Top Five Things We Learned in 2022
Learnlaunch Fund+ Accelerator was started a decade ago as a platform to spur education innovation first in Boston and now globally. Through our fund and accelerator program, we have invested in and developed 76 companies in K-12, higher education, and workforce development. We’re one of the most active investors in pre-seed education technology companies. This past year ranks among the most dynamic as the capital market, the job market, and end market for educational products have all undergone major changes. We wanted to reflect on the most interesting things we saw over the past year with the hope that we can share some insights into what’s going to happen next.
Read on or jump the section you are most interested in.
Table of Contents
- The Edtech Capital Market Continues To Evolve
One thing we’ve learned over the years is that it takes a LOT OF TIME for edtech companies to mature. Accessing different sources of capital along this way is critical. As an early stage fund we focus on the amount of follow-on capital our companies are able to raise. In 2022, we saw 15 funding events for our portfolio totaling $65M, the most activity we’ve ever seen for our portfolio. This brought our lifetime capital raised to date to $265M. This is surprising as the overall venture market slowed to a crawl in 2022 and the fundraising climate for edtech companies softened as well. Education venture financings are tracking to be down 40% from their peak of $20.8 billion in 2021.
While deal activity has slowed, we do not expect the edtech capital market to shut down. Edtech specialized funds that used to play in the earlier stages, continued to raise bigger funds and LPs continued to place bets with these proven managers. In fact, we believe the amount of “dry powder” for edtech is currently at a record high. Later stage funds will continue to deploy new capital (and get better terms!), while they focus on their existing portfolio companies.
The challenge for the broader ecosystem is that as these funds move upstream, they leave a noticeable gap in the early stage capital stack. In the last year or two, we saw angels and impact investors fill some of that gap. These players, along with a very few micro funds and family offices continue to be major sources of funding for pre-seed stage companies.
One trend we don’t see reversing (and candidly are happy to see it go) is “edtech tourists” (curious, but not deeply connected to the field) shying away as the COVID-driven consumer edtech craze cooled and all markets slowed. We don’t expect this to reverse in the near term and that is probably healthy for the market, as the edtech funding ecosystem works to stabilize.
2. The Battle Lines Between Amazon and Google are being Drawn
There is an intensifying battle brewing in edtech. Google Classroom’s usage grew to 150 million users in 2021. Amazon Web Services continued to be the dominant player in education cloud services with some insider estimates that AWS delivers 75% of formal educational content. This shouldn’t be surprising given where each company started. Google pushed Chromebooks as the platform of choice in classrooms. Amazon pushed AWS into many vertical segments and saw particular success in education through a concerted effort in higher ed as well as programs like EdStart, its startup accelerator, where free AWS credits have helped many companies (including the vast majority of the Learnlaunch portfolio) get started.
Attendees at EdWeek and HolonIQ in New York this past September will have noticed the enormous push that Google Cloud is making to expand its footprint beyond the classroom. Meanwhile AWS currently contributes over 75% of Amazon’s operating profit. So we see a major battle brewing between the tech behemoths at the convergence of the edge and the cloud. We don’t think this is a battle where there is one “winner”.
Why? Historically, education data has been of marginal value. Most data pools are siloed and private due to societal norms not to monetize and regulatory strictures over sharing “PII” (personally identifiable information). This has held back the kind of data driven decision-making that is prevalent in many other industries, even in slow-moving sectors like healthcare. If the disorganized data stacks in education can be rationalized, then the development of massive new learning markets can emerge. For example, if skills data can be mapped to curriculum (as our company Jobspeaker is doing) or if skills data can be mapped to employment and training (as our company Julius is doing in “green jobs’’), then data markets will emerge that are much larger than today’s limited job boards.
Therefore the real battle between Google and Amazon will be control over standards for AI-based data confederation. We aren’t picking a winner as both companies bring tremendous resources to the fight, but watch this space closely.
3. Training Educators is key to Product Adoption
A lot of the recent excitement in edtech stemmed from the fact that we all saw the deep flaws in online instruction when our kids went to “zoom school” in March 2020. There had to be a better way. In fact the use of technology in the K-12 classroom was steadily increasing prior to the pandemic. Technology was widely advanced as a tool to facilitate effective teaching and student-centered learning. Teachers experimented with digital new curricula and we started to see broader adoption at the school and district level. School leaders were looking to effectively integrate technology into the curriculum. In reality, many teachers in the pre-COVID-19 era routinely used the same tools and pedagogical approaches as their analog predecessors.
The COVID-19 crisis thrust teachers, whether they were technologically prepared or not, into an instructional environment where technology became a necessary medium for delivering remote learning and hybrid instruction. Teachers’ limited in-depth pedagogical familiarity with technology integration, virtual experiences, and online instruction made the abrupt pivot and rapid transition to (emergency) remote modes of teaching and learning an even more arduous task. In turn, schools threw the influx of state and federal money at the problem, which led to an upsurge in adoption of digital curriculum. While some of these purchases were effective, in many ways this was a false positive for our industry. Not all of these new tools were well suited to the task at hand.
According to Learn Platform which was acquired by Instructure December 15, a credible predictor of a teacher’s ability to engage learners through digital instruction is that teacher’s ability to integrate technology. Learn Platform’s research has shown that technology integration for classroom use remains among the greatest challenges facing today’s teachers. According to Learn Platform, “As edtech use continues to expand, district offices need to maintain accessible and useful libraries of effective and approved digital resources, offering a clear path for educators to research and request tools.” We can continue to throw technology at the classroom but unless there is a concerted effort to make it easy to use and implement, a lot of these new systems will become shelfware.
4. Consolidation is Accelerating
When we first started investing in education as a firm ten years ago, the few public acquirers (i.e. the publishers) were disinvesting and restructuring as they worked through the burgeoning digital transformation. The for-profit sector had come under severe pressure due to new regulations and the need to clean up the sector because of some bad actors. Many of the larger education players went into chapter 11 or into the hands of private equity players. This gave them the time and space to reorganize their businesses while others assembled the building blocks of the strong edtech platforms (such as Vista Equity/PowerSchool) who now roam the landscape. From 2015 to 2018 the “bid” in education came primarily from private equity firms as they assembled these platforms.
Starting in 2019 and accelerating into 2021, the strong underlying growth in ed tech awakened broad investor interest in education. This allowed new companies to tap both the public and private capital markets. Byju’s became the first edtech “decacorn” and Coursera reached a market capitalization of $6 billion. Heading into 2022, as the overall market cooled, education has been impacted as well. The average public education stock is down 60%-80% this year. As the equity market contracted we have seen M&A pick up and buyers take advantage of more realistic seller expectations and use their balance sheets to make attractive add-on acquisitions. We’ve seen a material pickup of private equity interest in our portfolio (Achieve Partners buying Listenwise/Boclips is one of many recent examples). There is still a lot of education private equity dry powder on the sidelines and public acquirers are using their strong balance to fill gaps in their product portfolios and buy growth. While great companies can raise capital in any market (for example Schola just raised $10M), there are hundreds of sub-scale private companies that we track that will likely find homes in one of the private equity or public consolidators.
5. Higher Education Has To Change in Fundamental Ways
For years we have been looking at a picture of a deep chasm. On one side, 96% of academic officers believe that they’re effectively preparing students for success in the workplace. On the other side, 11% of business leaders agree that graduates have the necessary skills and competencies to succeed in the workplace. Lost in the middle are the 80% of employees who say they lack the skills they need for current jobs and careers. Now the message has gotten through.
Fewer and fewer learners are choosing college. There are many factors:
- There is a slight demographic drop in the number of 18 year-olds (but over 40% of college students are not 18–22)
- The pandemic caused a massive resentment of zoom classes, despite many learners opting for an online blend when offered
- The fallacy of loading up student debt is more visible than ever
- International students are less able to travel and set up support systems
The 1.1% drop in undergraduate students between the fall of 2021 and 2022 is not a blip, but the beginning of a long-term trend. There are at least 1 million fewer students enrolled in college than pre-pandemic norms. The most dramatic drop has been in community colleges. With the yawning skills gap and labor participation rates at historic lows, one would have thought that demand for skills to get good entry-level jobs would be skyrocketing, but enrollment is down an astounding 10% across the board for community colleges. State support of these systems has been dropping for years.
Most colleges face long-term fixed costs with tenured professors, real estate maintenance, and expensive enrollment services. Schools can’t raise tuition forever to plug the gap. The market has been ripe for a low-end disruptor (in the Clay Christensen “Innovator’s Dilemma” sense). For those not familiar with Clay’s work, he found that in some markets incumbents focus on improving their products to the point where they over-serve their segment of the market. They ignore low-end new entrants who serve unattractive parts of their market. As these low-end players improve their offerings, they eventually can solve the actual problem in the incumbent’s market. The share shift and collapse of the incumbents can be dramatic. Think Toyota and Nissan attacking Mercedes and BMW in the luxury car market in the 80s and 90s or Uber/Lyft attacking the incumbent taxi market in the past decade.
Here come the bootcamps! Across the last five years there has been a steady growth of new companies delivering upskilling programs in the form of bootcamps and targeted Online Program Managers (OPMs). These entities attract students directly through online advertising (i.e. the Coursera model) or through private label “non-degree” programs offered by colleges (i.e. the Trilogy-now 2U model). The most visible segment of this market is the coding bootcamps which generated $500M in revenue this past year. There are bootcamps in many, many other subjects including cyber security, clinical trials management, data management and AI, business development roles, on-line marketing, and even vocational trade skills.
Most of these programs deliver results in about 4–8 months at very low cost points. This matches what we know about today’s learners. They want efficiency. “Just tell me what I need to know and let me get on with it. I don’t need to understand the history and by the time I need the advanced version it will have changed.” Sitting in a classroom completing a complex course is rarely valued.
Will bootcamps eat all of higher education? Clearly not! Will higher ed have to change in fundamental ways over the next 10 years? Definitely yes!
We’d love to hear your take on these observations. What have you learned over the last year? Let us know at accelerator@learnlaunch.com.
LearnLaunch Fund + Accelerator Team: Tetyana Astashkina, Jean Hammond, Matt Rubins, and Martin Chaplin
