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October 19, 2009

Key Issues in Education Ventures

At a time when Education has become the hottest sector for private investment, Raghav Gupta of Technopak Advisors highlights, in an article for Business Today, the key issues to evaluate when venturing into this field.
Market Assessment: A pragmatic assessment of the “catchment” in each segment of education is important, from the standpoint of achieving required student enrollment, before planning an investment. The catchment (in this case the travel time to and from the institute) for a pre-school student should be 30 minutes, for a K-12 day school 60 minutes, and for a residential school, this would be five hours. Demand for a vocational training institute originates from within city premises, with few students travelling across cities for enrollment. A university or a higher education institute would ideally attract students from all parts of India as well as South Asia, the Middle East and Africa and, therefore, matters would be being dictated by the quality of education on offer and the reputation of the institute.

Key Financials: Setting up an educational institution requires access to large amounts of capital. A regular K-12 school, built over 2 acres of land with a capacity of 2,100 students, would require an investment of around Rs 15 crore and so would an MBA institute spread over 1.5 acres with a capacity of 240 students. An engineering college with a capacity of 1,600 students spread over 10 acres of land, on the other hand, would require an investment of Rs 100 crore. Similarly, the project cost for setting up a private university over 300 acres of land, with a capacity of 40,000 students, may be around Rs 1,500 crore. In these ventures, financial returns are attractive, with EBITDA levels of over 30 per cent and project IRRs ranging from 25-35 per cent levels.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in