Education and Venture Capital Investments

I spent a lot of time thinking about education in 2021 and not just because my oldest child completed high school and is contemplating studying at University, but also because when I started in venture, a decade ago, the education market was my first focus.?

Education is a market where everyone has an opinion. We’ve all sampled what the formal education system has to offer, and have been formed by it over many years.?

It’s also a very significant market locally and internationally with steady growth (~4% yr/yr) to approximately ~US$6T in 2021. Governments spend ~5% of their budgets on education according to UNESCO amounting to over $114B a year in Australia alone. Digital expenditure (including software and hardware as well as digital services) currently represents ~3.6% of all education expenditure but is predicted to grow to 5.2% (or USD$404B) by 2025.?

There is so much room for digital transformation of the sector!

The delivery of education has been impacted by Covid, however overall spending in the sector has held up well.?

Opportunities

Solving any of the problems in the education market (see my longer blog post) will result in a large addressable market.

I see some obvious specific short to medium term opportunities in the education market:

• Financing for education and degrees (eg like SoFi, Lambda school (now Bloom Institute), TradeUp in the US, EdStart in Australia).?
• Better forms of traditional vocational education that leverage online delivery to provide high quality outcomes and help build connections with future employers (eg A Cloud Guru).
• The ordering and representation of knowledge that enables object reuse, interaction, building and experimentation particularly in a digital world (eg JigSpace).
• Using digital simulation and virtual training to improve practical and on the job training so students learn from best practice (eg Oscer.ai for medical education or JigSpace for training with complex machinery or medical equipment).
• Further digitising traditional low tech / in person educational based activities including using automation to provide continuous assessment, marking, anti-cheating and proctoring (eg Cadmus and Turnitin).

Education Unicorns

I remember being asked whether there were any venture backed unicorns in Education and at the time there was one. Now there are 32, mostly out of large domestic markets like the US, China and India. Some predict there will be over 100 by 2025. Australia has its own educational unicorn in Go1, while A Cloud Guru achieved a $2B+ exit, with $110m revenue, in only 6 years. We have proved we can succeed from Australia - now it is up to us to consolidate that success.

Unlike most venture capital markets, EdTech is unusual in that investment dollars in China and India are disproportionately larger than in other VC backed sectors (note in 2021 investment into China collapsed due to policy changes). Clearly education plays an important role in the aspirations of developing countries that are rapidly attempting to develop their economies and capabilities.?

What is perhaps not surprising, is that most of the current unicorns operate as supplementary services to the formal education system rather than seek to replace existing educational institutions or norms. They either assist with additional “step up” learning (eg tutoring, exam preparation or language learning eg ByJu’s, Yuanfudao, Zuoyebang, VIPKid, Unacademy) or directly seek to teach vocational skills (eg Go1, BetterUp, Articulate, Andela).?

There are attempts to challenge existing educational norms like The Thiel Fellowship which has had some success in diverting students from traditional classrooms. Most however rely on Government funding and so follow the standard curriculum.?

I suspect there are bigger opportunities for those that are prepared to take on a long term game, are well funded and can prove a better ROI for parents than the traditional educational path. Such a path will have significant challenges including societal acceptance, securing funding and proving they don’t cause unintended side effects for learners.

Further actions and reading

If you’ve found this article useful perhaps think about how you can contribute to the success of the Australian EdTech ecosystem. Perhaps you can become an early adopter of a new solution, perhaps you want to support the sector directly through investment or perhaps you even want to create one of these new EdTech businesses or just work at one and attempt to create a better system. I’ve included below some further resources which you might find useful to increase your knowledge of the sector.

Internationally there are over 21 listed education companies with $1B market cap (including DuoLingo, Coursera, Udemy and Kahoot) and in Australia over 15 listed education companies (including IDP which is valued at over $9B).

HolonIQ recently published its 2021 EdTech wrap and also publishes a great round up of their top 1000 EdTech companies and separate reports on geographies eg their top 200 North American EdTech companies and their top 50 Australian and New Zealand edtech companies (ie the top 10% they are aware of) which is worth reading to understand more and if you want to learn more about the space.?

I've put together some additional material on what I perceive are the problems in the education sector and some of my own personal EdTech investments in this longer blog article on the Archangel website.

If you want to learn more, feel free to start a conversation below, follow along on twitter or LinkedIn, or for the adventurous (and sophisticated investors) consider joining our Archangel 2022 fund.

Disclosure: I’m a founder of Archangel VC (an early stage Australian VC fund) and also have personal investments in some of the companies mentioned in this article, or exposure through investing and mentoring through Startmate. The observations and thoughts above are my own but feel free to call me out if you think I have something wrong.