#85- Very few people know that education inflation is outstripping food & fossil fuel inflation
My chat with Arindam & Eela, the founders of EduFund
Arindam & I met on LinkedIn and connected over a pitch feedback session. Later I became his customer and eventually, we met a few times over Bombay sandwiches (that he loves), cha (as he calls chai), and drinks. Today as they announce their pre-series A raise of $3.5mn led by MassMutual Ventures, I take this opportunity to provide an insight into how Eela & Arindam are building EduFund. We had a chat in late 2022 when they were closing the round.
Siddharth: Arindam, you've been an investor in the past you've worked with brand names like Citadel, and Reliance Mutual Fund. Want to understand your view of the Indian asset management industry 10 years ago versus what it is today. And if you can walk us through the learnings from your journey.
Arindam: I started my first true blue asset management job started in January of 2007 with Reliance Mutual (now called Nippon India). And before that, I knew nothing. I just had a few years of work experience in the US. I was introduced to my boss Mr Ramanan who asked me a few questions, and the very first thing I realized is how much there was to learn. If you look at Reliance Mutual Fund, we had inspirational and awesomely smart people like Sunil Singhania, Madhu Kela, and Siddhartha Bhaiya. There was so much to look up to and learn just by being around them.
And the market was pretty small too. The total AUM of the industry was less than the AUM of some fund houses today. I think pretty much the total AUM That people used to get excited about pretty much as I think that those are AUMs of individual fund houses now. That has been the explosion of retail participation.
10 years is a long time and space has gone through huge changes, it’s exploded and we’re still scratching the surface.
Siddharth: You were an analyst, and now you’re creating a savings product for the masses. The industry has exploded. We see the institutionalization of household savings - more savings going from post office & real estate to equities and mutual funds. We also see good persistency ratios as well. How does all of the above tie up with what you’re trying to do?
Arindam: Asset management exposes you to a plethora of people that you talk to. You are also in asset management. While you're on the private side, I used to be on the public side. But both of us have in common were exposed to all types of people. And the sheer exposure teaches you a lot. You realize while people are doing things a certain way, there can be better ways of doing it.
I also realized very early on how much money you can make by just being a passive investor in the market. My grandmother, when she passed away, left a small portfolio for me. She was a housewife who used to buy 10-20 shares like the typical retail investor. But these were good companies and by the time I inherited that portfolio, it was a Rs 60-65 lacs portfolio which was a big deal for a middle-class household. It was a simple journey of unlocking wealth over 20-30 years without attending investing seminars or reading investing books.
So savings at a household level and then enabling it for education just seemed like the next natural progression. Because you could slowly shore up capital by just beating inflation. And you have some very good fund managers today. You have great passive funds and active fund managers Between the two, opportunities exist for people who unlock wealth with a very low entry barrier. You don't need lacs or crores of rupees. You could start with a very small amount of Rs 500.
Siddharth: Eela, you've been involved in public policy and have a very different background than most people who tend to start up their own companies.
Eela: I'm somewhat of a black sheep because I don't have a conventional asset management or engineering background. I've had gaps in the middle. The genesis of my background starts with my upbringing. Despite having been, born and brought up in the US, I spent a lot of time coming to India just because it's my ancestral heritage. And a spark ignited when I saw the relative differences between having grown up in American society and culture and the means that we had versus the same in India. When I went to college, at NYU, it was on the premise of wanting to study international affairs and becoming involved with the World Bank and working within policy to espouse change.
During my time at NYU, I got involved with an NGO called Stakeholder Forum. It was a UK-based NGO working in the space of stakeholder democracy within the UN ecosystem specifically and had a consultative status to the UN. I had the privilege of going to the UN, working with delegates, and being there for certain meetings. My boss at the time was the only one that would spend time between New York and London, and I was, at that time, the only intern in New York.
This was prior to when the SDGs even came out. I saw the whole genesis of that actually play out and all of the backstory, Rio+20, all of that sort of stuff lead up to what is now the sustainable development goals. There was a lot of talk about the MDGs, poverty alleviation, maternal health, and all of that sort of stuff. And it was great to see the policy and the lobbying side, working with the delegates. I got a lot of exposure within the UN ecosystem, specifically in the domain of sustainable development.
But I wanted to see how we actually enact change on the ground. I wanted to be boots on the ground. It’s not that I didn’t want to be involved with policy but I wanted to see more. At the end of the day, policy brings in the money, but what are we doing was my question?
