A record year in the midst of a pandemic: US Edtech raises $ 2.2 billion by 2020 – EdSurge News

A most disruptive year for schools and communities proved to be lucrative for the education industry, especially for those raising private capital.

By 2020, U.S. education technology startups created over $ 2.2 billion in venture and private equity capital across 130 offerings, according to the EdSurge edtech funding database. That’s an increase of almost 30 percent from $ 1.7 billion invested in 2019, which was divided into 105 offers.

$ 2.2 billion marks the highest total investment in a single year for the US edtech industry.

Many education entrepreneurs have long figured out how new technologies would initiate a “disruption” of the education market. But nothing turned out to be as literally disruptive as a pandemic that closed schools, claimed livelihoods and forced millions of students and educators to rely on new digital tools, many for the first time. From Zoom schooling to the resumption of the workforce, existing and new education funders jumped at the chance to support products that not only act as stopgaps but also envision education in the long run.

While large numbers are generally welcomed by financiers, some investors offered a more targeted response. “Edtech investment exploded in 2020. Unfortunately, it was at the back of the education system that it collapsed, especially at the K-12 level,” says Ebony Pope, a principal at Rethink Education, an education technology investment company.

The pandemic has changed the way generalist technology funds that historically used capital elsewhere in the education market add pope. Leading some of the largest U.S. edtech offerings were blueblood firms like Andreessen Horowitz and General Catalyst along with new foundations focusing on education startups for the first time.

“For many parents who served as mentors and teachers for their children, it helped create a lot of empathy for solution providers. And investors looked at the market opportunities, ”says Pope.

In the big picture, the increase in capital in the edtech industry is not an anomaly. A report by CB Insights showed that the investments for all venture-backed US companies reached one record $ 130 billion by 2020, or up 14 percent from 2019.

In this annual analysis, EdSurge counts all publicly invested investments in private U.S. edtech companies that support educators and students across preK-12, postsecondary, and workforce education. Not included is financing received as part of start-up accelerator programs (which are later considered when companies raise investment rounds after they are completed) and companies that primarily offer financial services and loans that serve education as one of many markets.

What is the Big Deal?

Largest financing offer for US educational technology companies in 2020

Seven of the top 10 investments went to US edtech companies that sold their services directly to consumers. The largest $ 150 million deal went to Roblox, primarily an online consumer consumer platform but with a growing educational component of resources that teach children to code and design their own games.

Roblox is followed by Coursera and CampusLogic, which offer online courses and financial management tools for colleges and universities, respectively. Handshake, which connects college students with employers, rounds out the trio of edtech companies on the list that sell to educational institutions (all in higher education).

Non-traditional alternative education providers Udacity and Lambda School also came on the list, reflecting a growing appetite among investors for programs that focus solely on helping students acquire job-specific skills.

“Traditional higher education is very important, but it alone is insufficient for career development,” says Bittner, a co-founder of Firework Ventures, which invests in the workforce education sector. “I’m excited about alternative paths that allow people to choose which paths work for them to build the kind of careers and lives they want.”

These roads may be in greater demand now. Even before the pandemic, analysts from e.g. Bain and McKinsey dramatic shifts in the job market; about 40 percent of jobs in occupations that are most likely to be automated may disappear by 2030. COVID-19 has only accelerated job relocation and affected women disproportionately.

“Given the changing economy, we see a real opportunity to support companies that train people in soft and technical skills,” says Bittner. “Our traditional education system is strained, and we believe that companies will take on more of that role. They have to do it to stay competitive. “

Some companies work with colleges to offer job-specific technical training programs that they do not normally offer, including TRANSFR, which offers VR-based training and has worked with Alabama’s community colleges to prepare students for jobs at Lockheed Martin. Others, like adjacent academies, bring technology programs to schools of liberal arts. Bittner is bullish on these partnerships, which aim to help “traditional institutions adapt to the changing needs of the labor market and remain relevant.”

K-12: A Tale of Two Markets?

Particularly absent from the list of biggest deals are edtech companies that primarily sell to K-12 schools.

“From a venture perspective, the institutional market K-12 was certainly not the most attractive. What was already tight [school] budgets shrunk even more due to the pandemic, ”says the pope.

