EdTech Investing Explodes in 2021
The EdTech ecosystem had its best half year in history with massive funding round announcements, exits and IPOs. Just this week, Duolingo and Instructure filed IPOs. 2U (NASD: TWOU) acquired edX for $800M (making Harvard University and MIT, which owned edX, even richer). Coursera (NASD: COUR) is one of the hottest IPOs of the year. Not to be outdone, the private markets showered $300M on Age of Learning, more popularly known as ABCmouse learning and MasterClass, the celebrity online course company, raised $225M. On the B2B side, Guild Education and Degreed achieved unicorn valuations with nine figure funding rounds.
Overall, EdTech, according to ReachCapital’s Tony Wan, scored over $3.2 billion of investment capital in the first half of 2021, more than the $2.2 billion in all of 2020 and $1.7 billion in 2019. In other words, buoyed by Covid and secular shifts towards online learning investors more than doubled the capital chasing EdTech in 2021. (Note: ReachCapital backed 4 of the 10 largest EdTech deals and you can listen to Reach Capital co-Founders on their Better Money Better World podcast here).
EdTech has had funding growth before — massive Silicon Valley driven increases in EdTech funding occurred in 1999, 2007 and 2015. Each time the explosion of EdTech funding levels led to a bust shortly thereafter. “Tourist” EdTech investors saw many of their large investments evaporate in value (example: Andreessen Horowitz backed AltSchool). These prior waves of capital found few exits. The result is that today, while education makes up about 6% of the US economy, EdTech represents only about 0.1% of the public markets.
But this EdTech boom feels different. Critically, many of these companies have real revenue and seemingly sustainable business models. Fortune 500 hundred companies are customers of Degreed and Guild; Covid impacted major school districts are purchasing technology at an 18% growth rate, and consumers are signing up for ABCMouse and Outschool.
Crucially, early investors are already able to return substantial capital back to limited partners. Beyond the IPOs, virtually all of the above deals have significant secondary component. There are two logical questions that result:
1) Will any of these companies reach deca-unicorn status?
2) EdTech is still an industry where it takes longer and costs more than most tourist VCs expect. What happens to all the good, not VC backable EdTech companies that get to $5-$15M of revenue?
