Edtech funding falls sharply – 71Bait

After spending record amounts in 2021, investors in education technology startups have learned a lesson.

They seem to have realized that perhaps too much money has gone into too many excessively large rounds at unsustainably high valuations. This year they are retiring.

At least, that’s according to Crunchbase News’ analysis of venture funding for edtech and education startups in the US and abroad. The data shows that US corporate funding in this area is on track to come in at levels less than half a year ago.

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For perspective, let’s look at US investment and round count totals for 2022 and the following five calendar years:

The numbers are also declining globally, with around $5.4 billion in seed and venture rounds for education and edtech companies so far this year. That’s on track to be well below the $15.8 billion that investors poured into the room in 2021. For a broader picture, consider investments for 2022 and the previous five years below:

Lower investment resembles caution more than pessimism

This year’s pullback comes amid a not particularly bearish environment for edtech. The key investment themes of recent years – including rising upskilling, increasing adoption of online learning and the growth of direct-to-consumer models – are all ongoing trends.

And while students are mostly back in physical classrooms now that pandemic restrictions are lifted, this is neither a surprise nor a negative development. No one expected the shift to full online learning caused by COVID to last in the long term.

Additionally, capital continues to flow to the VCs in the space. In January, Owl Ventures, the largest edtech-focused VC fund, closed $1 billion in new funds for growth-stage investments. Other ed-tech focused companies, including Learn Capital and Rethink Education, also continue to invest at a rapid pace in new and subsequent rounds this year.

Overall, the indicators paint a picture of a contraction in overall investment that is less about investor pessimism in the edtech space and more about a realization that valuations have become overheated. For those looking for a reason to discount, the public markets offer a lot.

The high-flying edtech public market entrants of recent years are at the bottom. College courses platform Coursera, which went public in early 2021, is down over 70% from its 12-month peak. Online course provider Udemy and language-learning app Duolingo, both of which went public last year, are also down sharply from their highs.

The share price drop comes as newly IPOed tech companies are seeing sharp falls across all subsectors, so it’s not a message investors are sending about the edtech space specifically. The three companies mentioned above, meanwhile, all posted double-digit annual sales growth in their most recent earnings reports.

Deals are still being made, including some big ones

VCs have understood the message on the valuation front and have adapted accordingly. Only three U.S. startups with an education or edtech focus have raised rounds of $100 million or more so far this year, according to Crunchbase data. Last year, on the other hand, there were a dozen.

Nevertheless, some big laps will still be driven in 2022. In the US these include:

  • Guild Education, a provider of online upskilling and college programs that offer employer benefits, raised $265 million in a Series F round in June.
  • Edly, an income-based student loan provider, raised $175 million in March.
  • ClassDojo, an app for teachers and schools to communicate with parents and students, raised $125 million in Series D funding valued at $1.25 billion in July.

Outside of the US, we’ve seen some larger rounds as well. 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 free services to families, raised $270 million in a Series D in February.
  • Mumbai-based UpGrad, an online higher education provider, raised $225 million in June.

With growth, demand, and lower prices, now’s not the worst time to invest in edtech

There are many macro trends that seem favorable for education and edtech startups.

In a recent report, Owl Ventures cited some of them. The list included: β€œthe growth of blended learning, remote work, the rise of direct-to-consumer models, enterprise learning and skilling, the emergence of AI-enabled learning, proliferating 1:1 device programs, and the rapid integration of AR/ VR All of these trends are contributing to the global rise of educational technology, according to Owl.

As we noted a few months ago in an analysis of continuing education funding, the skills gap in the workplace also fuels edtech adoption. Employers are unable to fill an enormous number of vacancies because they cannot find and recruit people with the necessary skills. Meanwhile, many workers are looking for ways to upgrade their skills to pursue more lucrative and satisfying careers.

So yes, funding for edtech ventures has declined this year. But it certainly doesn’t dry out.

Crunchbase Pro queries

Seed and venture funding for US education and edtech startups

Figure: Dom Guzman

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