While still in college, I wanted to spend a summer in India and I connected to two NGOs. One was the Acorn Foundation which was doing work in Dharavi, and another was Social Action for Manpower Creation within Lonavala. And both were education initiatives - educating the lower middle class. And it was during those three months that I really realized that education is actually the one thing that provides mobility in a country like India. So we can talk a lot about poverty alleviation and espousing change, but what are the mechanisms to do that?
And it became very clear to me that education was that thing. So ultimately I used that as a driver and I decided to apply to an international affairs program at Columbia to work actually in education-related policy and programs because I was so moved by how powerful it was.
And it was on that premise that I got in and I started my, master's degree. Ultimately, I decided to drop out because of the loans that I had taken from NYU. They weren’t small loans and I just didn't wanna pay another $120-130k for a professional program, which would make me up a little south of $200k in loans.
I just didn't wanna take on that liability. I was very risk-off, and I was young. I was 21. I literally started my master's degree three weeks after my undergrad, because I graduated from NYU a semester early. So after dropping out a semester later, I actually took a really massive pivot in my career, and I went into finance, which was complete serendipity, with no background.
My first foray was at a quantitative hedge fund that was completely systematic. That was my first exposure to anything related to FinTech because all the operations were based on algorithms. There was no discretion in making the trades and they were completely commodities-focused. So I went from absolutely nothing in finance to going into a very niche sector and having to come up to speed very quickly.
I did that for a few years, and then one day just struck me that I don't wanna sit in front of a desk. I've always been very impact-oriented and I don't think I wanna be a hedge fund person for the rest of my life. I think Arindam is a lot more moved by the markets. He has a passion for that. He's good at it. He's been in that for most of his career. But for me, it just wasn't what excited me.
It was a good skill to know what markets were all about, but I didn't wanna do it forever. I also had a bit of friction in terms of where I wanted to live. I didn't wanna be in New York anymore. I think I had my time there for six, seven years having gone to school there. And so I left New York didn't have a job, got rid of my apartment, and I came to India.
And for about three years I took a sabbatical from any sort of professional career. And I've lived with my grandfather. My family runs a Yoga Ashram in Lonavala. And for three years I didn't do anything finance related. I travelled around the world and I taught pranayam.
A few years later I was ready to go back to work and be financially responsible and that was when I started working in 2018 and Arindam & I met. We worked together for two years and in the interim, he shared with me this idea of what is EduFund. So that's my background. It's a hodgepodge of policy, dabbling in finance, going back to finance, and having left finance.
Siddharth: You connect the dots backwards, and hindsight is 20/20. That also means your founding story, has a perfect marriage where you've been associated with policy-making, impact and education, and Arindam has his roots in the asset management industry and practically knows everyone.
Eela: I think it's, in my view, a perfect marriage of our experiences, our life, what we've seen, and our desire to make an impact. If you had told me seven years ago that I would be doing this, it wouldn't make sense. But in hindsight, I think the journey that I've had, makes perfect sense for me.
Siddharth: What gives you guys the conviction to build a startup in this space? I understand higher education is gaining momentum. Kids in India want to study, which is the backbone of a good career. But what are some early anecdotes or early feedback that you received from the market sign signals that maybe want to drop everything and start?
Arindam: Long-term investing lets you earn some money. It's nothing but an enabler. Money sitting in a bank or in a mutual fund or any asset class is the simplest way of putting it as an enabler. It can help you do things. If you take a step back and look at the middle India dream that we keep talking about. What is the biggest foundation? It is based on education.
US Freedom Capital, where Eela & I met, had a very smart fund manager, David, and he put together a dollar coupon 7-8% dollar coupon. Dallas, Texas has so many Indian kids who are studying in this large public university. And he said, “Why can't we create a fund for them and insulate them from a depreciating currency?”
We realized this is exciting. So many kids are going to study abroad. But still, it's a fraction of the market. What's the bigger story? Indians studying in India! That's the big story. Indian studying abroad is a subset of this story. And it'll never be a bigger story than this. The big story will always be, people saving enough and getting an education because education has a price tag. Education definitely has a price tag. We talk about it as if you can just walk into a college. But there’s more.
We are still a middle-income country, and if you ask 10 people in your own social group where they went to study vs where they wanted to - 6 out of 10 will say “paise ka problem tha” (i.e. it was a financial problem). It still is. It's a very uncomfortable question and it's an even more uncomfortable answer.
