How EdTech Investments Fared in 2016

How EdTech Investments Fared in 2016

In 2016, an estimated $1.03 billion was raised on nearly 140 EdTech deals. That was down from the 198 deals that totaled $1.45 billion in 2015. These totals were across all companies who sought to improve learning outcomes for learners of any age. When you look at that as a category, it unfortunately pales against the funding that can be seen elsewhere in the VC world. For instance, in calendar year 2015, there were 74 megadeals (investments of $100 million or more) in the general industry, compared with 50 in 2014.

As in previous years, companies offering tools in the postsecondary and “other” categories raised more money than those with other products. The “other” category includes a mix of products that range from helping business professionals develop skills, to offerings aimed at parents – but not K-12 or higher-ed institutions.

This year also was devoid of mega-rounds for startups in the postsecondary sector. In 2015, those mega-rounds included deals like HotChalk, Udacity, Udemy, Coursera and Civitas Learning. Those few deals accounted for more than $520 million of funding. Udemy led this pack in 2016 with a $60 million round.

The biggest funding round of 2016 went to Age of Learning, which raised $150 million and accounted for 55% of the funding total for K-12 curriculum products. This is the Glendale, California company that’s the developer of ABCmouse. This is a collection of online learning activities aimed at young children. This is one of those tools that was first developed for the consumer and parent market, but is now attempting to make headway into schools and classrooms in its next level of market maturity.

Angel and seed level funding rounds, which signal investors’ interest in promising but unproven ideas, declined in 2015 as well. The 66 deals at this stage are the lowest since 2011, but roughly on par with 2014 levels.

Fewer but bigger seed deals are usually a sign of maturation in the industry, but it remains to be seen if this is the case in EdTech, or whether it’s more selectiveness on the part of investors. Either way, the bar for seed rounds just went up a notch or two. And when that happens, entrepreneurs have to show more traction and revenue to close a deal. That translates into a closer look at revenue growth, adoption, implementation timelines and usage – all of which are much more complex to show.

Although investors say 2017 is still looking very good, it’s expected that those receiving the big payouts will have to be very adept at showing how their products are doing at the consumer-use level. Perhaps the biggest intrigue is still around emerging technologies like artificial intelligence, augmented and virtual reality. However, in our magazine’s opinion, the dominant players are going to be companies like Amazon and Google, who both have the ability to fund that experimentation inside their companies.

 

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