Early childhood education in EdTech
What are the early-stage education investment opportunities? Considering the recent EdTech funding pullback and the rise of AI, during my time at Chingona Ventures, I delved into these trends and developments to gain a deeper understanding of how this market could potentially evolve. To gain a comprehensive understanding of the landscape and opportunities, I analyzed the early education industry, including its history, challenges, trends, and EdTech’s connection to Chingona Ventures’ portfolio companies.
Given the rapid adoption of online and remote learning following the COVID-19 pandemic and the sector-agnostic advancements in AI, there are opportunities for early education startups to reshape an industry that has remained largely unchanged for decades by tackling key challenges faced in early education through tech-enabled learning.
For the purpose of this thesis, early education refers to education targeted towards children under six years old.
Early Education Delivery Methods have Remained Largely Unchanged
Kindergarten was first introduced in 1837 in Blackenburg, Germany, and was shortly thereafter imported to the United States. Despite the recognition of the importance of early education, the educational methods employed have remained unchanged since their introduction, disregarding significant technological advancements, evolving social norms, and a deeper understanding of child development. By integrating innovative teaching methods, technology and up-to-date curriculum, there is opportunity to modernize the educational environment.
The Education Sector is Complex and Faces Many Challenges with Educational Delivery and Meeting Learning Objectives
In the complex landscape of education, there are three significant challenges that startups will need to address: managing differences in expectations and state requirements, tackling teacher availability issues, and navigating funding systems and constraints faced by school districts.
The variability in early childhood education programs poses complexity within the system, impacting how scalable services are provided. State and local-level customization presents a specific challenge for B2B early EdTech businesses operating in this space. Expanding operations across multiple states requires operational complexity from EdTech firms, but it also offers the opportunity to establish a competitive advantage or moat.
From the perspective of teachers, challenges such as low pay, insufficient training, and high turnover rates are prevalent in the education landscape. However, these challenges also present an intriguing opportunity for venture-backed startups to create digital solutions and transformative initiatives that specifically address these pain points.
Typically, schools secure their funding through a mix of federal, state, and local resources. The federal government typically allocates funds through programs, state governments contribute through grants, subsidies, and budget allocations and local resources come into play, as communities levy taxes or allocate funds to invest in early education facilities, staff, curriculum and development.The COVID-19 pandemic has further exacerbated schools districts’ budgetary constraints. Thus, quantifying the value that EdTech solutions can provide is crucial when selling their products or services to school districts. EdTech companies can capitalize on the B2B2C or B2C model, showcasing the synergy of their solutions to enable home-based education for children and highlighting the mutually beneficial relationship between their offerings and the facilitation of learning outside traditional school settings. By highlighting the tangible advantages and outcomes that their products and services can deliver, EdTechs can seize the opportunity to capitalize off of a differentiated B2C customer acquisition strategy and effectively position themselves as valuable resources for both schools and families seeking to enhance learning outcomes.
Industry trends
Historically, early childhood education has received relatively little attention in terms of venture capital investments, with only around 3.6% allocated to early child development. However, the rapid pace of technological advancements and the emergence of innovative tools have fundamentally transformed the relationship between education and technology. This presents a significant opportunity to address the challenges faced by the sector. With the increase in AI-driven solutions, there is potential to accelerate both educational and entertainment aspects, leveraging technology to provide engaging and effective learning experiences for children.
The global market for early childhood education is anticipated to experience growth due to the widespread use of virtual classrooms, an increasing focus on digitization, and the incorporation of innovative teaching techniques within educational institutions. According to a report published in 2022 by Brainy Insights, the global early childhood education market is projected to reach $676.7 billion USD by 2030, exhibiting a compound annual growth rate (CAGR) of 11.8% from 2022 to 2030. The market’s growth is fueled by the increasing advancements in technology and the widespread adoption of virtual classrooms, which present significant opportunities for market expansion.
