Europe is losing the Edtech race. Can it get back on track?
All signs point to the global edtech market growing in value over the next several years. Investment is rising, the market is minimally digitalized, and there remains much space for growth outside of the US, China, and a few Nordic countries. Here’s our perspective at LearnSpace, a European Edtech accelerator based in Paris, on how Europe can establish itself as a player in the global Edtech conversation. Startups: be part of Europe’s rise in Edtech by clicking here to begin your application to become part of LearnSpace’s first cohort — the deadline to apply is April 8th!
“EdTech in Europe is more of a rising tide than a tsunami”, says Benjamin Vedrenne-Cloquet, founder of IBIS capital, an early stage venture investment firm.
The education industry (currently valued at more than €4 trillion) is one of the largest in the world, with a yearly output of about 8x that of the software industry and 3x that of the media and entertainment industry. Massive.
Yet, less than 3% of the global education market has been digitalized to date, a tiny figure when compared to other content industries. The music industry, in comparison, has seen 50% digitalization.
Clearly, there is huge growth potential in the Learning and Education technology (Edtech) space. The global Edtech market, estimated at 180 billion USD (€146 Billion) in 2017, is projected to reach 250 billion USD (€203 billion) by 2020.
The digitalization of learning is inevitable
Done well, it seems hard to deny today that technology can provide unprecedented benefits for learners, including more personalized, interactive, flexible, engaging, and easily-accessible learning. In light of the potential benefits and the growing investment, the question is no longer of if learning will be digitalized but rather of when, where, and how the digitalization will occur.
Europe, despite having collectively spent over €716 billion on education, is still scrambling to get a place at the global Edtech table. Indeed, all Edtech startups that have, or are about to achieve, Unicorn status ($1B valuation) are either Chinese (Vipkid, 17zuoye, Yuanfudao, Hujiang, iTutorGroup), American (Everfi, Hot Chalk, Coursera, Udemy, Udacity, Pluralsight, General Assembly, Knewton, Grammarly, Age of Learning, D2L, AltSchool) or Indian (Byju’s).
At LearnSpace Paris, a European Edtech hub and accelerator, we believe that making Europe a launchpad for global Edtech champions will require a change in both structure and mindset.
European Edtech startups need more funding
Marie-Christine Levet, founder of EduCapital, a Paris-based Edtech VC fund, recently underscored the importance of Europe’s task of making its mark on the sector.
“We need to create French and European Edtech champions or else Chinese and American actors are going to take our place,” she cautioned during a speech at the education conference EduSpot.
Indeed, according to the latest report of Metaari, a US market research firm, global investment in Learning Technology companies reached 9.52 billion USD in 2017 (€7.75 billion), an all-time-high.
Yet funding is still massively dominated by the US and China, with more than 58% of all Edtech funding in 2017 going to US companies and about 19% going to China.
Additionally, KPMG and Google estimate that the Indian online education market will grow eightfold over the next 5 years, climbing from the current figure of 247 million USD (€200 million) to 1.96 billion USD (€1.59 billion) in 2021.
If the predicted growth in the Indian Edtech market becomes a reality, European countries will be left wondering what happened.
For instance, UK Edtech companies raised a total of €236 million and the Nordic countries about €196 million in 2017.
France came in even further behind the European leaders with only 41.7M€ raised over the same time period according to Capital Finance. Yet there are signs of better days ahead.
Is there any hope for Europe?
In 2017 alone, Europe welcomed the arrival of two Venture Capital funds (Brighteye Ventures and EduCapital), both based in Paris and dedicated exclusively to investments in Edtech startups. Based on the successful model of US funds Learn Capital and Rethink Education, these two VC funds have closed €50 million and €45 million respectively and have sparked promising momentum in the French and European Edtech ecosystem.
Moreover, HighGrade Ventures, a 4 million USD (€3.26 million) fund based in London and Tel Aviv has just been launched with the aim of supporting early-stage Edtech companies. It plans to invest in 4–6 startups every year, with seed investments in the range of 250,000 USD (€204,000).
HighGrade was founded by the Israeli Edtech incubator MindCET and Arie Capital, a venture firm that provides funding to Israel tech companies and that is backed by British, Chinese and Israeli investors.
European governments and institutional investors must provide stronger support to Edtech
China is strongly supporting the growth of online education thanks to very favorable government policies and generous investments in Edtech. In 2015 alone, the Chinese government poured $1.07 billion (€871 million) into Edtech startups and plans to invest an overall $30 billion (€24.4 billion) in the sector by 2020.
The US has also largely dominated the Edtech market not only via the massive funding that has flowed into startups from Silicon Valley but also with help from highly decentralized purchasing policies in American schools, which allows US public schools and independent schools the possibility of purchasing Edtech products at the district level.
In contrast, some European countries including France have such complex and impenetrable school procurement systems that they often prevent local startups from quickly scaling across the European continent.
European Edtech startups need increased support from governments and institutional investors
Allowing schools to make their own Edtech procurement decisions, as it is done in the UK to a certain extent, will have the added benefit of making Europe more conducive to investment.
Still, this may unfortunately take a very long time, which is something European Edtech startups cannot afford to waste. Their efforts should be focused on entering international markets where there is stronger penetration and adoption of technology or in where they can bypass the school procurement system.
European startups need to be able to scale faster
Scalability continues to present significant challenges for European startups. The European Edtech landscape is made mostly of small companies that do not yet have the funding necessary to be present in several markets and will thus struggle to scale.
The French Edtech Observatory, which maintains a list of French Edtech players, currently counts 322 Edtech startups in France. To date, only 100 from that list have raised funds and only 30 of these have more than 20 employees. Moreover, funding levels in Europe are persistently more than 10 times lower than US levels. Without a doubt, more and larger investments are needed in the European Edtech industry.
European startups need to think and scale internationally from day one
“Here in Europe, even in the UK, most companies at seed stage are already thinking about international. Whereas, as the US is a bigger market, you can get to your Series B, C stage investments before you really think about international.” says Ben Wirz, founder of European VC fund Brighteye Ventures.
The fact that US and Chinese startups are so focused on their home markets offers a huge opportunity for European startups that can scale internationally at a much earlier stage. For instance, Indonesia respectively has 76 million children aged 10–14 while Vietnam has about 20 million children under the age of 14.
Structures must be created to facilitate the growth of Edtech startups
If Europe wants to vie for a central role in the global Edtech market, more support organisations such as seed funds, incubators, and accelerators need to be developed to back Edtech startups in their growth.
The US counts more than a dozen structures entirely dedicated to supporting Edtech startups such as LearnLaunch, Michelson Runway, StartED or Intel Education accelerator.
In contrast, Europe only counts a much smaller number of structures to date: xEdu in Finland, Emerge in the UK, and LearnSpace in France.
There is no denying that Europe has a role to play in the future of Edtech. Yet, until European startups seize the opportunities offered by international markets, it will be incredibly difficult for global European Edtech startups to emerge.
We can only hope that the launch of our European Edtech hub and accelerator in Paris will contribute to a larger initiative to help Europe get back in the Edtech race. Startups: we invite you to join us in launching Europe’s ascent in the world of Edtech — click here to begin your application to our inaugural program. The deadline to apply is April 8th!
