VC Panel of “ABC’s on Ed-Tech Innovation”

It was a pleasure to be the Investor Judge for the edtech track and also be on the VC Panel of “ABC’s on Ed-Tech Innovation” at Venture Summit | West 2019 today.

Below are some of the thoughts I have shared with the audience at the summit.

Trends in Edtech

The total education expenditure is currently worth around $6 trillion globally.  Education spending related to digitasation only occupies 2.6% of the total Global Education Expenditure, which is around $150 B. However, the education technology market has been growing and will continue to grow. For the next five years, it is expected to keep growing at a CAGR of around 15%.

According to HOLON IQ, here are the breakdowns of the investment for education and edtech in 2018

·     Global education VC investment $8B,  edtech VC investment $4B; 

·     China education VC investment $5B, edtech VC investment $2B

·     US education VC investment $1.6B, edtech VC investment $1.45B

Some trends we have seen in the edtech sector in US

1.    More capital has been invested in the US edtech industry steadily since 2011 (considering 2015 as an aberration).

2.    Bigger but fewer deals were executed in 2018

3.    The number of the angel and seed deals has fallen from a peak of more than 100 in 2013 to less than half that number in 2018. Now early-stage U.S. investors are watching the economy with caution. If there’s an economic downturn, also the conflicts between/among countries, angels, family offices and seed funds may invest more conservatively.

4.     Growing interest from private equity in the edtech industry.

·     Francisco Partners acquired majority stakes Discovery Education and Renaissance Learning;

·     CIP Capital did the same with Carnegie Learning

·     With plenty of “powder” and more revenue-proven companies, many investors see potent ingredients for mega deals in 2019. 

Technology Outlook

Some hot technologies in edtech area are the following: 

o AI will have positive impact on education. Many of the products are to empower adaptive learning, personalized learning

o Learning Management System dominates online environments in formal education and training. New technology focusing on interaction rather than file management will take center stage in the future.

o AR/VR will be the new way of the delivery of educational content. However, high prices, lack of content, poor quality of content and poor user experience remain unsolved.  

A couple of things to point out related to technology

1.    Generally speaking, the application of certain new tech in education industry usually happens after its adoptions by several other industries.

2.    Adoption is one cause for celebration. But questions remain whether these digital tools are being used.  There are reports saying that the majority of app licenses purchased by districts were never used.  And it was found that 65 percent of licenses were never or rarely used by students.

3.    Compared to other tech market, the technical barrier is relatively lower, which results in fierce competition in business model and operation. It’s easy for both international or local competitors to come up with new products leveraging the similar new technology. Therefore, It is of vital importance to offer products with optimized user experience and innovative that is tailored to local users.

Global Outlook

Currently, I still think that the United States is the leader in edtech. However, Asia has become the fastest edtech market in the world, such as China and India.

Among the top 10 EdTech unicorns globally, 7 of them are based in China (VIPKID, 17Zuoye, Zuoyebang, iTutor, Hujiang, Yuanfudao, ZhiHu), 2 based in the USA (Age of Learning, Udacity)  and 1 in India (BYJUS).

Asia, home to Byju’s ($540 million), along with VIPKID ($500 million), Zuoyebang ($350 million) and Yuanfudao ($300 million). The sum of those four deals alone exceeds the entire U.S. industry; in fact, eight of the top 10 investment rounds worth $100 million or more went to Asian companies. Future valuations suggest that the entire Asia-Pacific region will represent 54 percent of the global edtech market by 2020.

A couple of reasons why this market will grow fast

·  Population: More than 600 million students are enrolled in K-12 schools in Asia, and Asia has more young people than anywhere else in the world. Although Internet access has been an obstacle, about 53.1 percent of China’s population is now online, and this number will continue to grow in coming years.

·  Asian families are willing to invest substantial amounts of money in their children’s education. Tutoring is a big thing in China, which is a $90 billion industry itself, and parents in Singapore spend $70,939 annually on their children’s education, roughly double the global average.

·  Government support: China government aims to modernize China’s education system, investing $1.07 billion in edtech startups in 2015 alone.

What will the next unicorn look like

The future unicorns have to have revenue-proved business model targeting the right market. Now all of the current top 15 EdTech unicorns are having the to-C biz model (targeting end customers). One of the many reasons is since EdTech is a relatively new concept, it is an area that needs market education. It is bit easier to convince individual user to pull out their credit cards. Institutions are hesitant to change that quick, and their willingness to pay is thus low, which leads to the very long sale cycle for to B EdTech startups

Also have engaging product with solid technology is also important. Edtech companies need to design and develop better education products which serve the customers (students, parents, and teachers) with user-friendly UI, high quality content, measurable results.

Last but not least, have a committed team is  very key. Only having great founding team is not enough, the edtech unicorn company also need strong BD team and experienced management team from both education and tech background.  

Overall, the entire education industry (not only edtech) is a “slow” industry, there is no “quick money” here. It is not going to be a smooth sailing for edtech entrepreneurs. So be better prepared for a slow march.

Since it is going to be a bit long journey, would recommend the entrepreneurs to find the mission for the startup. Think big about what problem/issue your company wants to solve. Focus on the mission and the big end goal.