Siddharth: Why just higher education? I have a two-year-old nephew and they're looking at schools in and around our locality. We are a middle-class family living in a middle-class suburb. But even these early educations start at not less than Rs 1 lac a year. I think less than 2-3% of Indians earn more than 10-15 lacs a year, right? So even regular education in primary, pre-primary is still out of reach for a majority of Indians.
I studied in a school where the fees were Rs 3-4k a year. My junior college was Rs 500 a year, and my undergrad was probably, I think probably a lac a year, but that's what people are paying for their lower KG kids today. So why only higher education and no early education and any plans to create an early education product for people who are early in their life cycle? Who don't have kids yet, but want to start saving.
Eela: We actually have pivoted now into short-term goals, which we consider school education. But the genesis of this effectively was we did start off, when we launched the product in early 2021, when our beta went live, we did just launch with higher education.
The ticket size (of school education) tends to be lumpier and higher as a cost. When you launch a product, you go live with a v1, you probably make a lot of mistakes. You fall on your face, you have learnings, and you improve. And that was exactly our story. This product is live for a year and we started getting feedback from our active use parents who realized we’re helping them save for an important goal and found another use case to save for their kids’ enormous school education. We looked at the data, and it made sense to us. And so about four or five months ago, we launched short-term saving goals on our platform where parents can now not only save for school fees but also ancillary costs that can add up very quickly, right from a bus to your kids' books, the outfit, extracurricular, and devices. So now we cover the entire spectrum of education savings. We're not just limited to higher ed.
Siddharth: Do you see, more early/school education products tending to be towards fixed maturity versus your long-term savings products?
Arindam: The big market may be the college product i.e. the long-term savings because it also gives you a 6-7-8 year runway to save. And also these numbers are big. Forget studying abroad, there are colleges in India, which is Rs 20-25 lacs today, right? If you have a child today, that means by the time the child is even going to study in India, it may be Rs 35 lacs. I think college will always be our central story. But yes, the short term will also slowly start becoming a slightly larger story.
The biggest problem is not short-term versus long-term. The biggest problem is the lack of awareness. When petrol prices crossed Rs 100/litre so much was written about it. We talk about how expensive food has become. What is the single biggest impediment to this - the lack of awareness that education inflation is actually outstripping both fossil fuel inflation and food inflation?
People will always write articles about how to get admitted to ABC University, and how to pay the fees, and most try to attack this problem from the lens of lending. But that's a recipe for disaster because you take a mid-income country marred with low financial literacy and you put them into debt for their single biggest aspiration!
Siddharth: You’re offering the savings product for free. No parent is going to say no - it’s a no-brainer for them. What makes it a no-brainer for you to start & keep running a business?
Eela: It is a no-brainer. It's a tool that enables education, it’s a long-term business model driven by impact and India doesn't have a product like this. It's never an apple-to-apple comparison, but many other countries have a similar product and parents and students have actually immensely benefited.
So in a country like India, which is hyper-focused, hyper aspirational when it comes to education, knowing cutoffs, grades, application processes etc, why not on savings and planning for those finances?
It's almost like education is in our DNA. I'm third gen Indian origin living in the US, and the one thing that I will categorically remember from my upbringing is that you have to get a good education. Whether I went on my master's or not was a completely different story, but at least go get a good undergraduate degree and you have to for yourself because again, the ideas, education is an enabling tool for the rest of your life.
Arindam: Let's take a worst-case scenario. Out of thousands of parents on our platform today, let’s say we help even a hundred parents save enough money to send their quit to a better university than they would have by doing last-minute planning, or no planning. This is so much impactful. The multiplier effect of that is huge. This really motivates us.
Siddharth: Where are you on your journey today?
Arindam: We are what year and a half into the product. And we've now just hit 20,000 people who've been using this. (data as of late 2022 when we sat for a chat, today stands at 70,000)
The first part of the journey, was a challenge for us to even roll out a product. Somehow people thought we won’t be able to sell it. Somehow we crossed that journey once we actually rolled out a product.
Then the challenge of creating awareness. The first 3-6 months were disastrous because we never knew what would work. It was all trial & error, some things worked, and some things didn’t. What has worked well for us? I guess we have been cognizant of what works, and what doesn't work for our type of parents.
