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What we can learn from edtech startups’ expansion efforts in Europe

Published September 18, 2021
Rhys Spence
Contributor

Rhys Spence is head of research at Brighteye Ventures, a European edtech-focused fund, where he works with portfolio companies to help address priorities, with a focus on internationalization.
More posts by this contributor

It’s a story common to all sectors today: investors only want to see ‘uppy-righty’ charts in a pitch. However, edtech growth in the past 18 months has ramped up to such an extent that companies need to be presenting 3x+ growth in annual recurring revenue to even get noticed by their favored funds.

Some companies are able to blast this out of the park — like GoStudent, Ornikar and YouSchool — but others, arguably less suited to the conditions presented by the pandemic, have found it more difficult to present this kind of growth.

One of the most common themes Brighteye sees in young companies is an emphasis on international expansion for growth. To get some additional insight into this trend, we surveyed edtech firms on their expansion plans, priorities and pitfalls. We received 57 responses and supplemented it with interviews of leading companies and investors. Europe is home 49 of the surveyed companies, six are based in the U.S., and three in Asia.

Going international later in the journey or when more funding is available, possibly due to a VC round, seems to make facets of expansion more feasible. Higher budgets also enable entry to several markets nearly simultaneously.

The survey revealed a roughly even split of target customers across companies, institutions and consumers, as well as a good spread of home markets. The largest contingents were from the U.K. and France, with 13 and nine respondents respectively, followed by the U.S. with seven, Norway with five, and Spain, Finland, and Switzerland with four each. About 40% of these firms were yet to foray beyond their home country and the rest had gone international.

International expansion is an interesting and nuanced part of the growth path of an edtech firm. Unlike their neighbors in fintech, it’s assumed that edtech companies need to expand to a number of big markets in order to reach a scale that makes them attractive to VCs. This is less true than it was in early 2020, as digital education and work is now so commonplace that it’s possible to build a billion-dollar edtech in a single, larger European market.

But naturally, nearly every ambitious edtech founder realizes they need to expand overseas to grow at a pace that is attractive to investors. They have good reason to believe that, too: The complexities of selling to schools and universities, for example, are widely documented, so it might seem logical to take your chances and build market share internationally. It follows that some view expansion as a way of diversifying risk — e.g. we are growing nicely in market X, but what if the opportunity in Y is larger and our business begins to decline for some reason in market X?

International expansion sounds good, but what does it mean? We asked a number of organizations this question as part of the survey analysis. The responses were quite broad, and their breadth to an extent reflected their target customer groups and how those customers are reached. If the product is web-based and accessible anywhere, then it’s relatively easy for a company with a good product to reach customers in a large number of markets (50+). The firm can then build teams and wider infrastructure around that traction.

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Duolingo boosts IPO price target in boon to edtech startups

Published July 26, 2021

U.S. edtech company Duolingo released a revised IPO price range this morning, boosting its potential per-share value to $100 after initially targeting a range that topped out at $95 per share.

Per the unicorn’s SEC filings, Duolingo is now targeting a $95 to $100 per share IPO price range, up from $85 to $95 per share, or a gain of around 12% at the bottom and 5% at the top.

TechCrunch previously called the Duolingo debut a bellwether of sorts for the larger U.S. edtech ecosystem; if Duolingo can price and trade well, investors in private companies may be more willing to invest, given a more proven and attractive exit market. On the other hand, if Duolingo prices weakly or trades poorly, the company could place a wet blanket atop the startup edtech world.

The fact that Duolingo is raising its IPO price range indicates that we are more likely on the path for a strong offering than a weak one.

For edtech companies that have hit unicorn status — like Masterclass, Course Hero, Quizlet and Outschool — it’s good news. For reference, those companies have raised $461.4 million, $97.4 million, $62 million and $130 million, respectively, per Crunchbase data.

What’s Duolingo worth?

The terms of the company’s IPO have not changed, aside from its proposed price. So, Duolingo is still selling 3.7 million shares in its debut, and some 1.41 million shares will be sold by existing equity holders. The company’s underwriters also reserved their right to buy 765,916 shares of the company’s stock at IPO price in the 30 days following its debut.

At the upper and lower bands of the company’s IPO price, its simple valuation excluding underwriter shares now lands between $3.41 billion and $3.59 billion. Inclusive of its greenshoe offering, those numbers rise to $3.48 billion and $3.67 billion.

