Earlier this summer, the tech blog Techcrunch pronounced that “Investors Rethink EdTech As Dealflow Declines.” No one likes tech blog gaffes more than other tech blogs, so there’s been a lot of crowing in the last few weeks as the investment figures from the first half of 2015 have been calculated. It looks like Techcrunch was wrong. According to investment analysis firm CB Insights at least, “Funding To VC-Backed Education Technology Startups Soars 96%.” Investments in ed-tech are at a record high, Inside Higher Ed and Education Week (among others) have observed. Whee.
This week, Edsurge published its report on ed-tech investments in the first half of the year. According to its figures, there were some $1.6 billion in deals from January to June.
Edsurge rightly notes that there are substantial discrepancies between its calculations and those of its competitors.
| Source | Deals | Dollars |
|---|---|---|
| Crunchbase | 111 | $686 million |
| CB Insights | 127 | $1.4 billion |
| Ambient Insights | 262 | $2.5 billion |
| Edsurge | 161 | $1.6 billion |
| Hack Education | 142 | $1.5 billion |
As Edsurge points out, much of this difference stems from the various definitions of “what counts” as ed-tech. (Is SoFi ed-tech? Is AltSchool? Does Fifty Three's funding round count since it says it plans to use the money to enter the education market?)
Some of the difference too comes from the challenges in tracking on this data. Despite rules requiring investments be made public via an SEC filing, investors and entrepreneurs are not always very forthcoming about their funding. Furthermore, Crunchbase, which is a crowdsourced database, is full of errors – incorrectly applied keywords, for example, that put startups in the education category when they shouldn’t be. So everyone's numbers are iffy; what matters is the analysis, right?
Me, I'm not particularly interested in the right numbers or whether or not this will be a blockbuster year for the 1%. Record-breaking investment does not mean ed-tech is now awesome or innovative. It means there are investors who think they can get rich(er) - or maybe at least see a nice return - on what they currently deem a lucrative market.
But I do want to identify some of the dominant trends in ed-tech, and looking at funding is one way to do so. (Test prep: still going strong.) I want to know who’s getting the dollars – new startups or established companies? It's worth noting that much of this year’s record numbers are a result of several whopping investments in Series B and beyond rounds – rounds whose size isn’t really in line with the “typical” funding. (Over half the funding rounds I’ve tracked so far this year were $3 million or less.)
According to my calculations, here are the largest investments of 2015 (that is, those greater than $40 million):
- Social Finance $200 million
- Lynda.com $186 million
- 17zuoye $100 million
- AltSchool $100 million
- Udemy $65 million
- Yuantiku $60 million
- NetDragon $52.5 million
- Genshuixue $50 million
- Orbotix $45 million
- Duolingo $45 million
- LittleBits $44.2 million
- Instructure $40 million
As this list indicates and as many industry observers have noticed as well, there is immense investor interest in Chinese ed-tech companies - a trend to watch, no doubt.
Of course, venture capital funding is just one side of the investment equation. On the other side: the anticipated return on investment: the exit. By my count, there have been over 60 acquisitions in ed-tech so far this year. Again, some of these are pretty notable: LinkedIn buying Lynda.com; NetDragon buying Promethean; Houghton Mifflin Harcourt buying Scholastic’s ed-tech business; Pearson selling The Financial Times. Rarely are the dollar figures disclosed in these deals, but they're important deals to watch nonetheless.
The steady drumbeat of acquisitions, along with some of these sizable funding rounds for established startups, suggests that the ed-tech startup world is consolidating. (I really hate the description that it’s “maturing.” FFS, ed-tech is over a century old. It's already mature; folks just don't like the shape it's taken.)
When we think about the consolidation of the industry, we should reflect on it in terms of politics and power, not just finances and funding. Which investors and investment firms are intertwined most closely with education policy and with the call for education reform? Why did AltSchool get so much money, for example?
I’ve updated the Google Spreadsheet where I’m tracking on investments, acquisitions, and mergers. I have also made the data available in JSON format for your machine-readable pleasure:
See, it’s not enough to read someone else’s report and trust that they’ve got it right; you should be able to crunch the data yourself. You can find all of this in a GitHub repo (for free!), which you’re welcome to contribute to or fork.
(Reminder: this is the first year I’ve tracked on this, and next year I do plan on adding more fields so that it’s easier to see if the money is going to K–12, higher education, corporate training, and the like. I’d also like to track which investors are funding startups with diverse founders. Other suggestions welcome.)