We are all influenced by our educational experiences. Sometimes with fondness, other times with anxiety, we can recall memories from kindergarten through high school, and from college to HR training at a new company. Although we might think of education as a one-room, red-brick schoolhouse, it has evolved and grown into a globe-spanning industry poised for rapid growth.
Investors and companies in the education space recognize the global macro trends that will continue to drive growth, notably:
- Population growth in developing countries
- Rising demand for educational technology, tools, and services
- Increasing digitization to improve outcomes and efficiency
- Opportunities to solve key problems in the industry (student debt, flattening test scores)
This article will outline the size and scope of the edtech market and discuss two key trends to watch in the edtech industry in 2020 and beyond.
Sizing the Education and EdTech Markets
In the US, education expenditures are just over 6% of GDP, or nearly $1.2 trillion. Similar to the healthcare industry, the education market is heavily influenced by the government at all levels. As one might expect, there is a large difference between education spending and edtech spending. The bulk of education expenditures goes toward labor (teachers and administrators) and physical facilities. The research firm HolonIQ estimates that less than 3% of education spend is allocated to technology.
What Comprises the EdTech Industry?
The global edtech market is a diverse and rapidly growing industry with a large runway across the business lifecycle, from early-stage startups to middle-market companies to publicly traded companies. It continues to garner a lot of attention not only from long-time industry veterans but from generalist investors as well. Across the three main education categories (PreK-12, post-secondary, and corporate training), technology is infused throughout the life of a learner. Experienced investors know that each category operates as its own sub-segment within the edtech market. Each category is unique and has different end users, buyers, and funding mechanisms.
Due to differences in methodology and categorizations, various publications have released investment figures that can allow us to triangulate and get a sense for the size, scope, and growth of the edtech market:
US edtech venture capital investment. According to EdSurge, there was $1.7 billion invested by venture capital funds into the edtech market in 2019 across 105 deals. These were dominated by large Series C investments.
Global venture investment in edtech. Zooming out to investments globally, HolonIQ released a report that showed $7.0 billion global education venture capital funding in 2019. Even more telling is the stunning rate of growth from $0.5 billion of edtech VC funding in 2010. They are also predicting a tripling of investment in edtech over the next decade.
Global learning technology investment. Looking more broadly in scope to include learning technology suppliers, according to Metaari, there was $18.7 billion of global private investment in learning technology suppliers in 2019.
Private equity is also eyeing education investments. In addition to venture capital investment in edtech, dozens of private equity funds continue to be raised specifically to invest in the education sector (or have articulated education as a focus industry). To top it off, education is increasingly being classified as an “impact” sector, attracting institutional investors looking to up their allocations to impact sectors.
Publicly traded education companies. Another sizeable portion of the edtech market is the publicly traded names. When looking at this group in the US, there are 29 companies that total $71 billion in market capitalization (as of January 27, 2020).
EdTech Trends to Watch in 2020
What do recent investments, M&A, and market moves mean for trends in 2020? What can we expect to see in 2020 and beyond? Given the size, complexity, and diversity of the edtech market, there are a near-limitless number of themes to explore. But two topics that cut across all categories and stages will have a big impact on broad edtech trends in 2020: online learning and emerging technologies.
Trend #1: Online learning will accelerate in 2020
Through the last decade, there was plenty of hype surrounding online learning, from early predictions that half of high school courses would be taught online by 2019 to declaring 2012 the “year of the MOOC” (massive open online course). However, after trudging through the “trough of disillusionment,” it’s arguable that online learning is experiencing a renaissance, and recent investment activity certainly backs this up.
Early-stage VC-backed players seeking to disrupt aspects of higher ed and corporate learning. Recent fundraising from Outlier, MasterClass, Osmosis, Coursera, and Degreed demonstrates a high interest in online learning from investors. Each of these companies is very different in its approach to online learning, targeting different learners. Outlier offers introductory college-level courses, while Osmosis provides supplementary videos for healthcare students and professionals. The diversity of companies shows that there is a near-endless application of the benefits of learning online. Entrepreneurs continually search for ways to improve on the status quo.
