Like airlines, global freight shipping and international trade, the trans-national education market has suffered during the global pandemic. The impact has been almost universal, affecting education exporters like Australia, the UK, the USA, and Canada and education importers such as India and China. In Australia alone, the tertiary sector has lost an estimated $4 billion in revenue from international students who will not be returning to Australian universities until at least 2022. According to the OECD, around half of the world’s students have been affected by full or partial school closures in 2020, affecting 1.7 billion students in 188 countries.

This background sets the stage for a potential gold rush in the EdTech sector as education administrators investigate new ways of delivering content to students from K-12 through tertiary education. Technology-driven education and training is big business in the post-school sector, and for firms looking to deliver in-house solutions for staff development. Investment in EdTech was already growing prior to COVID-19 but analysts are now seeing a global surge as schools, universities and training organisations continue to pivot towards virtual classrooms and e-learning applications.

EdTech beyond Zoom

Cloud-based video-chat applications such as Zoom, Skype and Microsoft Teams have become a staple of the work-from-home-economy and for home-schooling.

Hand-held devices integrate students and teachers with cloud-stored resources, streamlined assessment and continuous learning that can be customised and integrated at scale to encourage both individual engagement and live interaction in real time and across physical distances.

EdTech is now integrated within the classroom, across the school and vertically throughout the entire sector. There is no doubt that as vaccine roll-outs move populations closer to herd immunity and students shift back into the classroom, EdTech will remain embedded in all forms of learning as new suites of tools are deployed in the classrooms of the future.

Some would say this is long overdue, and that with only five percent of spend currently dedicated to technology (relative to 50 percent in the health sector), the education sector is ripe for further disruption - and its not just in the K-12 and tertiary education fields. EdTech solutions are now gaining currency across many industries that have discovered a need to pivot an existing workforce by retaining, upskilling and retraining staff.

Massive Open Online Courses (MOOCs) and integrated content platforms are just the first wave. Language apps, virtual tutors and new learning software are growing in popularity as their functionality and serviceability improve.

Over the next 5-10 years, artificial reality (AR), virtual reality (VR), artificial intelligence (AI), robotics and blockchain technologies will be integrated to nearly all aspects of education and training. Immersive technologies are beginning to move out of the gaming space, and the education sector is the logical next home. VR and 3D training solutions are also a good fit for industries that have a large workforce in the field - such as solar installation and building environment management at scale.

The EdTech money trail

According to market intelligence firm HolonIQ, of the $6.2 trillion total annual education spend on capital and non-capital goods and services , only 5% is earmarked for digital transition. The good news is that spending on EdTech is likely to almost double to around $404 billion between now and 2025.

Venture capital investment in EdTech was around $16.1 billion in 2020 according to HolonIQ, with the bulk of that investment coming from China, closely followed by the USA, and with India taking up a distant third spot. Europe and the rest of the world have a lot of catching up to do. Since 2015, China has outspent the rest of the world and in 2020 accounted for 62 percent of total venture capital investment in EdTech. That’s a lot of cash.

China is arguably the leading EdTech market, with an addressable market of some $70 billion (RMB 450 billion) in 2021 - a growth rate of 12% over the previous year. The standout success has been Yuanfudao with a platform that delivers AI-assisted virtual classes, live tutoring and homework support for 400 million K-12 students. In October 2020, Yuanfudao announced it had raised $2.2 billion from two funding rounds, almost doubling its valuation in less than seven months to $15.5 billion. While Yuanfudao has risen to become one of the most sought after EdTech companies and is now backed by Hillhouse Capital, Tencent Holdings, Boyu Capital, DST Global, GIC and Temasek, to name just a few, IDG Capital has long supported Yuanfudao’s vision after handing over its $2m cheque in its Series A round in August 2012.

The not-so-rare EdTech unicorns

According to Holon IQ there are currently 28 private companies with a $1 billion valuation in the EdTech space. These unicorns have a collective value of $84 billion and have raised over $18 billion in funding over the past decade.

There is no single sub-segment of the EdTech sector that is gaining investor interest over another.

Tertiary course provider Coursera, which offers over 3,800 courses from individual units to full degrees in partnership with some of the world’s leading universities, was elevated to unicorn status in 2019 after its $103m Series E round.

Outschool is aimed at a totally different market sector - young children and their parents. Outschool offers small group after school virtual sessions on everything from mathematics to Minecraft gaming sessions. The company has a market valuation of $1.3 billion and booked more than $100 million in student fees in 2020. CEO Amir Nathoo recently told TechCrunch that Outschool hopes to achieve revenue sustainability and move into profitability in the short term: “My goal is to always stay within touching distance of profit, but it makes sense to invest aggressively into opportunities that will make sense in the long-term.”

Where are the Exit Opportunities?

While there has been plenty of fund raising activity of late, the EdTech sector has also enjoyed a plethora of exits, including 45 exits in 2019, 35 in 2020 and 24 so far this year.

Indian decacorn Byju, often noted as the world’s most successful EdTech start-up, raised over $1.5 billion in the last 18 months and has aggressively launched into the US market this year via its targeted M&A strategy. Byju has picked up White Hat Jr’s coding app for kids and educational gaming company Osmo.

There have also been a couple of high profile IPO rounds in the EdTech space, including Coursera’s US$ 519 million raise in March 2021

The jury is still out on the future of SPACs, but for now activity looks strong with five SPACS in the market looking to launch into the EdTech space this year: Class Accleration Corp, EdtechX, Edify, Adit EdTech Acquisition and Oaktree Acquisition Corp (OAC).

Oaktree is partnered with a US-based telehealth company with an implied Enterprise Value of $USD 1.6 billion. In 2019 EdtechX merged with Chinese company Meten Education to begin digital delivery of English Language Training in the local market, while more recently Edify raised $USD 276 million and is still seeking diversified acquisition targets in the EdTech, workforce development and HDM sectors.

Class Acceleration, which also raised $225 million in early 2021, has not yet named a target. CEO Michael Moe says that as well as the US, the company is looking at potential buys across APAC in Vietnam, China, India, the Philippines, Singapore. These markets are attractive because of their younger demographics, strong economic growth, and cultural emphasis on education.

To be successful, investors must look to new and emerging education technologies that will be enduring beyond the pandemic. Michael Moe offered up his wish list in this interview with EdSurge - it includes using AI to personalise learning experiences, and a “Hollywood meets Harvard” mission to increase learner engagement through the use of entertainment and storytelling. There is also a focus on harnessing the growth of life-long learning by creating a seamless way of accumulating course credits through integrated adult learning that is independent of any one institution (the Coursera model).

The sector has been growing steadily for several years and it certainly proved its value during the worst of the pandemic. With innovation being the key driver, new products are coming onto the market regularly, start-ups are quickly reaching unicorn status, and there are many private companies in the category looking to an exit strategy. There is still plenty of room for the savvy and patient investor to play in this space.

Please reach out to Fiona Robertson on fr@northridgepartners.com for more detail if you would like to learn more about North Ridge Partners’ EdTech focus!