And in the last six months, we've really grown. We've had a 6x increase in the number of parents on our platform. We still have a lot of miles to go, but we are slowly creating a better awareness of our product, our strengths, and our weaknesses.
Siddharth: I'm assuming if you are doing this by social media marketing, then you may not reach the crux of middle India. And because India is a trust deficit country, even if you have offline activation channels, how do you really convince parents to invest via EduFund?
Eela: That's the secret sauce, you're never supposed to give away your secret sauce! First 6 months we had no clue what we were doing. So thank you very much to the gracious investors who have stood by us as we've faceplanted many a time. In the beginning, it was a lot of referrals, and organic marketing vis-a-vis friends and family who are recommending us to their friends and family in that kind of, ripple effect. And we tried a lot of things and a lot of things didn't work. And we realized instead of being everything to everyone, we should actually be going to where the parents are.
Being a parent is actually not very much a niche thing. It's not out of 10 people, all 10 would be parents. So we said we need to go to places where parents actually are. We identified what some of those outlets would be - like after-school camps or sports or trying to speak to schools, etc. We said let's start honing in on areas and maybe some potential B2B partnerships having parents congregate where this would be something that would keep their interest.
And so that's what we started doing. and we started to see pretty good footfall and interest from that with these partnerships. And since then, that's magnified for us. Because we figured out how to approach these players, what works for them, what doesn't work for them, and what presence they want.
We recognize that financial literacy around this specific space may be lower than it is, and our content marketing efforts are in that direction too. Part of our job is to not just push parents to save, but it's to help them understand why saving is so important. The crux of what is the cost is missed by so many people. And I can use my own example, like having grown up in the US, having a parent that was born and brought up in the US and was educated in the US when it was time for me to go to college, they were completely floored at the cost of my university tuition versus theirs 20 years ago. We're talking about someone who lives in the country, who hypothetically has the resources very much available to them. But they didn't.
A big part of our job is to espouse financial literacy. And so that's what we've also tried to do. But just by being present by your writing blogs, by being present on social media channels, by making videos, by sharing it, by disseminating, by adding elements into our product, vis-a-vis quizzes on asking parents how much is the cost of an engineering degree, for example. All of that has really helped, and we've been around now for a year and a half. People have slowly started to recognize that we exist. So I would say it's very omnichannel. It's a mix of things that have come together by virtue of failed experiences and Arindam calls our GTM progressive discovery of our ignorance. Discovered how ignorant we were and we're slowly getting wiser.
Arindam: What also worked for us was that we started working with AMCs and while we are a very small dot in the world for them, they were kind enough to identify that this is a need, education inflation exists. It did 2 things, firstly it helped us spread this awareness better, and secondly, answering your question on trust deficit, we work with very well-known AMCs like DSP, ICICI, UTI, Tata, Navi, etc. When EduFund says something it’s easier to be dismissed as we’re nobodies, but when the same message is conveyed by a large AMC trusted by millions and is endorsing EduFund - that’s next level. We’re lucky to earn this support from our partners.
Siddharth: Do you also see yourself bundling more financial products? For example, income protection for parents, insurance, health plans etc.
Arindam: I see EduFund as a platform for what parents need the most, right? Any product that we've launched on EduFund has always been demanded by parents. So if there is a demand - parents say bring this - we’ll launch it. Neither Eela nor I are parents, so we’ve left it to the parents to decide what they want.
Siddharth: You raised a seed round when the world had a ton of free capital, and now raised a pre-series A when there is a funding winter and the world is in a “white collar recession”. How different have the two experiences been?
Eela: I think fundraising is always hard, irrespective of what market you do it in. I think it's one of those things where it's an unending game. It's something where you have to be constant. You have to have consistency in your persistence. You're just, you have to be at it all the time.
I would say the one thing that you can tell has definitely changed is people's or investors’ swiftness and making a decision. I think decisions have been slightly more lengthy and we see a lot more of the waiting game now, and people are percolating on the decision. They're neither here nor there, whereas in the past if people knew they didn't like you, they would say no and they'd move on.
And I think that's just by virtue of, how the markets are doing. So people don't want to be here or there, they just want to see things out with the hope that things will get better? So I would say you can definitely feel that the temperament has changed. And we've heard through conversations with other founder colleagues in the industry that, I think people are definitely driving a harder bargain.
This is creating space for people to re-look at and re-negotiate deals. But I would say in general, the fundraising journey is just something that's always been laborious from my experience. And I don't think it will be any less laborious.