Online players in K-12 online learning continue to grow organically and through acquisition. In the K-12 space, online learning as a topic has seemingly faded into the background when compared to some of the more trendy buzzwords like competency-based education, personalized learning, or social-emotional learning. But some of the large players in K-12 education have been making big moves on the acquisition front, which could be an indication of things to come. In January 2020, the major online education provider K12, Inc. acquired Galvanize, a coding bootcamp, signifying a move to diversify beyond the K12 and online realms. Another major digital education player, Edgenuity—which is backed by private equity firm Weld North—made three acquisitions in the last 12 months. Other private equity-backed providers in this space like Edmentum, Apex, and Accelerate will continue to seek opportunities to take advantage of the growing online K-12 market.
Large nonprofit players taking share in higher ed. The continued growth of well-regarded nonprofit post-secondary online providers such as Western Governors, Southern New Hampshire University, and Arizona State University will continue to pose a major threat to publicly traded for-profit post-secondary business. The increased competition will put downward pressure on pricing and enrollments. This will ultimately accrue to the benefit of students, though the impact will be felt by other market participants. We may continue to see school closures (see chart below) or conversions to nonprofit institutions.
Don’t forget China and India. The online markets in both India and China are red-hot and attracting massive amounts of capital in later-stage VC rounds and IPOs. The last couple of years have been highlighted by the $500-million-plus raises by BYJU’S, VIPKid, and TAL Education. The hundreds of millions of online learners in these countries present a massive opportunity, but external players have found the markets hard to break into and compete with the domestic behemoths. Language learning, online tutoring, and technology skills will continue to be the leading themes in India and China.
Trend #2: Emerging technologies will begin to make their mark in education
Nearly every new technology incorporated into technology, from books to the radio, from the computer to the internet, experienced pushback from the education establishment and took time to be appropriately integrated. Many purveyors of new technologies did not do themselves any favors by building hype and unreasonable expectations. Still, despite some failures and setbacks of some companies and products, today’s innovators continue to explore ways in which cutting-edge technologies can enhance the learner’s experience.
Immersive technologies gain investor interest. Fundraising from companies like Labster and Interplay Learning demonstrates interest and potential for virtual reality (VR) in education. Interplay Learning, which raised $5.5 million in 2019, provides VR and 3D training primarily for the HVAC and solar installation trades. And Interplay is involved in a relatively small sub-segment of one single industry! For them to have attracted VC investment and be posting stellar growth shows the potential of this technology as more applications are built out for other trades and careers.
Using artificial intelligence (AI) and machine learning in education: adaptive learning. While previous attempts at adaptive learning, such as Knewton, failed to live up to lofty expectations, new players are raising fresh capital to create solutions for specific niches within the edtech market. These AI-based tools such as Quizlet, Kidaptive, KidSense, and Querium are applying machine learning systems to improve education. For educators evaluating the use of these tools in the classroom, questions around algorithmic bias, privacy risks, and efficacy are top of mind.
Robotics in education is maturing. Robot kits for the classroom are turning into a relatively saturated category (from startups to Lego) but, as a whole, will provide opportunities for students to learn STEM and coding skills. Other products like Roybi are using robots and AI to help with early-age learning and language acquisition. Another company seeking to solve the cost and hardware problems of maintaining a fleet of learning robots in a school is Robotify, which teaches coding and robotics in a virtual setting.
There’s a blockchain for that. What list of emerging technologies would be complete without mentioning blockchain technology? There has also been a proliferation of companies with blockchain-based solutions for the education space, primarily utilizing the immutability of blockchain to secure and verify degrees and credentials. The two companies with some decent fundraising and traction to date include Credly and Learning Machine, while a consortium of recognizable names like ZipRecruiter and Upwork recently launched Velocity Network.
The below chart from HolonIQ shows the exponential growth of these fields in education expected over the next five years.
Who Are the Winners?
Edtech is a big and diverse industry with a large runway of opportunity across the business lifecycle, though ongoing risks (regulation, funding cycles, competition) should remain top of mind for investors. Advances in online learning and emerging technologies will continue to improve educational outcomes. Ultimately, the best companies, investors, and impactors in this space will be those who put the student at the center. Finding ways to reduce costs, deliver quality pedagogy, and demonstrate impactful outcomes will prove to be the long-term winners as the edtech market grows and matures.
Understanding the basics
EdTech stands for education technology.
An EdTech company is an education company that delivers its curriculum in a way that primarily uses technology (e.g., online learning).