After technology closures focused on technology, school leaders focused less on purchasing specific apps and software and more on providing laptops and Internet access to their communities. (Some orders were delayed for several months.) Providing other basic life needs, such as food, also took precedence. “District leaders were more focused on Maslow’s hierarchy of needs, ”Note Pope.

Lots of companies raised capital to reach K-12 teachers and students where they were: in their own homes. School closures led to an increase in the cost of supplementary education services, and investment capital followed. Outschool, which offers an online marketplace for live classes for children, collected $ 45 million. June Learning, a similar service, secured $ 10.5 million. These companies offer private classes, often taught by public school teachers who can earn just as much, if not more, on these platforms than on their daily jobs.

Also, capital attraction was new, “parent-driven, next-generation school models” like Sora Schools and other services that support private homeschooling pods, observes James Kim, principal at Reach Capital.

With most districts offering a subpar distance education, such services have seen a growing demand – at least from those who can afford them. But they could expand existing inequalities as private education services continue to attract students and teachers. “We are concerned about ‘separation’,” Kim said.

This mood is shared by his colleague and co-founder of Reach Capital Jennifer Carolan, who wrote recently EdSurge op-ed: “We now face the risk of a parallel system – learning outside our schools and learning inside our schools. And we all know that when a public good is divided, the most vulnerable will suffer. “

“It is a natural response for parents to do everything they can for their children. But stock capacities are growing. When students return to school, the wake of this will be something we will have to reckon with, ”says the pope from Rethink Education. She predicts there will be an increased demand for academic intervention programs and services to help students get back on track.

Despite budgetary pressures, the institutional market at K-12 remains a focus for older education investors like REACH, which has been in existence for nearly a decade. “This is the spark that led districts to adopt mass-scale digital products,” says Kim. “The question is, ‘Are they staying nearby?’ Our efforts are yes. “He points out state aid for financing earmarked specifically for programs to tackle learning losses as an important stimulus for the K-12 market.

It pays to be famous

Fire recognition goes a long way when it comes to attracting capital from existing and new investors. Just ask Duolingo and Udemy, who each closed a few investment rounds in 2020.

Former edtech entrepreneurs returning for another period were also greeted with big checks. Michael Chasen, co-founder of the Blackboard learning management system, raised $ 16 million for a new startup, ClassEDU, that is, to build classroom management tools on Zoom. Engageli, a similar effort led by the husband of Coursera co-founder Daphne Koller (who is an advisor), collected $ 14.5 million. Both amounts are oversized, especially for seed rounds, which averaged $ 2.7 million in 2020.

Average contract size by phase for US educational technology companies (edtech), 2016-2020

Trade sizes for private companies are rising in all industries according to research from Cooley, a law firm that advises on transactions. Valuations are also growing, which is usually a signal that experienced investors are following. “I feel like we’re a bit in a bubble when it comes to a fundraising environment,” Kim says.

Increasing the edtech valuation is investors targeting companies that sell directly to consumers, a model that (theoretically) addresses a larger market than sales to schools. Kim often adds, “I get pinged by generalist investors who want a crash course in Consumer Edtech 101.”

Valuations by nature are optimistic projections, but they should not surpass reality. Kim says Reach Capital has lost several trades because it decided to invest in companies at the valuations they have requested.

Where the money goes

The shift to teleworking has been accompanied by companies and employees move to regions outside of tech hubs. But venture capital has not followed yet – at least for the edtech industry. Companies based in the San Francisco Bay Area accounted for nearly $ 1.2 billion. Dollars raised, or more than half of all investment capital from edtech companies across the country. The New York area is number two, a total of $ 307 million raised.

These coastal regions also account for the largest collection rounds. But there are exceptions. CampusLogic, a Phoenix-based provider of financial aid management tools for colleges, collected $ 120 million in July. Some of the most valued companies are also found inland. Duolingo, the Pittsburgh-based language developer for language learning, raised two rounds totaling $ 40 million en route to a value of $ 2.4 billion.

Distribution of U.S. Educational Technology (edtech) investment capital by geography

While the $ 2.2 billion raised by US edtech companies set a record for the industry, the number is falling compared to their peers in Asia, home to “Decacorns” as Byju’s and companies like Zuoyebang it collect over a billion dollars in a single round.

A report from the education market research firm HolonIQ spoke over 16 billion $ Risk capital raised by education companies around the world in 2020, with China and India accounting for over 77 percent of the total amount.

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