Recall that when private, Duolingo’s November 2020 Series H valued the company at just over $2.4 billion. So long as Duolingo prices in its range, it will provide investors with a nice bump in the value of their investment. Duolingo was valued at just $1.6 billion in mid-2020, indicating that it has more than doubled in value since that investment.

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The 2021 edtech avalanche has just begun

Published July 1, 2021
Rhys Spence
Contributor

Rhys Spence is head of research at Brighteye Ventures, a European edtech-focused fund, where he works with portfolio companies to help address priorities, with a focus on internationalization.

Last week was a good one for edtech in Europe.

GoStudent became Europe’s first edtech unicorn (IPO’d companies aside), raising its third round in 12 months and the biggest ever in the sector in Europe. Brighteye Ventures’ analysis showed that VC investments in European edtech had breached $1 billion in a calendar year for the first time, even without GoStudent’s mega-round, with six months left to go.

Edtech deal flow in 2021 looks set to match or even outpace 2020 levels, per the report: At $9.4 million, average deal size is triple 2020 levels; seven companies have raised $50 million in five different markets; and the U.K. has more than three times as many deals as the next individual market.

Deal size progression in edtech over the years

Deal-size progression in edtech over the years. Image Credits: Brighteye Ventures

It’s interesting that we are not seeing enormous increases in deal count. The $1.05-billion mark in the report is spread across 111 transactions — there were 237 in 2020, so we could expect a similar total this year. More funding and stable deal count of course means that we are seeing significant increases in deal size.

It seems generalist investors are recognizing that edtech investments can reap outsized returns, similar to sectors like deep tech, health tech and fintech.

We can draw a few conclusions from this. We can construe that companies created last year and in previous years matured significantly during the pandemic due to increased demand. Moreover, this rapid natural selection process provided insights on verticals and possible winners.

Lastly, it seems generalist investors are recognizing that edtech investments can reap outsized returns, similar to sectors like deep tech, health tech and fintech.

This is contributing to larger early rounds than we have seen in previous years — investors can’t pick the winner, but they can slant the playing field instead. We therefore expect to see a surge in the number of pre-seed, seed and Series A rounds in the second half of 2021, as companies founded during the pandemic begin to raise meaningful funding.

Another reason that edtech is being taken seriously by generalist investors is that the true size of the market (and the extent of digitization to come) is becoming more conceivable.

Spending on edtech is undergoing a similar growth to that of media spending in 2010

Edtech spending is growing like media spending did in the 2010s. Image Credits: Brighteye Ventures

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Duolingo’s S-1 depicts heady growth, monetization, new focus on English certification

Published June 29, 2021

Duolingo filed to go public yesterday, giving the world a deep look inside its business results and how the pandemic impacted the edtech unicorn’s performance. TechCrunch’s initial read of the company’s filing was generally positive, noting that its growth was impressive and its losses modest; Duolingo recently began making money on an adjusted basis.

While the company’s top-level numbers are impressive, we want to go one level deeper to grow our understanding of the company beyond our EC-1.

Duolingo is likely entering a period in which it will have to invest heavily in features like pronunciation, efficacy and new apps — which could come at a steep upfront cost.

First, we’ll explore the growth of Duolingo’s total user base, how much money it makes per active user, and how effectively the company has managed to convert free users to paid products over time. The numbers will set us up to understand what else can be learned about Duolingo’s business beyond our original deep dive into the company’s finances — specifically underscoring the pressure cooker it finds itself in when looking for new revenue sources.

Starting with Duolingo’s growth in total active users, guess how fast they rose from 2019 to 2020. Hold that number in your head.

The actual numbers are as follows: In 2019, Duolingo closed the year with 27.3 million monthly active users (MAUs); it wrapped 2020 with 36.7 million MAUs. That’s a gain of 34%. If we narrow our gaze to Q1 2021 numbers compared to Q1 2020, we can see that Duolingo’s MAUs rose from 33.5 million to 39.9 million, or growth of around 19%.

The Duolingo EC-1

The bulk of Duolingo’s growth, then, came in early 2020 when we consider its pandemic bump. Put more simply, the company scaled from 27.3 million MAUs at the end of 2019 to 33.5 million MAUs at the end of Q1 2020; from then, the company added 3.2 million more MAUs throughout 2020 and 6.4 million during the next four quarters.

