By Oleksandr Kotsupal, research analyst at F1V
After publishing reports on construction tech and on AI tools in venture capital, our focus has been on edtech for a while.
The result: A comprehensive study of the edtech industry. It covers funding trends, the impact of AI, an analysis of M&A activity, and more. Read the full report below.
Most funding goes to school education
HolonIQ forecasts the global education industry to reach $7.3T in 2025, growing at 7% annually after 2023.
It comprises four main areas: pre-kindergarten education (pre-K), school education (K-12), higher education, and workforce/lifelong education.
The K-12 sector makes up half of the global education market. Much like higher education — which takes up one-third of the market — it’s growing fast due to the lack of teachers and their overload.
Another reason: Governments in many countries supported remote learning projects with a lot of funding during the COVID-19 pandemic peaks. Since then, remote learning — much like remote work — has become a part of everyday life for many people.
The workforce/lifelong learning sector is growing relatively fast too. There are two reasons: 1) to remain competitive and keep up with new technologies, companies need their employees to upskill and reskill; 2) businesses with remote teams need digital learning platforms for their staffers.
Funding for edtech companies is growing
The global edtech market is valued at $327B and is projected to reach $404B by 2025, according to HolonIQ.
Although the education industry isn’t among the least-digitized like construction tech or agriculture, it still lags in digital adoption.
The industry allocates only 5% of its expenditure to tech. Other 95% of the funds go towards physical equipment (classroom supplies, textbooks), teacher salaries, and other non-digital expenses.
However, this is about to change soon: Tech spending in education is forecasted to grow by 11% from 2023 to 2025.
Edtech startups: over 71k globally, with 12 unicorns among them
There are more than 71k edtech startups globally, according to Tracxn. 45 edtech startups globally achieved unicorn status, fueled by an overheated market in 2021. But the number has dwindled to 12 as valuation multiples declined and several companies went public.
Edtech companies with the highest valuations are Pearson ($9.9B), Duolingo ($8.9B), PowerSchool ($4.9B), Guild ($4.4B), and Instructure ($4.1B). Most valued players operate in the K-12 and workforce learning sectors.
Edtech companies with the highest publicly disclosed revenue, based on 2023 data, are Pearson ($4.6B), Udemy ($729M), Chegg ($716M), PowerSchool ($700M), and Coursera ($636M).
Late-stage funding dropped in 2023
Starting in 2023, global edtech venture funding has been returning to pre-pandemic levels, with VC firms shifting their focus from consumer products to enterprise-level tools. However, in 2023, edtech startups still raised the least amount of VC money since 2018.
In 2023, edtech startups raised four times less funding than they did in 2021.
Early-stage funding (pre-seed, seed, Series A) remained more stable in 2023 than funding at later stages (Series B, C, and beyond). In the second half of 2023, there was an increase in the number of early-stage deals and their value.
Late-stage fundraising was nearly non-existent in 2023: The deal count dropped by roughly half compared to 2021-2022.
In 2018-2023, edtech startups in North America, Europe, India, and China attracted the largest share of venture capital money. The U.S. remained the top region in 2023, receiving 50% of the total funds.
There was only one mega round in 2023: The K-12 education company Amplify raised $350M. Some of the largest rounds were: Replit ($97M, lifelong learning), ClassWallet and HOMER ($95M both, K-12), Coursedog ($90M, higher education).
Global M&A market declined in 2023, reflecting tech sector slowdown
In the M&A market, total transaction value in 2023 dropped by 53% YoY, while the number of deals decreased by 23%.
Still, strategic M&A continued, mainly involving private companies and small to mid-sized targets.
Notable exits included Goldman Sachs's acquisition of Kahoot for $1.72B (lifelong learning), Instructure's purchase of Parchment for $835M (higher education), and PowerSchool's acquisition of SchoolMessenger for $300M (K-12). Most M&A deals focused on workforce learning and K-12.
Edtech investors are postponing exits to avoid selling at what they perceive as undervalued prices.
Public edtech companies in 2023
Companies in K-12 and higher education performed the best in 2023, with an average share price gain of 38%.
Investor sentiment was positive for lifelong learning companies such as Duolingo, Coursera, and Nerdy, which also achieved strong gains.
AI-driven edtech companies raise more funding
Renowned startups, along with newer companies, are rapidly developing AI features such as chatbots, tutors, and other tools.
AI-driven edtech companies raised nearly $500M in 2022-2023. The career and skill development sector secured half of the AI edtech funding, with most investors focusing on language learning and career guidance tools.
The average pre-money valuation (Series A; U.S.) was 70% higher in AI-based edtech companies compared to similar companies without AI features. The average deal size, however, was the same.
2024 edtech market outlook is cautiously optimistic
Venture funding outlook • The edtech funding downturn persists, but a moderate rebound is expected later in the year for Series B and C rounds. • Edtech-focused VCs who remained active throughout 2023 will continue to drive early-stage investments. • Growth and control transactions are expected to rise as private equity investors, with record levels of undeployed capital, seek opportunities. • Investors are likely to focus on companies with established revenue models and profitability. • Many edtech companies that raised funds before 2021 may return to the market to seek additional capital. • Companies that raised money at 2021 valuations will find it hard to get more funding now. This could cause some former unicorns to either fail or exit at much lower valuations than expected. M&A expectations • Strategic M&A activity is likely to increase, especially in the K-12 and consumer segments where the market is most fragmented. • Large companies may seek to fill gaps in their offerings by acquiring new technologies for immersive learning, microlearning, and personalized learning. Investment themes for 2024 • Platforms for employees to learn climate and sustainability skills, along with tailored sustainability solutions in key industries like manufacturing, real estate, renewable energy, and logistics. • Platforms that provide personalized learning experiences, customizing education based on each individual's needs, preferences, and learning styles. • Platforms that combine education and health, as consumers look to improve their physical, mental, and developmental well-being. • Platforms for teachers to reduce administrative work, save time, and personalize curriculum development. Sources: BrightEye Ventures, Reach Capital, Oppenheimer, OMNIA Partners & Trafera, TechCrunch, Edtech Insiders, Transcend Newsletter, L.E.K. Consulting, Solganick.
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