U.S. EdTech Investment at an All-Time High

The main question is U.S. EdTech Investment really at an all-time high? Well, without a shadow of a doubt, 2018 was a record-shattering year for Venture Capital and Private Equity. We witnessed both the incredible growth and concentration of capital in private markets with the largest VC deals in history and the continued ballooning of “mega funds,” which continue to defy the odds. Additionally, we saw VC & PE deals in private tech companies skyrocket in both count and amount, finally surpassing records previously set during the DotCom boom of 2000.

2018: A Historic Year for Investment in EdTech

Fortunately, for the tech industry, this momentum hasn ‘t slowed down one bit. Despite widespread worries regarding the stability of the U.S. economy, the first half of 2019 has been packed with IPOs and direct listings from promising tech companies, such as Uber, Lyft, Pinterest, and Zoom—with many more waiting in line. This, of course, may be great news for consumer technology in general, however, what does the scoreboard look like for EdTech?

U.S. EdTech Investments in 2018

Last year, U.S. EdTech companies raised a total of $1.45 Billion dollars, matching the previous fundraising record set in 2015. Since 2011, investment in EdTech has been steadily increasing, with 2015 standing out as an anomaly. Mirroring overall trends in the VC & PE market, EdTech investments have been steadily increasing in amount while simultaneously decreasing in count. While the total deal amount in 2018 was equal to that of 2015, there were just 112 deals in comparison with 165 deals. In other words, roughly the same amount of money was invested in fewer EdTech companies.

This is a logical decision from an investment perspective, as companies that have already raised successful rounds are much more likely to achieve an exit than those that have not (e.g. betting on a winning horse). However, unequal distribution of capital and neglect for smaller companies may eventually have a negative impact on innovation, especially in the field of technology. It ‘s also important to note that U.S. investors in EdTech are less active and much fewer when compared with investors in other technology sectors.

Market Segments

Although increasing focus is being placed on professional development and on-the-job training, the two most prominent segments in the EdTech industry remain K-12 and postsecondary education. In 2018, companies that focused on serving K-12 students and educators raised a total of $511 Million dollars, while postsecondary-oriented EdTech companies raised $590 Million dollars. EdTech companies that focused on either pre-school or professional development came in at third place, raising a combined amount of $350 Million dollars.

K-12

The largest deal in K-12 EdTech went to Dreambox Learning, which offers products aimed at developing math skills in children from Kindergarten through 8th grade. Dreambox Learning secured their $130 Million dollar growth equity investment from The Rise Fund, a social-impact fund related to TPG Capital. John Rogers, who leads education investments for the fund stated “[the] penetration of broadband and digital devices is making it possible for the best-in-class digital solutions to win in the market.”

Postsecondary

CampusLogic and Commonbound won the top two investments of 2018 in postsecondary education with investments of $55 Million dollars and $50 Million dollars, respectively. Both companies provide solutions focused on supporting students and educational institutions with loans and financial aid services to help remediate growing student debt. In third and fourth place, came Trilogy Education ($50M investment) and Handshake ($40M investment) whose primary focus is on preparing students for the workplace and matching them with employers.

This is great news for EdTech innovators seeking to reduce the cost of education and to bridge the ever-widening skills gap in our country. “Expect to see more entrepreneurs and funders trying to connect the dots between schools and employers,” said Reach Capital principal Chian Gong.

Growing Competition Abroad

While considered by most to be the global center of private equity investments, the United States has fallen behind substantially in EdTech investment. Last year, Asia-based EdTech companies raised the lion ‘s share of funding, with the sum of the top four investments surpassing the entire U.S. industry. In 2018, Byju, an Indian EdTech company, secured an investment of $540 Million dollars and was valued at $3.6 Billion dollars. VIPKID, a Chinese online tutoring service that employs native English speakers to teach Chinese children English via video chat, raised an incredible $500 million dollars. As the country with the greatest number of native English speakers in the world, it should shock us to learn that the United States isn ‘t leading the English tutoring EdTech industry.

Asia is also outperforming the United States in terms of EdTech mergers and acquisitions. Despite ongoing trade wars with the U.S., Asian EdTech companies like Byju are reportedly in talks with U.S. EdTech companies to potentially conduct acquisitions. “I feel confident that in 2019 we ‘ll see acquisitions of high-profile U.S. education technology companies by Asian EdTech companies,” said Jason Palmer, the general manager at New Markets Venture Partners. “If that doesn ‘t come to pass, it ‘ll be because the current trade war climate persists and gets worse.”

Conclusion

Needless to say, 2018 was a historic year for VC & PE investments in technology, with the EdTech industry following larger market trends. We also saw a concentration of capital in EdTech companies in later rounds, which could be beneficial to investors, but harmful to the industry as a whole. However, it ‘s too soon for U.S. EdTech investors to celebrate the record-breaking year. Asian investment in EdTech is rapidly outpacing that of the United States, highlighting both a market opportunity and an area of improvement for U.S. investors.

If the U.S. EdTech industry desires to remain competitive at the global level, U.S. investors must seek to invest more broadly in new EdTech startups and raise larger amounts than Asian companies who are cutting checks nearly five times the size of their American counterparts. If the U.S. EdTech investment market doesn ‘t catch up quickly, we ‘ll see the snowballing of Asian EdTech companies as they make more acquisitions—including our very own EdTech startups.