Another lens through which to view the numbers is simply a recognition that first-quarter results at Duolingo appear to be stronger than results in the rest of the year, perhaps due to New Year’s resolutions to learn a new language or brush up on a second language learned in high school.

Next, let’s examine Duolingo’s monetization efforts regarding converting free users to paying users.

Here we can see a very different growth story. While the company’s MAUs rose 34% from 2019 to 2020, the company’s paying users rose from 900,000 at the end of 2019 to 1.6 million at the end of 2020. That is a far sharper gain of 84% on a year-over-year basis.

So, while Duolingo did see material user growth during 2020, it saw turbocharged expansion in the users it was able to shake revenue from. Improved monetization, more than acceleration in user growth, was the pandemic’s effect on Duolingo.

What can we see in the company’s more recent results? From Q1 2020 to Q1 2021, Duolingo’s paid subscribers rose from 1.1 million to 1.8 million, a gain of around 64%. That was a slower pace than the company managed more generally in 2020, which matches Duolingo’s slower revenue growth in Q1 2021 than it recorded in 2020.

The number is still strong, we think. But not as impressive as the more than 100% revenue expansion that the company put on the board last year.

In percentage terms, 3.3% of Duolingo’s MAUs were paid subscribers in 2019. That figure rose to 4.4% in 2020. And in Q1 2021, it reached 4.5%. Duolingo rounds that number to 5% in its S-1, which feels somewhat aggressive to us, given the somewhat modest pace at which the metric is improving. Here’s the wording:

As of March 31, 2021, approximately 5% of our monthly active users were paid subscribers of Duolingo Plus. Our paid subscriber penetration has increased steadily since we launched Duolingo Plus in 2017 and, combined with our user growth, has led to our revenue more than doubling every year since.

A gain of 0.1 percentage point in a quarter is growth, we suppose.

Next, let’s chat about revenue per MAU. To get consistent numbers, we’ll divide quarterly revenues by MAU figures from the same period. So, we’ll compare Q4 2019 revenue at Duolingo with its year-end MAU figure. We’ll do the same for 2020, and for Q1 2021 we’ll use both numbers from that period.

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Edtech investors are flocking to SaaS guidance counselors

Published June 15, 2021

ApplyBoard, a startup that helps international students find opportunities to study abroad, announced today that it has nearly doubled its valuation in a little over a year. The Ontario-based company is now worth around $3.2 billion after raising a $300 million Series D round led by the Ontario Teachers’ Pension Plan Board.

Startups that help students navigate institutional bureaucracy so they can get more value out of their educational experience may become a growing focus for investors as consumer demand for virtual personalized learning increases.

ApplyBoard makes money from revenue-sharing agreements with colleges and universities. If a student attends a college after using their services, ApplyBoard receives a cut of the tuition. Meanwhile, the service, which helps students search and apply to schools, is free to use.

Co-founder and CEO Martin Basiri did not share specifics on revenue, but he confirmed that his company is growing its sales at a 400% year-over-year rate in 2021. For context, sales in 2019 hit $300 million, meaning that ApplyBoard is making at least $1.2 billion in sales this year.

These figures violate the prevailing edtech narrative from last year: Higher ed is dead! Students don’t want to attend college anymore. Bring back the gap year, but make it permanent!

Instead, this company is proving that the university tech stack is more lucrative than many assumed, especially if you look beyond content offerings and into back-end marketing support.

My take: Startups that help students navigate institutional bureaucracy so they can get more value out of their educational experience may become a growing focus for investors as consumer demand for virtual personalized learning increases.

“Students want a seamless and pain-free application process”

ApplyBoard’s recent fundraising efforts shed a light on its strategy to become, effectively, a tech-savvy guidance counselor for the approximately 200,000 students that it has served to date.

The company raised a $55 million extension round in September to bring on a partner, Education Testing Services (ETS) Strategy Capital, the venture arm of the world’s largest nonprofit education testing and assessment organization. ETS helps administer the TOEFL English-language proficiency test and the GRE graduate admissions test.

The synergies there led ApplyBoard to launch ApplyProof, a service that helps admissions and immigrant officers verify documents that international students need to apply to colleges around the world. Today’s financing event similarly brings in a strategic investor, Ontario Teachers’ Pension Plan.

