A few weeks Back, The Exchange examined the pace of edtech exits and found that the sector has seen increasing exit volume over time. All startup industries want to have a history of liquidity. So you can imagine that fundraising for edtech increased even before the COVID-19 pandemic due to the improved exit profile.
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Dollars invested in edtech startups increased, with 2018 and 2019 seeing historically high results in terms of edtech venture capital businesses and venture capital dollars invested.
However, as COVID-19 pushes more students to study from home and forces schools to invest in new tools and other digital features that support distance learning, the exit market will be strengthened and A market shift towards edtech services has led to an explosion in venture capital investment in the sector.
According to CBInsight on the state of edtech’s venture capital activity, startups in this sector have already topped their 2019 venture capital dollar balance sheet and are well on their way to breaking a new record in 2020 and even surpassing the increased result of 2018. Whether more edtech deals will close in 2020 is less clear, but if the current pace continues, 2020 should come a little close to the number of edtech deals in 2018.
What is driving edtech’s huge boom in venture capital results? Let’s examine exactly that.
An edtech boom
The data is pretty clear as the following chart details show. 2018 and 2019 were fantastic and 2020 looks super hot too:
Boosting 2020’s massive VC sums in terms of dollars invested is a mega-round handle – venture deals of $ 100 million or more. According to CBInsights data, edtech startups have closed 13 deals worth $ 100 million or more so far in 2020, which as a group are worth billions of dollars. Indeed, the giant rounds of Yuandudao and Zuoyebang were worth $ 1.75 billion as a couple.
The high concentration of large rounds is also a reason edtech startups are preparing to set a venture capital dollar record, if not a venture capital deal volume record, in 2020.
But don’t think that for early-stage edtech rounds it is all over. According to the same dataset, a historically normal 50% of the edtech deals recorded through August 2020 were seed or angel investments. These transactions are, by definition, worth a far smaller fraction of the dollars made, but the number of very early bets in the edtech space implies that there is still plenty of room to build. We have covered a number of early-stage funding such as Edsight’s $ 1.6 million round and Learn In’s $ 3.5 million round. The gaps in inclusivity, effectiveness, outcomes, and back-end support remain and are a ripe area for new startups to innovate. Additionally, data shows that there is a good pipeline of future deals for future investors who have already shown interest in issuing large edtech checks.
A geographic focus
The CBInsights data also shows that 8 of the 10 best-funded edtech startups are located in China and some of them are geared towards English teaching. China’s edtech scene has historically been larger than other regions due to its high population, consumer habits and cultural focus on education. It grew a lot before the pandemic; As venture investments in China decreased in the first quarter of 2019, edtech grew year on year, bringing in $ 1.86 billion.
In the past few months, edtech startups have closed strategic capital to expand into the China gold mine. Labster, For example, Jenny Lee, who is based in Shanghai, recently raised $ 9 million in capital to invade China. Duolingo also accepted a $ 10 million check to welcome an investor with knowledge of Asian markets, General Atlantic.
Byju’s is from India and is one of the other top funded edtech startups. The personalized learning startup, already the world’s most cherished edtech startup, received a check for $ 500 million from Silver Lake earlier this week. It doubled its sales during the pandemic as it added more than 20 million new students to its platform. The company also acquired 18-month-old White Hat Jr for $ 300 million. And the venture capital firm that invested in both Byju’s and White Hat Jr? Owl Ventures has raised a $ 565 million fund pair to invest in edtech.
The unicorn’s growth during the pandemic is difficult to understand (although we tried), but it sums up how amazing the growth can be.
That growth is part of why edtech’s venture capital results are as strong as they are. Now the challenge for the sector is to keep its growth alive in 2021. This shows investors that their 2020 bets were not just made in a single, overheated year, but also in a startup niche that will keep getting hotter in the years to come.