Investment Scenario in Ed Tech

Call centre trends for 2021
Introduction

The most disruptive year to schools and society proved lucrative for the education industry, particularly for those raising private capital. The pandemic has closed schools, upended livelihoods and forced millions of students and educators to rely on new digital tools, many for the first time. From Zoom schooling to workforce reskilling, existing and new education funders jumped on opportunities to support products that serve as stopgaps and reimagining education for the long haul.

While significant numbers are generally welcome by financiers, some investors offered a more measured reaction. "Edtech investing exploded in 2020. Unfortunately, it was on the back of the education system breaking down, especially at the K-12 level," says Ebony Brown, a principal at Rethink Education, an education technology investment firm.

The pandemic has changed how generalist tech funds, which historically deployed capital elsewhere, viewed the education market, added Brown. Leading some of the biggest U.S. edtech deals were blueblood firms, like Andreessen Horowitz and General Catalyst, along with new funds betting on education startups for the first time.


EdTech as an Industry

Edtech is an extensive and diverse industry with a large runway of opportunity across the business lifecycle. However, ongoing risks (regulation, funding cycles, and competition) should remain top of mind for investors. Advances in online learning and emerging technologies will continue to improve educational outcomes.

Ultimately, the best companies, investors, and impactors in this space will be those who put the student at the centre. Finding ways to reduce costs, deliver quality pedagogy, and demonstrate impactful outcomes will prove to be the long-term winners as the edtech market grows and matures.

In 2020, U.S. education technology startups raised over $2.2 billion in venture and private equity capital across 130 deals, according to the EdSurge edtech funding database. That's a nearly 30 percent increase from the $1.7 billion invested in 2019, spread across 105 deals. The $2.2 billion marks the highest investment total in a single year for the U.S. edtech industry.

Investors and companies in the education space recognize the global macro trends that will continue to drive growth, notably:

  • Population growth in developing countries

  • Rising demand for educational technology, tools, and services

  • Increasing digitization to improve outcomes and efficiency

  • Opportunities to solve critical problems in the industry (student debt, flattening test scores)

A record half-year in EdTech funding with 568 rounds raising $10B of investment, as ready or not, the world turns to technology to support learning and education delivery. EdTech funding in the first half of 2021 was incredibly significant for so many reasons. We saw the strongest half-year of EdTech funding ever, with a massive change in the regional mix. China received less funding due to regulatory uncertainty, the U.S. and Europe outperforming their respective 2020 investment levels in just the first half of 2021. India demonstrated strong momentum and critical markets such as Canada, Korea, France, Australia and others are setting new records domestically.


Why are top V.C.s investing in EdTech?

Venture Capital flows are often a helpful lead indicator for innovation that is winning the confidence of learners and customers and hence finding the backing of private investors. If Q1 2021 is anything to go by, education technology leapfrogged the pandemic and is setting new records month to month.


What does this mean for the future of learning?

While some believe that the unplanned and rapid move to online learning – with no training, insufficient bandwidth, and little preparation-will result in a poor user experience that is unconducive to sustained growth, others believe that a new hybrid education model will emerge, with significant benefits. "I believe that the integration of information technology in education will be further accelerated and that online education will eventually become an integral component of school education. There have already been successful transitions amongst many universities. For example, Zhejiang University managed to get more than 5,000 courses online just two weeks into the change using "DingTalk ZJU". The Imperial College London started offering a study on the science of coronavirus, which is now the most enrolled class launched in 2020 on Coursera.

Global EdTech started the last decade with $500M of Venture Capital invested in 2010 and finished 32x higher at $16.1B in 2020, nearly 2x the previous investment record of 2018. The last 12 weeks have seen almost $4B of venture funding raised by EdTech companies worldwide, over $300M each week on average.

China received almost two-thirds of Venture Capital funding in 2020. U.S and India each received investment funding at around $2.5 Billion. In 2020, Ed-Tech Unicorns raised over half of all the Ed-Tech Venture Capital funding which was around $8 Billion. We can see the same dynamic in India on a smaller scale. In contrast, the U.S. maintains a broader and perhaps more diverse foundation of smaller fundraising rounds.




