PREPARING FOR IMPACT: WHAT’S CHANGING EDTECH INVESTMENT

What a difference a decade makes.

Starting in 2010, a host of developments began to fuel excitement around building technology to support teachers and students in grades K through 12. In that year, the U.S. Department of Education released its first National Education Technology Plan and backed it up with funding for districts. Apple created the first iPad, and a year later, Google released its first Chromebook. At the same time, software could be stored “in the cloud” and updated on hundreds of computers at once with merely a few clicks. And nonprofits began to push the government to redirect federal funding to pay for more bandwidth to schools. With these developments starting to take shape, an opportunity opened for a generation of young entrepreneurs to build solutions designed to make a difference in the classroom.


Investors plunged into those churning currents: Private capital investments in K-12 edtech products for the U.S. market peaked in 2015, cresting at more than $500 million in a single year. Since then, the frenzied optimism of the first half of the decade has quieted. Educators have grown more savvy about why, when, and how to use technology, and what tools to use. The federal government has largely ceded leadership in education to the 50 states. Much as in other technology sectors of the economy, edtech investors have opted to make larger, safer bets on fewer companies—and raised their demands on companies seeking investment.


This is the story of how investments in edtech products for U.S. K-12 teachers and students have matured over the past three years—a tale that holds important clues for the years ahead.

In 2015, funding for K-12 products reached a record high—$548M to be exact.

Two other areas of edtech investment—postsecondary and informal learning—clocked in at less than that combined.

Macro Trends
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But from 2016 to 2018, funding for K-12 products remained flat at around $318M. At the same time, funding for postsecondary and informal learning took off.

Funding by Product Category, 2016 - 2018

Why was there growth in postsecondary and informal learning products?

Our research suggests that investors had more confidence investing in business-to-consumer models. By selling directly to parents, learners and educators, the products promised a faster sales cycle and more revenue than business-to-institution models, with the potential to bring in a higher return on investment.

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So, what's happening in K-12 investment?

Over the past three years, there have been fewer investments, but the average size of those deals has grown from $3.5M in 2016 to $5.4M in 2018.

Average Dollars Invested by Number of Deals, 2016 - 2018
K-12 Products

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What’s driven up the average deal size?

There are now higher standards for investing.
Investors told us that they used to invest in companies that showed user growth. Now they look for companies that demonstrate growth in sales, revenue and renewals.

When evaluating the U.S. K-12 edtech market, which of these has changed most over the last three years?
1 = Least Changed and 6 = Most Changed

The number of edtech accelerators has declined compared to years past. At the same time, more companies are bootstrapping funding (e.g., relying on friends and family, or even crowdfunding) to demonstrate sales and revenue before reaching out to investors to raise capital.

All of this results in investment occurring later in a company's lifecycle, but at a higher dollar amount.

Survey respondents agree, indicating that a "shift in deal dynamics” (e.g., amount of deals, size of deals, length of funding rounds) has changed the most in the U.S. K-12 market over the past three years, in comparison to five other factors.

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How does funding differ by K-12 product category?

Funding for curriculum products is down—to just 25 percent of the K-12 sector, while funding for tools supporting classroom teachers and products for streamlining school operations has grown.

Percentage of Dollars Invested by K-12 Product Category, 2016 - 2018

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Why is curriculum funding down since 2016?

There are fewer and fewer deals, but with similar average deal sizes—at around $3.6M—which suggests that investors are uncertain whether it’s worthwhile to invest in curriculum.

Average Dollars Invested by Number of Deals, 2016 - 2018
Curriculum Products

Our research suggests that some investors are driven to invest in curriculum products because schools and districts are better positioned to consider digital curricular content now than a few years ago. In other words, more schools are wired and moving to one-to-one devices, and more administrators are opting to purchase products that offer personalized content pathways.

But many other investors report being hesitant to invest in curriculum products. With the increasing availability of open educational resources and free content, there’s more opportunity for districts to move away from textbook publishers and develop their own curriculum.

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View K-12 Curriculum Trends

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2019 investments
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