Siddharth: Have you become wiser raising a pre-series A versus a seed?
Arindam: I wouldn't say wiser. We also know what type of conversations are conversations you should not chase. What type of investor is just wasting your time? Because what is lacking right in the Indian VC space, without sounding too critical, is that we don't see a clear No. It is okay to say a clear no. Everybody has an investment thesis, and many businesses will not fit that thesis. Founders can save time if conversations aren’t dragged on and they’re not being drowned in data requests which lead to nowhere. Save yourself time. Save the founder time. Be clear.
Siddharth: I think as Indians we have a very big problem saying no because we are taught to be respectful. Saying no feels blunt & curt. But do you think that is changing with time?
Arindam: No, I don't see it. What I have realized in this fundraising journey, now that we've almost closed our pre-series round (we sat for a chat in late 2022 when they were closing formalities), what I realized is, number one, talk to people and figure out early on who are people who make sense to be on the cap table. Chase them hard and there will be a lot of no’s. You won't be attractive to everybody. If you are, then that's great, right? That's great validation. But ideally, 8/10 times you won't be attractive to everybody. So know who you need to chase and ignore the rest.
Siddharth: Where will this round take you in terms of your business?
Eela: In terms of the product we have the ambitions to add on a lot more enablement and engagement tools for the parents in different parts of their journey. This raise will absolutely help us veer into those areas. Of course, we're highly selective, so we just don't want to offer a platter of everything. We're very conscious of what our product roadmap looks like. By virtue of the feedback that we are getting from our clients, right? To make the user journey, community interaction and engagement better.
And then on the marketing side or the acquisition side, I think this just will really help us not only acquire customers and chase more specific numbers with visibility. I think as first movers in the market, we have a really unique opportunity to brand ourselves as that. And my hope with EduFund is to absolutely become a household name, but for that, you do need a bit more visibility. As I said, a lot of this has been a combination of organic, now slowly paid partnerships. I really want to ramp up our presence in the market.
Arindam: I definitely think parents should know us. Parents should know what their aspirations/ambitions are. Parents should know that if they want to save, there is a company called EduFund that can do that for them. And then it's up to them whether they want to save or not or save somewhere else. But we want to become a household name when it comes to your child’s long-term savings. So that is the ambition. Every time I meet a parent who doesn't know us, that I think of this as a lost opportunity, right? Both for us and the parent. So I have to limit these lost opportunities.
Siddharth: Where do you see yourself? So what do you see yourself achieving by 2027, say, five years from now? And I would want you to say this very carefully because at least two investors, two of your existing investors have told me that you have met every projection that you have made for yourself. So you've set the bar very, So with that, I want closing thoughts on what will you achieve in the next five years.
Arindam: Five kilos less for me at least!
Eela: A six-pack or of beers! To be honest, we can tell you what numbers we have in our business model, and that's a different story, but I've never categorically been that person with a five-year plan or a five-year goal that this is what Edufund's going to be in five years.
I know what I want Edufund to be, which is always at every single point in its existence an enablement tool for children to get the education that they want for sure. I think numbers are important, and I'm not saying they're secondary. But this journey is very evolutionary, right?
And of course, there are business elements. We have to recognize our bottom lines. But say Edufund in five years will have a presence in 25 different countries. I don't want to make those bets, but I know that EduFund will be enablement for however long it's in the market and that's what it is today.
Siddharth: Do you see this as a global product?
Eela: I don’t know!
Siddharth: I don’t know or never say no?
Eela: You would never say no. That's one thing I have learned from Arindam in the last four years that I have known him. Cause he never says never to anything.
Arindam: There are products like this in the US, UK, and even like-to-like emerging markets like Indonesia. And India has so much higher aspirations. So instead of worrying about Dubai, West etc, I just want to focus on the Indian market.
Nowhere else in the world do you have a 500 million-strong middle-class population. Where else is this opportunity? Where else are parents so hungry for quality education? So for a company like ours with our type of aspiration, India is the most fertile ground.
Siddharth: One statistic that comes to mind is that the Indian population is 2-2.5x the size of LatAm which itself is 2x the size of the US. So the sheer size of the available market in India, which you can target without having to go anywhere else is massive.
Arindam: We were happily working in the US, and we left that to come back to India. We believe there's an opportunity here. We believe the opportunity is large enough for us to take that call in our careers. This is a huge market.