Looking back, Edtex Attention feels like a fever dream. At the start of the pandemic, while the school of hype was a reality for millions around the world, top companies turned into unicorns seemingly overnight, and check-writing frenzy gripped investors.
Then we saw a gradual focus and a blade. Companies that build for any consumer looking for a better way to learn online are turning to their loyal customers—enterprises—for more reliable revenue streams. During the craze, the companies that took the first capital decided to merge with other well-capitalized competitors. And those who raised a lot of money in a short period of time have been laid off significantly due to the resulting hiring.
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Which brings us to today – and tomorrow. To give TechCrunch+ readers a better understanding of what education investors are looking for today, seven leading investors in the sector answered a series of questions about the future of the sector.
Here are the ones we scanned.
I’ll be honest, I was surprised by the diversity of the answers – from climate and workforce mobility being the next Edtech opportunities to how the rise of tourist VCs is playing out differently based on company rankings. The tone felt balanced: many acknowledged that things had changed, but the opportunity remained. Like everything these days, the vibe is dull.
Jomayra Herrera of Rich Capital describes the changing landscape well: “In 2016, In 2022, the rate of agreement actually slowed down in most sectors. For context, last year we were closing a trade every four days, and that’s down significantly this year given market conditions. I’d say the last few years have been extraordinary, and we’re getting back to a sustainable pace.
Emerge Education’s Jan Lin-Matern, meanwhile, was quick to point out that despite the slowdown in the United States, edtech investment is growing in Europe – the sector has so far received 40% of Europe’s 1.4 billion dollars in 2022, a year earlier, 1.4 billion dollars . reports say).
Investors are bracing for the down times by helping their portfolio companies prioritize internal growth over raising more capital and rethinking their success metrics. But that’s all I can give you now; Read the full survey to see where investors are finding hope, what’s next to save, and what kind of edtech innovation wave they think we’re in for today.
Ashley Bittner and Kate Ballinger, Firework Ventures
Global edtech investments of more than $10 billion in venture capital investment by 2020 and $20 billion by 2021 have marked the early stages of the pandemic. But the sector is now facing a downturn. How has this impacted your ability to grow your edtech portfolio, and how are you changing strategy?
It’s important to acknowledge that this slowdown looks different from past recessions like the Great Recession. We haven’t seen a significant increase in unemployment. In May 2022, unemployment was just 3.6%, down from 5% at the start and 10% at the height of the recession in 2008 – largely due to the tight labor market. Pandemic and the Great Resignation. We still see job openings and turnover at record highs, and many companies aren’t planning to cut back on hiring, let alone layoffs.
These differences are reflected in the experience of our portfolio companies, most of which are sold to HR and learning and development. In fact, one of our companies had the best quarter in Q2.
When it comes to workforce learning, companies in In an effort to further reduce costs, companies quickly cut costs in areas such as learning and development, which at the time were considered less important.
We now know that decisions like these have contributed significantly to today’s massive skills shortage.
Over the past decade, more companies are realizing that investing in your workforce is critical to business success – more than half of companies facing a skills gap believe internal skills building is the most effective response, compared to just over a third who believe recruitment is the most effective.
Over the past year, we have followed our investment strategy with price discipline and deployed capital, resulting in many of the valuations we see today aligning with our current philosophy and assumptions.
The pandemic focus on edtech has led many general investors to look at the sector and pour money into it. This influenced the types of startups that received funding and the total amount of capital in the market. Has edtech seen a slowdown in “tourism” from general founders and investors? If yes, what impact does the area of focus have?
We believe that category knowledge is especially important at seed and Series A levels. Category knowledge is key for an investor to identify product-market conditions relative to the microcosm of the sector. We believe there is scope for general investors to continue investing in the category at later stages.
The edtech movement feels quiet. Is your deal where you expected it to be a year ago? And does the pace of edtech exits today match your preconceived notions?
Our terms and conditions remain unchanged. Fireworks will primarily lead investments at the Serie A level, a strategy that is more focused by design (and probably not as negatively impacted by downsizing as other models). We build relationships with founders over time, developing trust in them, their team and the company before investing.
This approach allowed us to avoid the investment disappointment of last year. This means that we will not experience a slowdown in contract deals this year. As many companies seek to raise funds, we continue to spend time building relationships with amazing entrepreneurs.
How has the pandemic changed the perception of what makes an exciting edtech company? How does that hold up when determining what is considered remarkable compared to normal growth?
The pandemic has not changed our research paradigm, but it has accelerated many of the underlying trends. We’ve seen millions of people move to remote jobs and learn overnight, opening up vast opportunities around distance and distributed learning.
The economic recovery from the pandemic has been one of the most uneven in history, with large numbers of women and other marginalized groups leaving the labor force altogether. This further emphasizes the importance of building solutions that are working to address opportunity gaps in edtech and the like.
As a Series A investor, we often look at companies with high growth rates. While strong growth is important, we focus on ensuring that growth is sustainable over time. For example, a company could have tapped into Covid relief funds to generate significant growth during the outbreak, but this source of funding may not be stable enough to sustain them for years to come.
In your view, what is the venture-backed business model in edtech anymore?
We have no predictions that any business model will ever be venture-backed. We continue to look for exciting market opportunities for innovators with high potential for personal and business growth.
How many units of your company do you plan to collect this year? What percentage of extension rounds are you raising and how common is it in edtech?
We don’t have any companies extending their previous rounds, but we’ve heard from several founders. This movement of extension rounds reflects the level of expectations from founders around fundraising in the current economic climate.
Understanding the venture context is incredibly important for founders looking to raise capital. We work closely with our portfolio companies as they seek to raise their next round to help them understand this context (along with their specific company context) and set fundraising goals.
Some edtech unicorns have had to downsize to deal with the looming recession and recession. What should edtech companies do to accelerate their growth in the next two years?