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
- Free;
- 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:
- Test Prep;
- Skill Development.
- Only pay as you go- Students are charged basis duration of usage/number of modules accessed. These involve;
- Online Certification; and
- Test Prep.
- Subscription- Based on one-time transaction, where students pay per course subscribed. These can be online certification and could also be skill development;
- Online Certification
- Skill Development
- Enterprise Sales/ Advertising Commission. These provide more of;
- Performance Assessment Providers.
- Income Sharing Model- adopted by Ed-techs offering long term courses and claim an employment commitment.
- 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:
- The UGC Regulations allows online learning resulting in Diploma, Degree and Certificate courses, in undergraduate and post-graduate education offered by Higher Educational Institution (“HEI”).
- A delivery platform or a learning management system of an EdTech startup can be employed by HEI to provide access to available courses to the students, create learner support system, assessment and other allied services.
- UGC regulations do not restrict tutoring, offering vocational and preparatory courses forunder-graduate and post-graduate programmes.
- These programs can be offered through companies incorporated domestically or in a foreign location.
1. Incorporation in India:
- The Ed-Tech entity can incorporate itself as a private limited company as per the Companies Act, 2013 or as an LLP under the Limited Liability Partnership Act, 2008. Once incorporated, it may tie-up with different vendors or hire them to design the course content which will be listed on the platform. Additionally, the Ed-Tech entity can tie-up with HEI, which will list its course (designed and curated by faculties) on the platform.
2. Offshore Incorporation and offshore institutions:
- Direct service in India: Offshore Ed-Tech entities offer their courses and programmes to Indian consumers. These courses revolve around UG/PG course subjects. The payment by Indian consumer is directly made to the Ed-Tech entity.
- Hybrid Model: In a hybrid model, the Offshore Ed-Tech entities can tie up with a Service Provider in India and some elements of the services, like customer support, marketing etc. would be provided in India by the Service Provider and the payments etc. would be done outside India.
- License Model: In this model the IP of the course content owned by offshore institution is licensed to the Indian Service Provider and royalty is paid outside India. The Indian Service Provider can be a HEI which offers these courses to students and benefit from the brand name of foreign institution. However, the foreign entity cannot directly provide the degrees to the Indian Students. The Indian Service Provider can also be a local Ed-Tech entity offering the licensed course of foreign institution to the Indian consumers
- Service Arrangement: This is a complex arrangement wherein the representative or faculties of the offshore institution provides services like evaluation of students, recruitment and infrastructure services to Indian Service provider. This may involve the rendering of teaching or other services by the faculties of foreign institution.
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.