Edtech investment is down
2021 was a good year for educational technology (Edtech) start-ups. In fact, it was an excellent year. It was the kind of year start-up founders dream about at night, a 12-month period where it rained down investment dollars totalling almost $16billion ($15.8billion, to be exact.)
But 2022 hasn't been quite so good. The edtech market took a sudden downturn, causing venture capital firms to tighten their purse strings and start looking into other opportunities.
And that sucked a lot of the (hot?) air out of what looked like a thriving edtech start-up scene.
So far this year, a 'measly' $5.4 billion in venture capital investment has found its way into the pockets of edtech start-ups. And with a cloud of bearish sentiment hanging over the space (not to mention a host of global financial challenges), edtech entrepreneurs have gone from feeling like the belle of the venture capital ball, to sitting quietly in the corner praying that someone (anyone, please!) will ask them for the next dance.
So where did all the investment money go? Why did the venture capital funds flirting in the edtech space switch from admiring suitors to professional ghosters? And is the 2021 downturn a sign that the education technology bubble is about to pop?
Let's find out.
Why was 2021 such a good year for Edtech investment?
What about the 2021 edtech space caught the eye of so many venture capital funds and investors? Why was the global edtech industry hotter than disco in the 70s or combat pants and scrunchies in the 90s? Was it nothing more than a trend? A passing fad? Are venture capitalists and billionaire investors really that naive and, dare we say it, gullible?
The answer is a little bit of yes and a little bit of no.
Investing in edtech software and an edtech company made a lot of sense in 2021 (it still does). But it's fair to say that certain market sectors got overheated, causing some start-ups, investors, and commentators to become slightly overexcited.
What goes up must come down.
Remember that thing that happened around March 2020? You know, the outbreak of a novel coronavirus that caused global lockdowns, forcing non-essential businesses, bars, pubs, schools, and universities to lock their doors? Yes, COVID-19; that's the one.
For the first time ever, millions of learners worldwide needed to find new ways to learn remotely. And, of course, digital technology was the answer.
Suddenly, the future of education was online, and many commentators suggested that a hybrid learning model would persist long after COVID-19 was gone. It meant schools, colleges, and universities were looking to invest megabucks into software and edtech technology to power this sudden (and unexpected) learning revolution.
There was, quite literally, a gold rush-like fever within the global online education industry.
Market optimism and the promise of huge profits are highly infectious. It attracts investors, which attracts more start-ups and entrepreneurs, who attract even more investors, who then attract more...well, you get the point! And round and round it goes until you've got an $18 billion investment party that looks like it will never end.
"Looking back, I think the market got a little carried away with itself," says AXD Marketing Director Alan Davies. "That's not a criticism of anyone involved. COVID was a strange time -maybe the strangest time we've seen. We work with several global edtech firms and online learning platforms - nobody knew what was going to happen, and we were all looking for certainty and stability."
"You had articles from World Economic Forum thought leaders stating that learning had changed forever, that the future was all digital. So it's inevitable that people would try to take advantage of this unique opportunity."
"On the one hand, a $10 billion drop in investment capital looks bad. It looks terrible. But, big picture, it's nothing we need to worry about, at least not from an industry perspective. We're seeing an overheated market cooling down and taking a breather—a reset if you like. There's still a lot of long-term, sustainable growth ahead. Edtech will play a central role in the future of education. We just need to see how that plays out and give the industry time to mature."
The curve has flattened.
Life has, generally speaking, returned to something resembling normality. And the exact same thing has happened in the edtech market.
That $18 billion edtech investment we saw in 2021 was an outlier, a divergence within the mean average resulting from what Nassim Nicholas Taleb, mathematical statistician and risk analyst, calls a Black Swan event.
And COVID-19 was the definition of a Black Swan.
Taleb's Black Swans are high-impact events that are completely unexpected and unpredictable. They can create all kinds of random outcomes and statistical anomalies, including a surprise $10 billion increase in capital investment.
But don't take our word for it. Or Taleb's. Let the charts and tables, those cold hard facts, do the talking.
A chart created by Crunchbase reveals that seed funding in the US Edtech market is simply returning to pre-2021 (or pre-covid) levels. Year-to-date investment is around $2 billion, which is pretty much on par with the last five years, 2021 excluded.
Suddenly the picture looks very different. The edtech market is not in danger, and it's undoubtedly not collapsing. That 50% drop in edtech investment doesn't seem so bad now. Instead, as we'll explore next, it's probably a good thing for the entire industry's future.
Crawl, walk, and then run...
That's right. We did say that wiping $10 billion from an investment market is a good thing. And we're not going to apologise for that.
Too much money flooding into an industry or sector puts investors at risk. It is, in a word, unsustainable. Mega pumps and 'sick gains' are often followed by even bigger dumps and lots of pain. Just ask the Bitcoin bros who lived through the 2017 bull run.
Or you could have a chat over coffee with the shareholders at Coursera Inc, a U.S.-based open online course provider. But you should probably offer to pick up the tab. And it might be a nice idea to buy them a piece of cake too because these investors need something sweet to raise their spirits.
Coursera went public at the height of the 2021 edtech investment party. Today, the Coursera share price is down by around 70%. Ouch!
In her article "Edtech isn't special anymore, and that's a good thing," TechCrunch reporter Natasha Mascaren has shared the thoughts of several VCs and tech investors who welcomed this market cool-down.
They include Rebecca Kaden, a managing partner at Union Square Ventures; she said,
"The boom in the last couple years meant [funding] rounds would be opportunistic rather than out of need...While the growth isn't the same as in the heart of the COVID boom, our education-focused portfolio is funded well and focused on building businesses for the next couple of years."
Reach Capital's Jomayra Herrera takes a similar view:
"The deal pace has definitely slowed down in 2022. We were closing a transaction every four days last year, and that has significantly dropped this year, given the market conditions. The past few years have been more of an anomaly, and we are returning to a more sustainable pace."
Investors are still keen on edtech
The dizzying heights of the 2021 edtech pump might be over, and investment capital is a little harder to come by, relatively speaking.
But investors are still super-bullish on the future of edtech. And for a good reason. Edtech trends like cloud computing, remote learning, and AI-based platforms are not going anywhere. And big deals within the digital education market are still happening all the time, if a little less frequently.
US-based online upskilling provider Guild Education recently raised $265 million in a June Series F round, while US edtech app ClassDojo, which allows teachers to communicate with students remotely, raised $125 million.
The UK's first Edtech unicorn
The UK edtech industry now has its first edtech unicorn, another sign that the sector is still moving in the right direction. London-based Multiverse, an online apprenticeship platform to help people land tech jobs without paying for an expensive college degree, was valued at $1.7 billion during its latest funding round.
Multiverse epitomises all the great things about the current and future edtech industry. It harnesses innovative digital technology to make costly, high-quality education accessible to anyone who wants to learn.
"Mandating degrees and making admissions officers the gatekeepers for great careers means leaving out thousands of talented individuals,"
said Euan Blair, CEO and founder of Multiverse.
"There has never been a more pressing time to create an alternative to university education that is equitable and inclusive. There is an incredible opportunity before us to change the status quo with these apprenticeships."
The edtech revolution is happening.
And most importantly, it's driven by maturing start-ups offering real value built on long-term sustainable growth.
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