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VC funding: Can AI spur edtech back towards 2021 levels?

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The start of every New Year provides an opportunity to both look at the successes or otherwise of certain technologies, and analyse where a theme is headed, with VC funding a key ‘confidence’ area.

Education technology—or edtech—is one of those technology cases. Four years ago, the Covid-19 pandemic led to a widespread shift into online learning, in parallel with the move to remote working.

A spike in VC and an edtech boom

The growth in edtech created new education-led economies in China and India, drove new government regulations in China, and led to a spike in VC funding. It also led to a flood of merger and acquisition (M&A) deals, both in number, by the Indian company Byju’s, and in novelty, with the US company 2U buying edX, an online education platform founded by scientists from MIT and Harvard University.

In 2021, $20.8bn of VC investment flooded into edtech. That was the high point of an investment rush that saw almost $100bn spent on education-focused ventures since 2010. According to education research group HolonIQ, around $30bn of that funding was spent in both the US and China, in addition to another $10bn spent in both India and Europe. The remainder was spread across Africa, Asia, Latin America, and the Middle East.

But since that 2021 zenith, which included more than 3,000 funding rounds and created over 30 edtech unicorns—a startup company with a value of over $1bn —edtech investment has been on the wane.  At $10.6bn, the 2022 figure was half that of 2021, while the anticipated figure for 2023 is likely to be around $3.5bn.

The edtech VC investment market has suffered for several reasons. Despite the creation of numerous edtech unicorns, there have been several business failures, as well as the demise of China’s edtech companies which were hit by government regulation. In addition, there has been a move towards hybrid learning from the purely online learning focus driven by the pandemic. Hybrid learning combines online educational materials with traditional in-person classroom methods.

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A dearth of mega-rounds

One of the biggest problems affecting the recent edtech VC market has been the absence of so-called ‘mega-rounds’ where venture funding totals more than $100m. In 2021 and 2022, the number of mega financings globally exceeded 60. In 2023, there were scarcely any. The days of such mega-rounds in edtech are probably over. Smaller, more frequent funding rounds will now be the norm.

In India, Byju’s—once valued at $22bn after numerous acquisitions, which made it the poster child for India’s edtech story and a sponsor of the World Cup football tournament in Qatar—saw its valuation slashed by investment group Prosus. Amid concerns over Byju’s finances, Prosus cut Byju’s valuation to $5.1bn, and then cut it further, to under $3bn.

Within the funding upheaval, there have been some success stories. For example, an Austria-based global tutoring school, GoStudent, raised $95m in a mix of debt and equity to provide enhanced hybrid learning solutions to the Germany, Austria, and Switzerland regions of Europe, involving both online and offline educational support. The funding will help propel an artificial intelligence (AI)-driven future for GoStudent’s platform.

The AI imperative

The chances are that the developments in AI that punctuated 2023 with the creation of large language models (LLMs), will transform education, with the delivery of personalized learning on a one-to-one basis.

But even with AI, there are risks. Will AI be harnessed in a way that benefits all learners? Or will it only further empower the already strong, leaving behind the less fortunate?

Vibeke Fængsrud, the charismatic chief executive of Norwegian edtech company House of Math, told the 2023 Bett education show in London that AI could widen the gap between those who are best-in-class and the rest. Time will tell.

The VC funding going into edtech in 2022 and 2023 was way below the high-water mark of 2021. The hope is that AI—including generative AI—creates a new wave of edtech players in 2024. As they teach you in school, a rising tide lifts all boats!


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