After spending record sums in 2021, investors in education technology startups have learned a lesson.
Apparently, they recognized that perhaps too much money went into too many excessively large rounds at unsustainably high valuations. This year, they’re paring back.
That, at least, is the takeaway from a Crunchbase News analysis of venture funding to edtech and education startups in the U.S. and abroad. Data shows that funding to U.S. companies in the space is on track to come in at less than half-year ago levels.
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For perspective, we look at U.S. investment and round count totals for 2022 and the prior five calendar years below:
Globally, the numbers are down too, with around $5.4 billion going into seed and venture rounds for education and edtech companies. That’s on track to come in well below the $15.8 billion investors poured into the space in 2022. For a broader picture, we look at investment for 2022 and the prior five years below:
Lower investment looks more like prudence than pessimism
This year’s pullback comes amid a not-particularly bearish environment for edtech. Key investment themes over the past couple years—including the rise of upskilling, growing acclimation to online learning, and the growth of direct-to-consumer models—are all ongoing trends.
And while students are mostly back in physical classrooms as pandemic restrictions lift, this is neither a surprise nor a negative development. No one expected tgat COVID-induced shifts to fully online learning would stick long-term.
Moreover, capital continues to flow to the VCs in the space. In January, Owl Ventures, the largest edtech-focused VC fund, closed on $1 billion in new funds for seed through growth-stage investments. Other ed-tech focused firms, including Learn Capital and Rethink Education, also continue to invest in new and follow-on rounds at a brisk pace this year.
Overall, indicators paint a picture of a decline in investment totals that is less about investor pessimism on the edtech space and more a recognition that valuations got overheated. For those looking for a rationale for markdowns, the public markets provide plenty.
The high-flying edtech public market entrants of the past few years are all way down. Higher ed course platform Coursera, which went public in early 2021, is down over 70% from its 12-month peak. Online class provider Udemy and language learning app Duolingo, both of which went public last year, are also down sharply from their highs.
The share price declines come as newly public tech companies in all sub-sectors are seeing steep cuts, so it’s not a message investors are sending specifically about the edtech space. The three above-mentioned companies, meanwhile, have all posted double-digit annual revenue gains in their latest quarterly reports.
Deals are still getting done, including some big ones
VCs got the message on the valuation front, and have adjusted accordingly. So far this year, just three U.S. education or edtech-focused startups raised rounds of $100 million or more, per Crunchbase data. Last year, by contrast, we counted a dozen.
Nonetheless, some large rounds are still getting done in 2022. In the U.S., these include:
- Guild Education, a provider of online upskilling and degree programs that employers offer as benefits, raised $265 million in a June Series F round.
- Edly, a provider of income-based student loan financing, raised $175 million in a March financing.
- ClassDojo, an app for teachers and schools to communicate with parents and students, raised $125 million in Series D funding in July at a valuation of $1.25 billion.
Outside the U.S., meanwhile, we also saw some bigger rounds. These include:
- Vienna-based GoStudent, a digital platform connecting students and teachers, raised $300 million in a January Series D round.
- Montreal-based Paper, provider of a tutoring platform that partners with schools to offer services at no cost to families, raised $270 million in a February Series D.
- Mumbai-based UpGrad, an online higher-education provider, raised $225 million in a June financing.
With growth, demand and lower prices, it’s not the worst time to invest in edtech
There are plenty of macro trends that look favorable for education and edtech startups.
In a recent report, Owl Ventures cited a few. The list included: “the growth in blended learning, remote work, rise of direct-to-consumer models, enterprise learning and skilling, emergence of AI-enabled learning, increased 1:1 device programs, and rapid integration of AR/VR.” All these trends, per Owl, are contributing to global rise of education technology.
As we observed a few months ago in an analysis of funding to the upskilling space, the workplace skills gap is also fueling edtech adoption. Employers can’t fill an enormous number of jobs because they can’t find and attract employees with the requisite skills. Scores of workers, meanwhile, are looking for ways to broaden their skill sets as a path to more lucrative and satisfying careers.
So yeah, edtech venture funding is down this year. But it’s certainly not drying up.
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Illustration: Dom Guzman
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Author: Joanna Glasner