Matrix Partners India invests INR1bn in FIITJEE – an education provider

Matrix Partners India, a Mumbai-based venture capital firm, has invested INR1bn ($20.6m) in education provider FIITJEE, according to VCCircle.

FIITJEE provides training for engineering entrance exams, such as IIT-JEE.  The company was created in 1992 by Dinesh Kumar Goel, a mechanical engineering graduate from IIT Delhi.

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PE firms attracted to India’s Education Sector

A clutch of private equity (PE) firms, including BlackRock, Apollo Alternative Assets, Gray Ghost Fund and Sequoia Capital, is looking at investing in India’s education sector, a $40-billion market catering to 460 million children.

Some players, like Sequoia, already have exposures in segments like e-learning, but there is fresh PE interest in the higher education segments like engineering and polytechnic, and even in schools, say industry sources.

A clutch of private equity (PE) firms, including BlackRock, Apollo Alternative Assets, Gray Ghost Fund and Sequoia Capital, is looking at investing in India’s education sector, a $40-billion market catering to 460 million children.

Some players, like Sequoia, already have exposures in segments like e-learning, but there is fresh PE interest in the higher education segments like engineering and polytechnic, and even in schools, say industry sources.

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Higher Education in India – Issues, Challenges and Expectations

Here is a picture of the current state of India’s higher education domain.

I welcome everyone’s ideas on what should be done to help create qualified, skilled and knowledgeable manpower that is a fundamental requirement to India becoming an economic super power a real possibility. I am especially interested in hearing about some “out of the box” thinking since meeting the challenges and expectations, and resolving the issues pointed out below will require nothing but just that.

Issues

• Poor quality of graduates – lack skills for employability
  • Only 10% of graduates are directly employable
  • Only 25% of engineering graduates are directly employable (Infosys, an IT giant, last year sorted through 1.3 million applicants only to find that around two percent were qualified for jobs.)
  • Quality of education delivered in most institutions is very poor. While India has some institutions of global repute delivering quality education, such as (Indian Institute of Management) IIMs and (Indian Institute of Technology) IITs, we do not have enough of them.
  • Very narrow range of course options are offered
  • Education is a seller’s market – lack of competition – no incentive to provide quality education.
  • Increasing number of students going abroad for higher education which is a drain on foreign exchange resources and also on the students and/or their parents’ finances.
  • Lack of attractiveness in teaching as a profession – there is clearly a lack of educated educators – Teaching is not an attractive profession – it’s a last choice in terms of career.
    • Number of Ph.D.s produced each year is very low – those required by academia is far higher. In fact, at many institutions fresh graduates are employed to teach, leading to poor quality of classroom instruction.
    • Industry having to invest a lot of resources in training new hires – not every organization is in position to set up requisite training infrastructure
    • Most of the education institutions esp. in states such as Maharashtra and states in South India are owned by politicians – Education system which is highly regulated by the government has been set up to benefit politicians.

Challenges

• Huge demand supply gap – not just in terms of number of seats available but more so in terms of seats available in institutions who offer quality education
  • Eg. 290000 applications received for  CAT – 2008, entrance exam  for admissions to IIMs – only 1700 get admission – only 1 out of every 170 students who take CAT will make it to the IIMs.  Number of applicants went up by 28% in 2008.
  • IIT-JEE – > 3.95 applicants in 2009 competing for ~7000 seats – average 56 students competing for 1 seat.
  • About 2 lakh students compete for the 77 seats available at AIIMS – a premier medical education institution in India
  • 9,500 seats in National Institutes of Technology (NIT) invited more than two lakh applications

(if you factor in seat reservations, the students in “open” category face much stiffer competition than indicated above)

• India has birth rate of 25 million per year – developed countries have 1/3^rd of students going to college. If India were to meet the same standard, it will need 8-9 million graduate seats in college and it has only 4.5 million today.
• Regulatory framework – antiquated, “not for profit” requirement to set up educational institutions – major obstacle in attracting serious players and investments
• There is huge obsession with capacity creation – but emphasis should be much more on quality – how is it that we can create quality capacity?
• Parents only treat engineering, medicine as only choices for graduation – they are unable to appreciate attractiveness of new specialized industry oriented programs that are launched in the country
• India has a very large number of talented students but many of these feel dejected for not making it to IITs and IIMs due to lack of capacity – they end up going abroad for education

Expectations of/from various stakeholders – Students, Industry, Educational Institutions, Parents, Government

• Need to double capacity – not just in terms of seat count but “quality” seats count
• Deregulate education in India
• Remove the “Not for profit” requirement to facilitate the investment from private sector
• Industry and Academia connect necessary to ensure curriculum and skills in line with requirements.
• Skill building is really very crucial to ensure employability – Academia to understand and make sure – knowledge + skills+ global professional skills = good jobs
• Industry and students are expecting specialized courses to be offered so that they get the latest and best in education and they are also industry ready and employable.
• Too much power vested in single institutions that regulate e.g AICTE – eg. policy, licensing, funding, curriculum etc.  Need to disintegrate to perform specific key functions.
• Some industry-academic connection programs not working out as expected – eg. summer training for MBA students – most of them given dummy projects and are avoided while on board. Industry needs to get involved to support institutions.
• Vocational and Diploma courses need to be made more attractive to facilitate specialized programs being offered to students

I have put together this information from various sources and my own knowledge and experience in this domain. And, it is also from a show  I recently saw on TV. You can view a video of this show :Tubaah: Why do Indian students leave? in another post on my blog here.  This discussion, as the title suggests, was on a different yet related topic and covers many points presented above.