I started investing in EdTech and Future of Work under the 27V banner in Q4 of 2019 – when a lot of people counseled me to say education wasn’t the “ideal” sector to be investing in, at the Pre-Seed/Seed stage. The reasons for this, well-meaning, advice ranged from a preconception of “EdTech = B2B, selling to school” to the lack of bumper exits for companies in the space.
So much has changed since…
Now that we find ourselves in the middle of the world’s largest experiment in remote learning, innovation in EdTech has surfaced as the need of the hour; and VCs are taking note.
According to HolonIQ, governments, employers and consumers together will spend over $7T a year on education and training by 2025. Education entrepreneurs are seizing this opportunity – whether that is through helping recreate the crucial classroom experiences students are missing out on or upskilling workers as they WFH. There is a new population of learners that has the time and desire to learn online.
Caveat: not all is hunky dory. We must still overcome massive infrastructural and technological barriers to meet the demand and make education more accessible + equitable. Let’s focus on the positives though, for the purposes of this report.
27V’s awesome intern, Sarina Mittal, and I set out to analyze how Seed funding has evolved over the last 5 years and identify key areas of opportunity. We began with a few hypotheses, and let the data prove us right or wrong. Our subsequent report is broken down into 4 parts:
- Snapshot of EdTech Seed funding; incl. trends and investor landscape (this report)
- The unprecedented: capturing EdTech’s growth in 2020 (coming soon)
- Exits in EdTech: M&As, IPOs and S-1s (coming soon)
- Regional battles: hegemons, underdogs and the contenders (coming soon)
➲ EdTech is growing. Rapidly!
💡 Total capital raised by EdTech ventures globally at the seed financing stage grew by 2.1X ($212M in 2015 to $450M in 2020)
💡 The median size of seed rounds grew by 1.65x ($800K in 2015 to $1.32M in 2020) in the same period
💡 EdTech startups are raising money at higher valuations each year, with median pre-money valuations increasing by 15% CAGR.
💡From 2019 to 2020 alone, the median size of seed rounds notably increased by 20% (from $1.1M to $1.32M). Although capital being deployed remained at similar levels during both years, investors were looking at EdTech startups through the lens of renewed optimism in the pandemic year.
Q3 (#BacktoSchool!) is the best time to raise seed funding
Between 2015 and 2019, global EdTech seed funding totaled $1.55B. Q3 accounted for 33% of total funding at $512M.
In 2020 alone, EdTech seed funding totaled $450M. While Q3 outperformed Q1 and Q2, Q4 raised the most funding at $159M. This is, of course, attributable to the volatile economic conditions and the global pandemic which led to unprecedented amounts of VC money being raised in Q4 2020 and Q1 2021.
Q3 represents the late summer months of July, August, and September. Anecdotally, this is the period where companies coming off a strong finish to the previous school year are able to go out and raise a fresh round of funding on the basis of their user/revenue numbers (& story). It also allows them to invest in growth as they start the new academic year.
EdTech within the startup ecosystem, how does it compare?
Since 2015, Seed rounds in EdTech have accounted for 6% of Seed funding invested across all industries globally. While the proportion of EdTech seed deals to total global VC seed investment has remained constant, EdTech funding has continued to grow YoY, hitting an all-time high in 2020.
For a deep dive into EdTech funding trends during 2020, keep an eye out for our analysis of the impact of COVID-19 on EdTech – coming soon.
➲ Investor landscape
Who are some of the key players in VC that are fueling the EdTech industry? We looked at the most active 15 seed stage investors over the last 5 years globally and this is what we found:
💡The most active investors in EdTech seed stage ventures are Rethink Capital Partners and Reach Capital (barring accelerators – 500 Startups and Y Combinator)
💡The median fund size for these EdTech-focused investors is $52.6M
💡The average AUM across the top 15 investors is $393M
💡The average check size for seed rounds is $2M
While most firms are based in the US, they do make overseas investments frequently. The most commonly preferred geographies to invest in are USA, Canada, UK, India, and China.
➲ Following the money: trends at early stage EdTech companies
- Community-based learning: traditional schooling was left behind in early 2020. In a bid to bring back the sense of belonging for home-ridden kids, community-based learning solutions (offline and online) are emerging. These include in-person micro schools, online schools, discussion groups, and clubs for homeschoolers.
- Live streaming: Prior to COVID-19, MOOCs and pre-recorded lectures were standard forms of online teaching. Now, every education institution globally has invested in infrastructure to support live teaching. Startups are injecting excitement into this, either by hiring celebrities to teach classes or giving agency to educators to create their own courses and cohorts.
- Upskilling: COVID-19 accelerated the desire to reskill for the working population globally. Entrepreneurs are taking note. There has been a supply of applications and platforms that offer online learning for niche skills.
- Audio: the audio boom is at the beginning of its trajectory. With the explosion of podcasts and audio content libraries, EdTech is carving out its own niche in this market.
- Education management platforms: with the shift to remote learning, ancillary tools to support the integration of EdTech in classrooms have become much sought-after.
- AR/VR: we can all agree that the way we learn has fundamentally changed. AR/VR is a response to this shift, with advancements being made in video gaming to keep children engaged while they learn. The increasing relevance of AR/VR has certainly challenged our thinking at 27V too (I’ll write my thoughts on this separately).
That’s it for this one. We’d love to hear your thoughts (tweet at us) on the data we presented, our conclusions, and the space in general (#learninpublic). Look out for the next report in our series, on the impact of COVID-19 on the early stage EdTech ecosystem.
- We compiled data from Pitchbook, filtered for education from the B2B, B2C, software (industry) and EdTech (vertical). Our research was specifically focused on venture-backed EdTech startups at the Seed stage. It reflects data collected between January 1, 2015 and December 31, 2020.
- Company names marked with an asterisk (*) are 27V portfolio companies.