatory regime here

Scaling up and retaining growth along with fair and healthy competition is a major challenge and not all Ed-tech startups will qualify on this. Finding cost-efficient and effective distribution has brought some revenue models to the forefront, which wouldn’t have surfaced, otherwise.

Popular EdTech Revenue Models

  1. Free; 
  2. Freemium (Pay as you go)- Students are provided with free samples initially and charged for the complete course when they sign up to the Course. Broadly, these are in the space of:
    1. Test Prep;
    1. Skill Development.
  3. Only pay as you go- Students are charged basis duration of usage/number of modules accessed. These involve;
    1. Online Certification; and
    1. Test Prep.
  4. Subscription- Based on one-time transaction, where students pay per course subscribed. These can be online certification and could also be skill development;
    1. Online Certification
    1. Skill Development
  5. Enterprise Sales/ Advertising Commission. These provide more of;
  6. Performance Assessment Providers.
  7. Income Sharing Model- adopted by Ed-techs offering long term courses and claim an employment commitment.
  8. An Income-Sharing Agreement (ISA) model is one of the many ways to link incentives of an EdTech to a student. The idea is, that the student pays to the education provider only when they achieve a minimum threshold of outcome.

ISA in India

India is experimenting with this model where the companies sign an upfront agreement with students. Later, the companies partner with NBFCs, who typically issue loans to students once they receive their employment offer letter and the first salary. The income to NBFCs come from the subvention (25–35%) they charge the training provider.

Most of these loan agreements are based on the amount of the first salary instead of a variable salary over the course of payment period per the ISA. This is one major difference between the regular ISA model and the variation that we see in India.

With this model, the burden of outcomes shifts to the training provider. A high-quality training provider then focuses on building a brand based on the outcomes instead of marketing and advertising. Thus, the key to the success of an ISA model is outcomes-oriented high-quality education. Besides aligning student incentives with those of training providers, the ISA model also makes programmes more accessible. In India, where student loans are still inaccessible to the people who need them the most, this model opens up the opportunity for deserving students to access high-quality education without creating a burden on their parents.

BUSINESS STRUCTURES:

1.         Incorporation in India:

2.         Offshore Incorporation and offshore institutions:

In all the above offshore circumstances, only preparatory vocational and certification courses can be offered and no diploma/degree/UG-PG certificate course can be offered by an Ed-Tech entity. Such courses can only be offered by Indian HEI complying with UGC Regulations.

CONTENT STRUCTURE AND PROTECTION

No matter whatever is the business, ‘content is a vital part of its success’. What you say and how you say it, determines the value you bring. The same principle applies to the Ed-Tech business. Ed-tech entities could self-develop ingenuine content or license it. They could even directly list courses designed by HEI or some other vendors, acting as a marketplace for such HEI and vendors to offer their content.

The content is the real asset of the Ed-tech business and therefore, it is very crucial to ensure clear title on the assets with proper Intellectual Property (“IP”) registration/documentation and other contractual documentation, guaranteeing the vesting of IP rights. Proper documents for vesting of the IP rights on the Ed-tech entity i.e. whether through its employees or consultants, assignments and licensing etc. This helps in safeguarding against any form of piracy rampant in the Ed-tech industry.

Categories of piracy that hurts business prospects of the Ed-techs especially, are pirated learning content, course videos and forum discussion etc.

Data security and encryption tools are critical for success with EdTech. Most enterprises are already investing in the direction.

Disclaimer: This Note is for general information only and not intended for solicitation. Please do not treat this as a legal advice of any sort. Views contained in this, are personal with interpretive value of the author and teams assisting the author.

Readers are encouraged not to rely solely on these contents before making any decision.

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