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VCs pour funding into edtech startups as COVID-19 shakes up the market
A few weeks back, The Exchange looked into the pace of edtech exits, noting that over time, the sector has delivered rising exit volume. All startup verticals want to demonstrate a history of liquidity, so you might imagine that even before the COVID-19 pandemic, edtech fundraising was rising due to its improving exit profile.
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And dollars invested into edtech startups did increase, with 2018 and 2019 recording historically elevated results concerning edtech venture capital deals and venture capital dollars invested.
However, with COVID-19 pushing more students to learn from home and forcing schools to invest in new tooling and other digital capabilities that support remote-learning, a strengthening exit market and a market shift toward edtech services has led to an explosion in venture capital investment in the sector.
According to CBInsight’s data concerning the state of edtech venture capital activity, startups in the sector have already surpassed their 2019 venture capital dollar tally and are on track to set a new record in 2020, besting even 2018’s elevated result. Whether more total edtech deals will be closed in 2020 is less clear, but if current pace holds, 2020 should come somewhat close to 2018’s edtech deal count.
What’s driving the huge boom in edtech’s venture capital results? Let’s dig into just that.
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3 bearish takes on the current edtech boom
Edtech is booming, but a short while ago, many companies in the category were struggling to break through as mainstream offerings. Now, it seems like everyone is clamoring to get into the next seed-stage startup that has the phrase “remote learning” on its About page.
And so begins the normal cycle that occurs when a sector gets overheated — boom, bust and a reckoning. While we’re still in the early days of edtech’s revitalization, it isn’t a gold mine all around the world. Today, in the spirit of balance and history, I’ll present three bearish takes I’ve heard on edtech’s future.
Quizlet’s CEO Matthew Glotzbach says that when students go back to school, the technology that “sticks” during this time of massive experimentation might not be bountiful.
“I think the dividing line there will be there are companies that have been around, that are a little more entrenched, and have good financial runway and can probably survive this cycle,” he said. “They have credibility and will probably get picked [by schools].” The newer companies, he said, might get stuck with adoption because they are at a high degree of risk, and might be giving out free licenses beyond their financial runway right now.
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EdSights raises money to help schools reduce their drop-out rates
While the idea of baring your soul to a chatbot might seem uncomfortable, sisters Claudia and Carolina Recchi think that might be exactly what college students across the United States need right now.
The duo co-founded EdSights in 2017 to support high and medium-risk students to stay in school, and increase university retention rates.
EdSights uses a chatbot, branded under a school’s mascot, to send personalized questions and messages to students to understand their biggest stresses. It then connects them to university resources spanning areas like financial aid, food security and mental health.
As the pandemic has forced millions of students to move off campus and learn from home, the co-founders have found a spurt of growth from colleges looking for new ways to hold onto their students.
And the pandemic has added a new layer of honesty to the answers.
“There is just so much going on with the world, people losing jobs and barely being able to make ends meet. School hardly seems pressing at the moment,” one student wrote. “And yet, grades are still there, determining our future when we aren’t even sure what the future looks like.”
Another wrote, “My work is closed. I have no income.” One said, “Because I am not going out I can’t distract myself from all the things going on in my life.”
Beyond its chatbot, EdSights has a dashboard for administrators to see what percentage of their students are struggling with specific issues at the moment. The company deals with information on high-risk students and their biggest worries, so privacy is key to their platform. EdSights says it complies with both FERPA and GDPR regulation, and does not rent or sell data to third parties. Students also have the right to request an amendment of their records and receive a full log of it.
“Obviously, universities are also spooked that students won’t show up in the fall,” she said. “So they want to make sure that there’s a connectivity and they feel connected to the university, even if they can’t go to campus.”
The company took one year to scale to 16 customers, including Baker University, Missouri Western State, Bethel University, Culver Stockton College and Westminster College. On average its ARR has been growing by 66% month over month, and it has doubled its revenue since February.
EdSights charges colleges $15 to $25 per student. Most customers bring on their entire student body.
“Before this, we did see a lot of universities asking, ‘can I roll this out to freshmen or can I only roll it out to my first-generation students or maybe those that need additional support?’ ” said Carolina Recchi. “Now, colleges are not only asking us to help with all four years, but we’ve had some institutions ask us to roll it out to graduate students, which was new, because we had never done that before.”
This newfound momentum led the co-founders to raise $1.6 million in venture capital funding from a slew of high-profile investors. Investors from this round include Lakehouse VC, Kairos VC and The Fund.
The new raise also includes investments from Warby Parker, Harry’s, Allbirds, Bonobos and Rent the Runway founders.
The EdSights co-founders say COVID-19 played a part in their company receiving inbound interest from generalist investors, who have been historically skeptical about the space, versus solely getting term-sheets from specialist education firms. In fact, the duo had to turn down a number of investors, a stark difference between the chilling effect other founders claim has covered the entire fundraising scene.
EdSights new funding is another data point of how the pandemic is forcing the general public to be more nuanced in how it thinks about the intersection of education and technology.
In the time of a pandemic, a chatbot could be the only way to remotely support millions of students. Now, it’s just up to EdSights to prove that their technology is necessary in a world where schools start to reopen, whenever that is.
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