4.Investment in EdTech

There are, however, challenges to overcome. Some students without reliable internet access and technology struggle to participate in digital learning; this gap is seen across countries and between income brackets. For example, whilst 95% of students in Switzerland, Norway, and Austria have a computer to use for their schoolwork, only 34% in Indonesia do, according to OECD data.

In the US, there is a significant gap between those from privileged and disadvantaged backgrounds: whilst virtually all 15-year-olds from a select location said they had a computer to work on, nearly 25% of those from disadvantaged backgrounds did not. While some schools and governments have been providing digital equipment to students in need, such as in New South Wales, Australia, many are still concerned that the pandemic will widen the digital divide.

As the region’s current education systems design for face-to-face teaching and learning, they accommodate the lock-down and school closures, maybe if they happen in short periods. However, if the situation continues to last for months, it may need a dramatic change in delivery.

So, on what could countries focus? Here are a few ideas:

  1. Target programs to include the most vulnerable children with equipment and connectivity.

  2. Improve connectivity for schools that need it most.

  3. Improve financing of digital curriculum and materials (digital libraries, lessons, learning items, etc.)

  4. Improve telecommunication capabilities for schools to be able to deliver education online.




Investment in EdTech
  • The U.S. edtech venture capital investment

  • According to EdSurge, there was $1.7 billion invested by venture capital funds into the edtech market in 2019 across 105 deals. Significant Series C investments dominated these.

  • Global venture investment in Edtech

  • Zooming out to assets globally, HolonIQ released a report that showed $7.0 billion global education venture capital funding in 2019. Even more telling is the stunning growth rate from $0.5 billion of edtech V.C. funding in 2010. They are also predicting a tripling of investment in Edtech over the next decade.

  • Global learning technology investment

  • Looking more broadly in scope to include learning technology suppliers, according to Metaari, there was $18.7 billion of global private investment in learning technology suppliers in 2019.

  • Private equity is also eyeing education investments

  • In addition to venture capital investment in edtech, dozens of private equity funds continue to be explicitly raised to invest in the education sector (or have articulated education as a focus industry). To top it off, education is increasingly being classified as an "impact" sector, attracting institutional investors looking to up their allocations to impact sectors.

  • Publicly traded education companies

  • Another sizeable portion of the ed-tech market comprises of the publicly traded names. When looking at this group in the U.S., there are 29 companies that make up $71 billion in market capitalization (January 27, 2020).




Key Stats on investment (According to various credible News Sources):

  • Byju's, which raised over $1.25 billion in 2020, acquired WhiteHat Jr, an online coding school for young kids, for $300 million last August.

  • Edtech firms raised $2.1 billion in 2020, the highest of all sectors, against $426 million in 2019, according to data by Venture Intelligence.

  • A Learning management software, Illumnus raised USD 100K from angel investors.

  • Amsterdam-based Tribe, with intent to boost digital skills, raised €3 Million.

  • India-based edTech startups, BYJU's and Unacademy raised $400M and $100M, respectively, in a round led by Facebook.

According to Global Education Market Intelligence Platform, HolonIQ:

  • $32bn of V.C. invested in EdTech over the last decade (2010-2019)

  • 85% of the $32bn was over the last 5 years (2015-2019). Nearly 50% of the previous decade's funding occurred during the last 2 years (2018-2019)

  • $87bn of global EdTech funding is predicted over the next 10 years (2020-2029)




Reasons Behind Growing Interest of investment in EdTech Segment
  1. Untapped Opportunities

  2. Even today, various regions and communities do not have access to educational resources. They are unable to access the fundamental learning experience. Likewise, multiple people are eager to learn something new or polish their skills. Still, they cannot do so within the traditional educational ecosystem. All such instances highlight a myriad of unexplored opportunities in the marketplace, which assures venture capitalists that investment in education startup ideas will be profitable.

