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”.
Head of Navitas Ventures