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The EdTech Episode #4

ASU+GSV is done and dusted for another year! It is amazing how many conversations you can have when most of the sector is collocated in one place, and after three days of side meetings, presentations, dinners and drinks, one thing is clear - it is a great time to be in EdTech.

The major talking point at the conference’s numerous coffee stands was the US$750M acquisition of Trilogy Education by 2U – the latest example of Higher Education (and K12) businesses turning to M&A to broaden their product offerings and increase strategic optionality. Provided conditions remain favorable, I think we will see significant M&A activity across the rest of 2019, resulting in a dramatically different competitive environment that will impact all of us.
Although Chinese EdTech is facing a winter of capital, it is evident that money continues to flow into the sector. A range of EdTech focused VC funds have launched in the past few months (including the $315M Owl Ventures fund), while Education Corporates (including Strada, Chegg, Seek and Pearson) are activity increasing their exposure to early stage EdTech companies.
To gain real scale, the EdTech sector needs to attract the interest of generalist investors however. The sheer range of generalist VC, PE and Social Impact funds that have a publicly stated goal to increase exposure to the education sector is quite staggering, but despite this intent, there remains a “failure to launch.”
So why is this? It is only right to acknowledge that some investors perceive that EdTech companies are hard to evaluate, scale and exit. Some of this comes from a lack of understanding, but some is also the result of being burned through early forays into the sector, or a good awareness of the unique challenges that EdTech companies face as they grow. (Which other sector has such fragmented purchasing, or challenges proving product efficacy for example.)  
Although confidence is likely to increase with every successful EdTech exit (thanks Trilogy), the widespread involvement of generalist investors will not happen overnight. It is also unrealistic to expect that this shift will be driven by the investor community, and is instead more likely to result from EdTech founders creating more investable companies that overcome the inherent challenges present in the education sector.
Think of an EdTech version of the 1989 Baseball Classic Field of Dreams - if we build global, scalable, defendable, financially attractive education businesses, “they will come”.

Tim Praill

Head of Navitas Ventures

Market News
JMDEdu reports that China's EdTech sector raised RMB12.51 billion (US$1.86 billion) in 131 deals during 1Q19. While the value of deals rose 2.4% YoY, the number of deals fell 14.9%.
Company/Institution News
Western Governors University has launched WGU Academy, an online, competency-based remedial program provider.

InStride, the workforce education company backed by Arizona State University and the TPG Rise Fund, has officially launched.

IBM and the University of Louisville have partnered on a new digital skills academy. A further three centres are envisioned for the US.

The University of Wisconsin - Milwaukee and Thinkful have partnered on a new six-month online coding program.

Udacity has reportedly laid off 75 employees, representing about a fifth of its staff.
Gaosi Education, a Chinese education and test prep provider, has raised a US$140M Series D round. Warburg Pincus led.

360Learning, a French corporate learning platform, has raised a US$41M Series B round. Investors taking part included Bpifrance, Hi Inov - Dentressangle, XAnge, Educapital, and ISAI.

MakeSchool, a coding bootcamp, has raised a US$15M Series B round. Venrock led.

Yunshuxie, a Chinese online education company, has raised nearly RMB100 million in its Series B round (registration wall). Hillhouse Capital led.

Credly, which provides a digital credentialing platform, has raised US$11.1M, according to an SEC filing.

Zippia, which provides an online career planning tool, has raised a US$8.5M Series A round. led.

Parchment, which provides digital transcripts and credentials, has raised US$7M in debt from CIBC Innovation Banking.

HiMama, which provides software for early childhood educators, has raised a CAD$7.3M Series A round from Round 13 Capital.

2U has agreed to acquire Trilogy Education for US$750M (comprising US$350M in shares and the balance in cash). This brings together two widely discussed trends in HE - online education and coding programs. 

Adtalem Global Education has agreed to acquire the financial services division of OnCourse Learning, a provider of compliance training and CPD, for US$121M cash.

Zovio (formerly known as Bridgepoint Education) has acquired TutorMe for a mix of cash, shares, and payments to service providers. This follows Zovio/Bridgepoint's recent acquisition of Fullstack Academy.

Red Ventures has acquired, which provides marketing and enrollment services to US HEIs, from the Vistria Group.

Hoonuit which provides data management for education, has acquired Mizuni on undisclosed terms. 

Futuryng, an industrial IoT company, has acquired Declara on undisclosed terms.
New Funds

Pearson has announced Pearson Ventures, a new US$50M fund that will invest in Series A and Series B EdTech rounds.

New U Venture Partners, which is backed by Western Governors University and EPIC Ventures, is reportedly in the process of closing its first fund (target size US$120M).

The Macquarie Capital Venture Studio has announced an intention to invest in Series A, B and later stage education technology companies
Final Thoughts

It’s been an exciting couple of months as a growing number of unicorns approach their Initial Public Offerings. Lyft, Zoom, PagerDuty, and Pinterest all priced above their marketed ranges, while Uber is targeting a $100 billion valuation in its upcoming IPO.

Despite the obvious scale and disruptive potential of Uber, how does a company that isn’t making any money, doesn’t expect to turn a profit anytime soon, and is losing share in its core market, attract a valuation of US$100bn?

I expect that a lot will be published on this topic in the coming months, ranging from the valuation being systematic of a VC / stock market bubble, to the markets needing new ways to measure the strategic value of a company like Uber. Irrespective of whichever side of the fence you sit on, a statement first noted by Publilius Syrus in the 1st Century BC is about to be tested - something is only worth what someone is willing to pay for it.

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