2017 In Review: Trends, Raises, & More
2017 saw the continued digitalization of the education space, an area that has now been trending upward with regard to investment activity for almost half a decade. In the US, we saw the beginnings of consolidation in K12 and bootcamps. In China, we saw an explosion of interest in tutoring, homework help, and English-language learning. In Europe, we saw the promising beginnings of a fruitful investment space with the launch of the continent’s first two funds dedicated to edtech investment (ourselves included!).
Our 7 Big Headlines for Edtech in 2017
1) GAFAM continued making moves in EdTech. Google, Apple, and Microsoft’s offers are converging as they battle for the K12 device market. Of the three, Apple is in the worst position, as Google leads in the US (60% marketshare) whereas Microsoft leads outside of the US (67% marketshare). Outside of K12, Microsoft is moving into lifelong learning by introducing tutoring accounts on Skype and developing education apps on Hololens, its highly-regarded AR product. Google is making plays in the worlds of AR/VR educational content. Amazon is building adaptive learning algorithm for writing and math (TenMarks) as well as developing a marketplace for educational materials (Inspire).
2) Social networks continued moving into the training space. LinkedIn Learning began developing accredited courses and trainings. Facebook launched Developers Circles, an initiative for training beginners on how to build Facebook apps, in addition to providing digital literacy trainings across the US and Europe.
3) Edtech investments boomed in China. 2017 was a huge year for Chinese edtech. Of the 16 edtech IPOs in 2017, 7 were Chinese companies. Additionally, 7 companies raised funding in excess of $30M (including 2 over $100M). The areas of heavy investment for China were private schools, tutoring, and English language learning. More on this below.
4) Optimism about adaptive learning turned to realism, as Silicon Valley darlings AltSchool and Knewton received harsh market feedback. AltSchool, a group of innovative schools, closed 2 of the 6 brick-and-mortar locations that were open in January 2017, and stated an intention to monetize by licensing its adaptive learning algorithm. Knewton, an adaptive learning algorithm from the start, was ill-received, lost investors, and pivoted to becoming a textbook competitor.
5) Bootcamp best practices began taking shape. The bootcamp market, worth $260M and growing rapidly (2017 = 2x 2016 = 10x 2012), saw high-profile despite strong demand. 6 bootcamps closed, including once-leaders Dev Bootcamp and Ironyard. Bootcamps aim to rapidly, effectively address the gap in perception between universities and employers of the job-readiness of recent graduates. And the idea is gaining momentum: companies and universities (Rutgers and Oxford among them) are collaborating with, or building their own, bootcamps. Recently, WeWork acquired Flatiron and has begun offering bootcamp training as part of its growing suite of company-customized services.
6) MOOCs monetization structures continued to evolve as the total number of MOOC learners grew to 78M. MOOCs, considered dead by many, are alive and continuing their business evolution. While the number of new learners was fewer than last year (20M vs. 23M in 2016), the number of paying users increased. For example, the number of paying Coursera users went up 70% this year. An analysis from Class Central delineated the following 6 levels of MOOC — free, certificate, micro-credential, university credit, online degree, corporate training — with each tier adding value for a fee. Furthermore, MOOCs developed in directions proven to be compatible with the desires of lifelong learners: self-paced, mobile, micro-learning. Says Class Central: “Who knows, 2017 could just have been the year MOOCs became big business.”
7) PE drove consolidation in the K12 market. PowerSchool (Vista Equity), Frontline Education (Thomas Bravo), and Hero K12 (BV Investment) have combined to spend over $1B in making 18 acquisitions since 2014. The goal is to build all-purpose digital learning and management platforms that fulfill a similar purpose for schools as what talent-suite LMS like Cornerstone fulfill for corporations.
Overview of Raises by Geography
- $3.48B+ raised
- 198+ deals
- $19M average investment
- $5M median investment
- 86 acquisitions
French edtech companies raised ~$50M over 24 rounds. The 3 biggest rounds went to:
- JobTeaser ($15M) — platform for finding one’s first job
- Side ($5M) — marketplace for student work
- Simplon.co ($4.75M) — school for webdev
Overall, it seems that B2B business models targeting corporations and universities were the most attractive to French investors.
$1.2B were raised over 126 rounds. The 3 biggest rounds were:
- EverFI ($190M) — an online learning platform for K12, universities, and corporations
- Hero ($150M) — a behavioral analytics provider for businesses
- Grammarly ($110M) — an auto-correcting software with a freemium/B2C model
Overall, the total amount of funding raised was greater than that in 2016 but the number of deals was lower. Also, investment tended to take place at later stages. The most active funds overall were Learn Capital, Omidyar Network, and University Ventures. Reach Capital had the lowest average investment, from which we can conclude that it focuses on earlier-stage companies. On the contrary, Owl Ventures invested more than any other fund by total amount despite making the second-fewest investments.
$950M were raised over 12 rounds. The 3 biggest raises in China were:
- VIPKID ($200M) — tutoring for K12
- Zuoyebang ($150M) — tutoring for K12
- Yuanfandao ($120M) — tutoring for K12
As we see below, these are in line with general trends regarding where Chinese investors were interested in allocating capital.
Additionally, 7 out of the 16 global edtech IPOs were Chinese companies. Of these 7, 3 were listed on the NYSE, 3 on the HKSE, and 1 on the NASDAQ. The amounts raised ranged from $100M to $240M and the notable industries of operation were English language training, schools, pre-K, and math tutoring.