EdTech Avalanche 2021: What's Next?

European Edtech Experiences Significant Growth

The previous week demonstrated positive momentum for the educational technology (edtech) sector within Europe.

GoStudent achieved a milestone, becoming the first edtech unicorn in Europe – excluding initial public offering (IPO) companies. This was accomplished through a third funding round within 12 months, representing the largest investment ever seen in the European edtech landscape.

Investment Surges in European Edtech

Analysis conducted by Brighteye Ventures revealed that venture capital (VC) investments in European edtech exceeded $1 billion within a single calendar year. This milestone was reached with six months remaining, even excluding GoStudent’s substantial funding round.

According to the report, edtech deal activity in 2021 is projected to equal or surpass 2020 levels. The average deal size has tripled to $9.4 million compared to the previous year. Seven companies have secured $50 million in funding across five distinct markets.

Notably, the U.K. has seen more than three times the number of deals compared to any other individual market.

Deal Size Increases While Deal Count Remains Stable

Interestingly, there hasn't been a substantial increase in the overall number of deals. The $1.05 billion figure is distributed across 111 transactions, compared to 237 in 2020. A similar total deal count is therefore anticipated for the current year.

This suggests a significant rise in deal sizes, as more funding is concentrated in fewer transactions.

Factors Driving Edtech Growth

Several conclusions can be drawn from these trends. Companies established in prior years have demonstrably matured during the pandemic, spurred by heightened demand. This period of rapid evolution has also provided valuable insights into successful verticals and potential market leaders.

Furthermore, generalist investors are increasingly recognizing the potential for substantial returns from edtech investments, mirroring the performance of sectors like deep tech, health tech, and fintech.

This recognition is contributing to larger early-stage funding rounds. Investors, while potentially unable to definitively identify the ultimate winner, are strategically influencing the competitive landscape.

Consequently, an increase in pre-seed, seed, and Series A rounds is expected in the latter half of 2021, as companies founded during the pandemic seek significant funding.

Market Size and Digitization

Another factor attracting generalist investors is a growing understanding of the true market size and the extent of future digitization.

Illustrative Market Sizing: The U.K. Higher Education Market

Consider the higher education sector in the U.K. as an example. According to Universities U.K., 2.38 million students were enrolled in higher education institutions in 2018/19. It’s important to note that the U.K. represents a relatively large and highly participatory market within Europe.

Assuming all students are full-time and domestic – which isn’t entirely accurate – and at an annual fee of £9,000 (~$12,502), the total revenue generated by U.K. universities from tuition alone amounts to £21.42 billion ($29.75 billion).

This figure excludes living expenses and material costs. Historically, a significant portion of these fees was subsidized by the government to promote wider access to higher education.

The Changing Value Proposition of Higher Education

The shift in fee structure in the U.K. has created a perception of a larger individual investment, regardless of repayment terms. Some argue that the value proposition of a traditional university education is diminishing.

Three years of study may not always translate into a specific career path, guaranteed employment, or a significant competitive advantage in the job market.

Rise of Alternative Learning Options

These concerns – cost, unclear career paths, lack of job guarantees, and limited differentiation – are fueling the growth of edtech and learning tech companies. These companies offer more flexible, affordable, and career-focused courses.

The U.K. education market for individuals aged 18-25 is considerably larger than £21.42 billion, encompassing vocational training, apprenticeships, and other existing educational pathways.

However, the inflexibility of the traditional university system is a key driver of edtech activity within this age group. This example also highlights the substantial size of edtech markets within individual countries, and the potential for companies to expand internationally.

The Impact of the Pandemic

The pandemic has accelerated a pre-existing trend toward digitization in education. The benefits of technology in enhancing learning, improving effectiveness, and reducing costs are now undeniable.

This digitization presents unique challenges for policymakers. Governments typically do not directly manage or deliver innovation, and rarely claim ownership of it once it’s developed.

The Role of Private Companies and Policymakers

Consequently, private companies are increasingly taking the lead in areas of education and training that were previously overseen or funded by governments. This trend is particularly pronounced in high- and middle-income countries.

Policymakers are focused on creating an environment that encourages informed decision-making within this evolving landscape.

Investor Confidence in European Edtech

The reported figures reflect growing investor confidence in the maturity and rapid development of European edtech. The increasing involvement of generalist funds, including prominent global investors, is a significant indicator.

While investors may present their decisions as unique opportunities, it’s important to approach such claims with caution. As observed in TechCrunch, investors often downplay unfavorable prospects while enthusiastically praising their successes.

As more generalist investors enter the European edtech market, we can anticipate increased positive commentary about the sector.

The full half-year report can be accessed here.

Disclaimer: Ornikar is a Brighteyes Ventures portfolio company.