Per a 2021 article by Reach Capital, investment activity in early childhood education had been steadily increasing before experiencing a temporary pause in 2020 due to market uncertainties caused by the pandemic. While the overall funding in this sector is relatively small compared to other areas of education technology, 2021 witnessed a substantial surge in momentum, marking the apex of the pandemic hype cycle. In fact, an unprecedented $516 million was invested in early childhood education, which is nearly equivalent to the total investment made in the previous three years combined. This resurgence of investment highlights the growing recognition of the importance of early childhood education and the potential for innovation in this space.
The surge of capital in 2021 was followed by a more cautious investment climate in 2022, characterized by a decline in company valuations and investment sentiment. This shift can be attributed to the ongoing struggle between rising inflation and interest rates. Despite the pullback, the EdTech sector in 2022 still outperformed pre-pandemic years in terms of investment totals. In fact, EdTech accounted for 2.1 percent of all U.S. venture investment in 2022, slightly lower than the 2.5 percent in 2021 but still double the proportion seen in the previous decade.
With early education, there are 3 main trends for the educational space that are an interesting playground for innovation:
- Education and Entertainment: The emergence of various media platforms has led to the creation of an “edutainment” genre that has facilitated the widespread production and use of content like never before. Despite this, schools still rely primarily on traditional textbook learning, while students spend a significant amount of their free time-consuming online content.
- Target even younger generations: The majority of EdTech companies cater to students who are 12 years of age or older, with a focus on upskilling the workforce. However, this situation emerges as an enticing opportunity for both founders and investors to disrupt the industry, as the current learning system is not equipped to adapt to the workforce changes of the future.
- Leveraging scalable solutions: Leverage technology to reduce the funding and resource constraints facing school districts and teachers.
What businesses are operating in the early education space to date
Numerous startups are endeavoring to transform the landscape of early education by incorporating technology in various ways, such as enhancing accessibility, enabling remote learning, and introducing gamification. Despite the shifting economic outlook in the past year, the global EdTech sector is predicted to be valued at $676 billion by 2030. Within the EdTech landscape, here are a few examples of startups that specifically concentrate on early education:
Fundraising
Main VCs investing in the industry
The EdTech sector in the United States has garnered significant attention and investment from various venture capital firms. Maximilian Fleitmann from BaseTemplates has compiled a valuable list of the primary venture capital firms that invest in such businesses, highlighting the growing interest and commitment to driving innovation and positive impact in the education sector.
Future of early education startups
At Chingona Ventures, our investments in the education sector encompass a range of verticals, ranging from early education to later stages of education and workforce upskilling. We have actively supported and funded businesses that address various aspects of the education journey, catering to learners at different stages of their educational and professional development.
An example is Lirvana Labs, an ML-guided individually-paced learning platform with content and assessments to help kids learn. Lirvana is dedicated to transforming children’s screen time into a positive and productive experience by seamlessly blending education and entertainment.
Yet another case of a Chingona Ventures investment is Papaya, a virtual tutoring platform that connects bilingual STEM tutors in Latin America to U.S. K-12 students. Papaya Tutor aims to expand tutoring access to a broader set of the population.
Encantos, another of our investments, creates stories that help children see the magic in who they are and all they can be. Encantos exemplifies how education and entertainment intersect to provide an engaging learning experience for children.
These examples demonstrate Chingona Ventures’ interest in investing in startups that create and embrace novel education businesses.
Personal Conclusion
I am optimistic about the early education technology prospects arising from the rapid advancements in AI. These exciting developments not only create an opportunity to establish innovative companies catering to children, their families, and educational institutions but also alleviate some of the current challenges in early childhood education. While there are challenges in selling to both B2C and B2B markets, the success stories of companies like Wonderschool and Homer prove that it is indeed achievable. This serves as a clear example of the significant disruptive potential within the early education industry. One promising avenue for revolutionizing the stagnant education sector involves adopting a hybrid model that integrates online and in-person learning.
If you are a founder building in the early education sector, we encourage you to reach out to us through this form.
