Zishaan Hayath on how Toppr is making quality education accessible to all

Mumbai-based Toppr Technologies Pvt. Ltd is among the more well known ed-tech startups attempting to disrupt India’s massive education market. Toppr, founded about seven years ago by Zishaan Hayath and Hemanth Goteti, operates in the online test preparation market. The company uses machine learning algorithms to deliver personalised solutions to engineering, medical and secondary school students.

The company has raised funding from multiple investors. It last raised $35 million in a Series C funding round led by existing investors Eight Roads Ventures, Helion Venture Partners and SAIF Partners and new investor Kaizen Management Advisors. 

In an interview with TechCircle, Hayath, who is also a prolific angel investor and counts ride-hailing company Ola among his early bets, spoke about Toppr’s differentiated product, consolidating its existing markets, how the e-learning market is evolving, and challenges ahead. Edited excerpts:

How has the company’s pace of growth been so far?

Revenues have been growing three-fold every year for the past three years. Since we run a subscription-based business for students from the fifth grade up to the 12th grade, our revenue is split across all grades equally. The target is to triple revenues from the current growth rate every year.

You raised a Series C funding round last year. How are you deploying the capital?

We are not doing anything new at present. The existing Toppr platform has so many modules and features and each of the modules need improvement. All those features have to be made more robust. Our focus is to just go deep and improve the quality of the product. On the business side, we want to go deep into the 25 cities that we are already present in and exhaust the market there, which is a big challenge for us. We might increase our sales team to 30 cities from the current 25 but the idea is to go deep and explore the markets.

How big is the addressable market for e-learning products?

India has about 300 million school-age children, which is higher than China. Some are enrolled in schools and some are not. Almost all students go to tuition centres or coaching classes. Over the last two-three years, students are considering an alternative to all these coaching classes and moving to learning apps. Some see learning apps as a supplement and others see it as a replacement for their existing supplement, which may be a coaching class.

Out of 300 million school-age children, about 250 million are in schools and out of that about 150 million are the relevant audience for learning app products. Now, out of 150 million, I would say, a large population would be free users. About 10-15% would be paying users, which is roughly five to eight million users. This is the current market size but I see this market growing rapidly.

From Toppr’s perspective, what kind of opportunities do you see in Tier II markets? 

Coaching is very city-centric. Larger cities have better coaching classes and the top coaching classes are usually concentrated in certain locations. With technology, we are leapfrogging the location factor. Now, a student in Nagpur will have the same app as a student in Mumbai. So, I think, students in Tier II cities will see more value in learning apps than students in Tier I cities. Therefore, propensity to sign up for the app is higher in Tier II markets.

This gap has always been there. The volumes in Tier I cities will still be higher because the cities are larger but conversions are better in Tier II cities. Cities such as Nagpur, Vadodara, Surat, Bhopal, Indore, Lucknow and Kanpur would be among the Tier II cities that we are targeting.

The mindset of sending children to coaching classes is a default. What we say is that most students who attend coaching classes still suffer from the same challenges that they face in school. Some will eventually discover a learning app where they get answers to all their queries, replay the video as many times as they want, ask questions whenever they want and practice in their style without any pressure. Out of those students, 20-30% would stop going to coaching classes and use the app. The volume of students enrolling in coaching classes and not attending is increasing. So, we think that more and more people will move away from coaching classes and use learning apps.

How many app downloads have you recorded so far? What’s the retention rate? 

Currently, we have seven million app downloads. We have 35,000 online tutors available to address questions from students. About 2-5% of our total user base upgrades to a premium subscription. Our core engagement metric is engagement per daily active user (DAU). A DAU, or student, spends 110 minutes per day on the Toppr app. We try to keep this metric as high as possible because we believe if a student spends two hours daily on the app, he or she would make phenomenal progress. 

How much do you charge students?

Toppr’s subscription starts from Rs 12,000 per year. This goes all the way to Rs 30,000 per year. If you compare that to the offline coaching classes market, it can be quite challenging for students to access good quality coaching at less than Rs 2500 a month, which works out to Rs 30,000 a year. This is where Toppr comes in with great value compared to offline coaching.

What are the key challenges for e-learning business models ?

The big challenge, of course, is monetisation. I think in this segment, people are willing to pay but how you enable the payment is the challenge. Every household has a budget for education and they want to spend more and more on their kids’ education. The second challenge is the default system of physical coaching classes and how do you move from default to the learning app options while demonstrably proving that it’s the better option. That is a concern.

Any plans to get into native languages?

We can experiment with other Indian languages but the medium of learning which students undergo in schools in India is still in English. Most Indians aspire to be English-medium students and the minute the option is available, they switch. So you would increasingly see more and more English-medium schools unlike older internet users who are not going to move away from native languages. 

Yes, we do provide an option of learning in Hindi, but even those students go back and write their exams in English. Learning in Hindi might help them to learn faster but the medium of instruction in schools is English. There’s less scope of experimenting in native languages in India.

How do you see consolidation playing out in the ed-tech sector? Do you plan to make any more acquisitions?

We acqui-hired EasyPrep in 2015 and Manch in 2016 for the teams. They joined the Toppr team and started building the Toppr product. Right now, we are just focused on internal organic growth. 

In the K12 learning market, there are two players right now -- Byju’s and Toppr. Eventually, both will dominate this segment. We might see some new entrants. It’s very difficult to build the-winner-takes-all companies globally in any sector. 

Ed-tech is a very fragmented market and you would see three or four emerging players vying for market share. However, consumers need choice and beyond the fourth player, the choice becomes meaningless and insignificant. For example, large e-commerce players are Amazon and Flipkart but you would see other smaller players having a website selling niche products. It will play out the same way in our sector.

When do you expect to raise funds again? 

We don’t have any immediate fundraising plans. We might raise funds again later this year, or early next year. We haven't decided on any target as of now.

Is there enough investor interest now in the ed-tech sector? 

When we started in 2013, barely anybody invested in education. Now, when I look back and see the amount of money that has gone into education over the last couple of years, that’s a 10-fold jump. It’s a big improvement. However, different investors will have different thesis or preferences. There’s enough capital available now.

You are also a prolific angel investor. What are your views on the overall angel investing environment at present?

I made some angel investments during 2011-2015. I am not actively investing now. Yes, there is a lot of noise around the angel tax issue, posing problems for founders and investors as well. I keep getting requests and notices from the income tax department to disclose bank statements. It’s a tedious task and discourages new angels. People use their taxable income to make angel investments in a high-risk asset class. India can simplify angel investing lot more.

Are you still invested in Ola?

Yes, I am still invested in Ola and have no plans to exit any time soon.

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