Authors: Jean Hammond, Co-Founder and Partner, LearnLaunch and Blanca Rodriguez, Co-Founder, Smile and Learn
Education is not an easy industry to invest in. It’s slow to change; fragmented by needs, geographies, and demographics It is mired in the past but committed to the future, with stakeholders that are dug in deep. But, let’s be honest, there are no easy industries for investors or entrepreneurs. Each market has its peculiarities and key forces that determine its own evolution and the success of its stakeholders. What education has – unlike virtually any other industry – is the ability to make a real difference in the world and change lives. Of course, successful entrepreneurs will also reap the benefits of serving an industry that is global in scope, crying out for change, and with vast financial resources for the right providers.
As a result of having worked with a host of education companies for years, we wanted to develop a framework that would surface the priorities and true opportunities for investment. So, a year ago, we began researching the education market. We sought to understand better where the market is today and, more importantly, why the market is where it is. We partnered to create an extensive report called Prioritization and Analysis of Investment Opportunities and Microtrends in Edtech.
We have decided to publish some key learnings and condensed observations here, with a focus on understanding the edtech market, its driving forces, and where opportunities lie.
Current status of the education market
The education market has been slow to widely adopt emerging technologies, although examples of breakthrough innovations can be found, at least, in pockets of every school district. Unfortunately, the gap between schools that can adopt new technologies and those that cannot, is wide and growing.
In general, as CB Insights published at the beginning of the year, mega-rounds of investment are boosting global edtech funding to a new record. Late stage investments are growing in volume, pointing out exit potential and attracting more investors to the arena.
Investment in startups developing disruptive technologies has grown over the last decade. This trend peaked in the last quarter of 2015 and was mainly driven by German media corporation Bertelsmann, which raised $60 million for HotChalk and $100 million for Udacity, as well as other disruptors. Recently, fewer dollars in relative terms are going to the early-stage companies, making access to funding more challenging for entrepreneurs and new innovations. These financing trends indicate the maturity of a sector that is calling for the next generation of disruptive startups and entrepreneurs that will create 2.0 edtech players who will change the world.
Surprisingly in the U.S. and over the last 40 years, formal education has not seen any meaningful improvement in student performance although institutions have double dollars invested per pupil. Innovation can alter this landscape by targeting key areas where breakthrough technologies are coming online, and with some limitations, the market is now ready and able to adopt and successfully deploy them.
Consequently, we start asking ourselves some questions. Why has technology been so slow to integrate in education products and services? Why are early-stage investors reticent about investing in edtech, despite the exit potential that we are seeing these days and the promise of the categories? Where is the greatest potential for meaningful disruption? What opportunities should investors and entrepreneurs pursue? Where is the market ready for innovation and willing to adopt change?
To solve these questions, we invested some time in understanding and prioritizing the ‘hidden’ market forces. By working with innovative startups, we have been able to examine with care the types of innovations underway at this time. We spoke with groups of investors, entrepreneurs, faculty and edtech enthusiasts that helped out to create our Market Framework.
Below are details regarding the Market Framework:
- Government regulations – Federal and state legislation are setting the public education agenda, opening new spaces for innovation and restricting some potential opportunities.
- Transition success – Current research is proving readiness of students to join the workforce is low and introducing new stakeholders to the mission of reinventing education.
- Special populations and narrow markets – Current legislation efforts on the federal (e.g. ESSA) and state levels are creating new opportunities and are allocating funding to ensure that all children– English language learners, high-poverty, and special needs–are getting the high-quality education to which they are entitled.
Tech and science disruptions
- Virtual reality, augmented reality and new user experiences and interfaces – These technologies are representing new ways of presenting information, allowing students to consume and engage with content differently.
- Artificial intelligence and machine learning – These technologies are, when combined with the digital delivery of content and frequent embedded assessments, potentially decreasing learning times and making personalized education massive and accessible to the world.
- Brain science – Research is providing a better understanding about mental learning processes and is helping optimize learning efficiency.
FRAMEWORK APPLICATION: TOP 20 OPPORTUNITIES IDENTIFIED IN THE EDTECH SECTOR
Frameworks are pointless if they result merely in organizing information, and not providing any specific actions. For this reason, we have decided to share the next section of our report that focuses on ranking and describing the most attractive opportunities in the edtech industry.
Later, we will detail the reasons why we are extremely excited by these opportunities and open the conversation to our readers. What is their potential impact? What are the challenges? What is the current market penetration versus the potential? What is the maturity of the market and adoption speed? And, most importantly, what is the benefit for the educators and learners?
Against that backdrop, we conclude that the following 20 edtech areas for innovation are the most promising for the investor, the entrepreneur, the educator, and the learner: