Education Funding

Ed-Tech Market in Flux as Investors Grow More Selective

By Sean Cavanagh — June 07, 2016 | Corrected: June 08, 2016 4 min read
  • Save to favorites
  • Print

Corrected: An earlier version of this story mischaracterized a point CB Insights research analyst Matthew Wong made about investors at the recent ASU/GSV Summit.

A torrent of investment funding has flowed into the educational technology market over the past few years, offering lifeblood to startups and support for maturing companies as they attempt to grow. But the frenzy of activity has also led analysts and companies to wonder: When will the good times end?

Recent data on the market don’t offer definitive answers. But analysts and investors see signs that the market, both globally and in the United States, is evolving, and at least on some fronts, cooling—with investors becoming more selective.

The flow of private funding into the ed-tech sector has an impact that extends well beyond investors’ returns. The companies that secure funding obtain resources that can prove critical to having their products taken up in the competitive, and heavily regulated, school market.

In the global space, there are signs that the tide of investment is slowing. Funding to ed-tech companies worldwide has fallen dramatically over the last quarter from last year, according to a recent analysis by CB Insights, a market-research company.

But investors and analysts say that the forces driving that slowdown are complex and may reflect changes in some areas of ed-tech investment, but not in others.

Pace of Ed-Tech Dealmaking Slows

The number of deals and amount of money being invested in the global ed market may have peaked, according to one analysis.

BRIC ARCHIVE

Source: CB Insights

The conditions for ed-tech investment in the United States, specifically, remain strong, a number of observers say, because of government policies and market forces that continue to feed schools’ appetites for ed-tech tools and platforms, despite continued questions among K-12 leaders about how to judge the quality of those products.

The apparent global slowdown in educational technology likely reflects overall choppiness in the world economy and technology markets, said Trace Urdan, a managing director who analyzes education for Credit Suisse, an investment bank.

And while investment on some fronts—from the global ed-tech market to later-stage growth in companies—has declined, strong interest still exists in putting money into nascent, U.S.-based digital providers, said Jennifer Carolan, the co-founder of Reach Capital, an investment firm.

“There are a lot more companies getting started,” Carolan said. “It’s a sign of a healthy ecosystem to have so much innovation at the early stages.”

CB Insights recently reported that funding to global ed-tech companies fell dramatically in the first quarter of 2016 and is on track for the lowest amount of annual funding since 2013.

Overall, the amount of global ed-tech startup activity peaked in 2015, with yearly funding jumping by 64 percent to $3.1 billion and the number of deals climbing by 10 percent, to 491, CB Insights found.

Selective Investors

But so far in 2016, the amount of activity is far off last year’s pace, the analysis found. If current trends continue, just 376 deals will take place, worth $1.3 billion, a drop in funding dollars of 57 percent from 2015.

Much of the activity in 2015 was fueled by big, $100 million-plus deals, CB Insights says, and those have dried up this year. A lot of activity, however, is still taking place in smaller, early-stage investment in educational technology globally and in the United States, said Matthew Wong, a research analyst at CB Insights.

Data from CB Insights show that the portion of ed-tech deals focused on seed, or early-stage funding, has grown from 45 percent in 2011 to 58 percent so far in 2016. Wong also pointed what he saw as throngs of startups seeking money, who greatly outnumbered venture capital investors, at the ASU/GSV Summit, a major annual gathering of investors and companies, held most recently in April in San Diego.

Over the coming year, some pullback of investment in ed tech is likely to occur from the peaks of the past two years, said Frank Bonsal III, the director of entrepreneurship at Towson University in Maryland, who has made extensive investments in education companies.

But the slowing down of that activity has benefits, he argued.

Speculative investors are often frustrated by the slow pace of growth in the ed-tech sector compared with other industries, he said. But there’s an upside to school officials and investors becoming more discerning about the quality of ed-tech products.

“Ed tech has evolved to a better place” compared with a few years ago, when the market was flooded with speculative investments, Bonsal said. “There is more interest in technological solutions than ever—as long as they are real and they are solving problems.”