“The demand remains high post-pandemic and we continue to see a strong, pent-up demand from students wishing to study abroad,” Basiri said. “Students want a seamless and pain-free application process and be able to have all the information they need to make an informed decision.”

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Edtech stocks are getting hammered but VCs keep writing checks

Published May 14, 2021

After years in the backwaters of venture capital, edtech had a booming 2020. Not only did its products become must-haves after schools around the globe went remote, but investors also poured capital into leading projects. There was even some exit activity, with well-known edtech players like Coursera going public earlier this year.

But despite a rush of private capital — which has continued into this year, as we’ll demonstrate — edtech stocks have taken a hammering in recent weeks. So while venture capitalists and other startup investors are pumping more capital into the space in hopes of future outsize returns, the stock market is signaling that things might be heading in the other direction.

Who’s right? One investor that The Exchange spoke to noted that market turbulence is just that, and that he’s tuning into activity but not yet changing his investment strategy. At the same time, the recent volatility is worth tracking in case it’s a preview of edtech’s slowdown.

The Exchange explores startups, markets and money. 

Read it every morning on Extra Crunch or get The Exchange newsletter every Saturday.

Let’s look at the changing value of edtech stocks in recent months, parse some preliminary data via PitchBook that provides a good feel for the directional momentum of edtech venture capital, and try to see if there’s irrational exuberance among private investors.

You could argue that it’s public investors who are suffering from irrational pessimism and that private-market investors have the right of it. But since public markets price private markets, we tend to listen to them. Let’s go!

Falling shares

We’re sure that you want to get into the private-market data, so we’ll be brief in describing the public-market carnage. What follows is a digest of edtech stocks and their declines from recent highs:

  • Compared to its 52-week high, Chegg stock has lost over a third of its value.
  • After reaching $62.53 per share in April, Coursera has shed about half of its value and is trading close to its $33 IPO price.
  • 2U closed at $33.92 per share yesterday, its shares also losing half of their value compared to their 52-week high.
  • Staying on that theme, Stride (K12) closed at $26.77 per share yesterday, which is about half of its 52-week high.

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The Duolingo EC-1

Published May 3, 2021

Education may well be the most important activity we conduct as a society — and it may also be the hardest space to build a startup in. Selling to school districts and universities is notoriously difficult, but enticing consumers is even harder. Learning takes focus, patience, tenacity and resources, and most consumers would prefer to watch some lip-sync videos on TikTok than stare at math equations (not to mention that such entertainment is free). Engagement and education feel aggressively at odds, which limits the way that startups can scale and succeed.

Yet, the revulsion VCs have traditionally had for the space has slowly dissipated over the past 10 years. Consumer and enterprise startups in edtech are increasingly attracting funding, and there is a growing crop of edtech-focused investors who are betting big on the future here. What’s changed isn’t the market or its potential, but rather the perception that ambitious and sustainable companies can truly be built in education.

One of the companies that has led the charge in transforming those perceptions is Pittsburgh-based Duolingo. It’s a language-learning app that has caught fire. From humble origins a decade ago as a translation platform for news agencies, it’s now used by 500 million people across the world to learn Spanish, English, French and more, all while generating bookings of $190 million in 2020. It’s a smashing success, but a success that was hard earned after a years-long effort of product and revenue experimentation to find its current niche.

TechCrunch’s writer and analyst for this EC-1 is Natasha Mascarenhas. Mascarenhas has been covering edtech from the very first day she joined TechCrunch as a venture capital and startups writer, and she has built up a reputation as a fearless chronicler of this increasingly vital ecosystem. The lead editor of this package was Danny Crichton, the copy editor was Richard Dal Porto, and illustrations were created by Nigel Sussman.

Duolingo had no say in the content of this analysis and did not get advance access to it. Mascarenhas has no financial ties to Duolingo or other conflicts of interest to disclose.

The Duolingo EC-1 comprises four main articles numbering 12,200 words and a reading time of 48 minutes. Here’s what’s in store:

And finally, note that Duolingo CEO and co-founder Luis von Ahn is coming to Disrupt, so make sure to grab your tickets because the conversation will continue there.

Discover how Duolingo started with CEO Luis von Ahn at Disrupt 2021

We’re always iterating on the EC-1 format. If you have questions, comments or ideas, please send an email to TechCrunch Managing Editor Danny Crichton at danny@techcrunch.com.

How a bot-fighting test turned into edtech’s most iconic brand, Duolingo

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