  3. Wider acceptance

  4. Edtech platforms bridge the gap between those who wish to learn and those offering the same service by virtually bringing them on the same platform. They are enabling them to learn anything, anytime and anywhere, at their own pace. Also, these platforms operate using the finest of technologies like artificial intelligence and IoT. Because of these two reasons, the edTech ideas are not solely being widely accepted by consumers but also attract more investors.

  5. Need for a lifelong learning experience

  6. The rate at which knowledge is growing these days, the time by which one learns a skill to apply for any job, another skill leads the show. This makes it imperative for them to embrace the idea of lifelong learning. And eventually, encourage investors and developers to invest their time and money into developing mobile apps that are expected to be the future of the education industry.

  7. Lower Competition

  8. Another reason investors support the idea of education mobile app development is that there are various subdomains where only one or two brands are changing the story. Implying, there is lower competition and higher market scope, which turns out to be a profitable investment.

  9. Higher Return on Investment (ROI)

  10. As mentioned so far, the edTech market is growing exponentially, its solutions are accepted widely, the competition is minimal, etc. All these factors indicate that the profit over investment, i.e., ROI is exponentially higher in the online education domain. It can be regretful for an investor to overlook this opportunity.




Technologies Gaining Investor Interest:

Investors have aggressively shifted their interest away from legacy products like Self paced eLearning to next-generation companies developing Cognitive Learning, AI-based Learning, Mixed Reality Learning (AR-based Learning and VR-based Learning), 5G Mobile Learning, Location-based Learning (Location Intelligence), Game-based Learning, and even Educational Bots (both physical and virtual).

  1. Immersive Technologies Gain Investor Interest

  2. Fundraising from companies like Labster and Interplay Learning demonstrates interest and potential for virtual reality (V.R.) in education. Interplay Learning, which raised $5.5 million in 2019, provides V.R. and 3D training primarily for the HVAC and solar installation trades (News Source). And Interplay is involved in a relatively small sub-segment of one single industry! To have attracted V.C. investment and be posting stellar growth shows the potential of this technology as more applications are built out for other trades and careers.

  3. Augmented Reality (A.R.) Applications

  4. Building on the popularity of Pokemon Go!, its creator Niantic Labs raised $245 million in 2019 and continues to invest in A.R. education applications (Business Wire).

  5. Using Artificial Intelligence (A.I.) And Machine Learning In Education: Adaptive Learning

  6. New players raise fresh capital to create solutions for specific niches within the edtech market. These AI-based tools such as Quizlet, Kidaptive, KidSense, and Querium apply machine learning systems to improve education. For educators evaluating the use of these tools in the classroom, questions around algorithmic bias, privacy risks, and efficacy are top of mind.

  7. Robotics In Education Is Maturing

  8. Robot kits for the classroom are turning into a relatively saturated category (from startups to Lego) but, as a whole, will provide opportunities for students to learn STEM and coding skills. Other products like Ryobi are using robots and A.I. to help with early-age learning and language acquisition. Another company seeking to solve the cost and hardware problems of maintaining a fleet of learning robots in a school is Robotify, which teaches coding and robotics in a virtual setting.

  9. Blockchain for Everything:

  10. A list of emerging technologies would not be complete without mentioning blockchain technology. There has also been a proliferation of companies with blockchain-based solutions for the education space, primarily utilizing the immutability of blockchain to secure and verify degrees and credentials. The two companies with some decent fundraising and traction to date include Credly and Learning Machine. At the same time, a consortium of recognizable names like ZipRecruiter and Upwork recently launched Velocity Network.




Conclusion:

In the big picture, the surge of capital in the Edtech industry is not an anomaly. Brand recognition goes a long way when it comes to attracting capital from existing and new investors. A report from CB Insights showed that investments for all venture-backed U.S. companies reached a record $130 billion in 2020, or up 14% from 2019. CogentHub can provide Ed-Tech companies with personalised solutions to transform these investments into profitable returns. Partnering with us will guarantee enhanced customer service metrics and resultant profitability.


About the Author

Debarpita has completed her post-graduation in Applied Geology from Presidency University, Kolkata, India. Her key areas are Content writing and Research. She is in this industry for one year. Her areas of interest include palaeontology, writing, travelling and listening to audiobooks.


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