The ed-tech market has been so flush for such a long time, it’s only logical to assume it will slow down at some point, said John Richards, the president of Consulting Services for Education, which advises companies and other organizations.

But overall demand for ed tech shows no signs of abating, Richards argued. Districts are investing heavily in ed-tech infrastructure, and they continue to shift away from print to digital materials. (In addition, the Federal Communications Commission approved billions of dollars recently in new spending on improving schools’ and libraries’ Internet connectivity through the E-rate program. Reliable connectivity is essential for many K-12 digital tools and platforms to function.)

Government policies, such as the recent passage of the federal Every Student Succeeds Act, also will encourage ed-tech experimentation, Richards predicted.

Too many of the ed-tech products that get funded by investors end up disappointing educators, said Carolan of Reach Capital. But she sees startup companies becoming more attuned to the specific needs of teachers and administrators than was the case a few years ago.

Teachers respond to products when they believe “technology is not being done to them” but designed with their needs in mind, Carolan said. “The most successful companies in our portfolio are the ones that educators love.”

A version of this article appeared in the June 08, 2016 edition of Education Week as Ed-Tech Market in Flux as Investors Grow More Selective

Events

Ed-Tech Policy Webinar Artificial Intelligence in Practice: Building a Roadmap for AI Use in Schools
AI in education: game-changer or classroom chaos? Join our webinar & learn how to navigate this evolving tech responsibly.
Education Webinar Developing and Executing Impactful Research Campaigns to Fuel Your Ed Marketing Strategy 
Develop impactful research campaigns to fuel your marketing. Join the EdWeek Research Center for a webinar with actionable take-aways for companies who sell to K-12 districts.
This content is provided by our sponsor. It is not written by and does not necessarily reflect the views of Education Week's editorial staff.
Sponsor
Privacy & Security Webinar
Navigating Cybersecurity: Securing District Documents and Data
Learn how K-12 districts are addressing the challenges of maintaining a secure tech environment, managing documents and data, automating critical processes, and doing it all with limited resources.
Content provided by Softdocs

EdWeek Top School Jobs

Teacher Jobs
Search over ten thousand teaching jobs nationwide — elementary, middle, high school and more.
View Jobs
Principal Jobs
Find hundreds of jobs for principals, assistant principals, and other school leadership roles.
View Jobs
Administrator Jobs
Over a thousand district-level jobs: superintendents, directors, more.
View Jobs
Support Staff Jobs
Search thousands of jobs, from paraprofessionals to counselors and more.
View Jobs

Read Next

Education Funding Biden's Budget Proposes Smaller Bump to Education Spending
The president requested increases to Title I and IDEA, and funding to expand preschool access in his 2025 budget proposal.
7 min read
President Joe Biden delivers remarks on lowering prices for American families during an event at the YMCA Allard Center on March 11, 2024, in Goffstown, N.H.
President Joe Biden delivers remarks on lowering prices for American families during an event at the YMCA Allard Center on March 11, 2024, in Goffstown, N.H. Biden's administration released its 2025 budget proposal, which includes a modest spending increase for the Education Department.
Evan Vucci/AP
Education Funding States Are Pulling Back on K-12 Spending. How Hard Will Schools Get Hit?
Some states are trimming education investments as financial forecasts suggest boom times may be over.
6 min read
Collage illustration of California state house and U.S. currency background.
F. Sheehan for Education Week / Getty
Education Funding Using AI to Guide School Funding: 4 Takeaways
One state is using AI to help guide school funding decisions. Will others follow?
5 min read
 Illustration of a robot hand drawing a graph line leading to budget and finalcial spending.
iStock/Getty
Education Funding A State Uses AI to Determine School Funding. Is This the Future or a Cautionary Tale?
Nevada reworked its funding formula hoping to target extra aid to students most in need. What happened could hold lessons for other states.
13 min read
Illustration of robotic hand putting coins into jar.
iStock / Getty Images Plus