How will the future of Education be shaped?

19th November 2020  

by Edoardo Gava

This year has been crucial for multiple industries, both negatively and positively. Fashion, travel, and entertainment (movies and music) are mentionable among the sectors most hit by the pandemic and the lockdowns. All the businesses related to these verticals are still figuring out the best possible ways to integrate and to co-exist in this new normality. On the “other side of the pandemic”, all the industries related to remote activities are booming: video conference, virtual offices, home gym, online party, online entertainment (video streaming and gaming) and last but not least, remote learning.

Pandemic Boost for EdTech investments

Investopedia defines EdTech (a portmanteau of "education" and "technology") as the development of hardware and software designed to enhance teacher-led learning in classrooms and improve students' education outcomes. And especially for remote learning, as the COVID-19 pandemic continues to force teachers, students, and parents, to adopt new technologies, EdTech's total addressable market has massively grown in the last several months. The shift has urged venture capitalists to pour money into the sector, accordingly, ushering several startups into the unicorn club. And the investments did increase in the past years, as showed in the chart below created using data from Pitchbook.

Deal Count and Value in the EdTech Verticals from 2011 to 2020 (YTD). Data updated the 11th of November 2020

The graph displays how the trend in EdTech investments was already growing in terms of deal number and value, with 2018 as the peak. As we see, 2020 deals (year to date) show a real shift in the ways venture capitalist are approaching the sector. If before it was possible to count more deals with smaller checks, in this year there are fewer investments but with much higher value. The last quarter is still to be completed, but the deal value is already the highest in the past ten years.

EdTech Investment Clusters

The investments and the innovations in the EdTech landscape range mostly on three major areas: online learning, virtual school, and “enabling technologies” (everything that can support the first two categories, from machine learning to video conferencing tool). Online learning includes all those companies developing software and content to enhance learning opportunities both from a content and a tool standpoint (Coursera, Masterclass, Udemy, but also Kahoot and many more). Online Education has been one of the hotspots in the tech world this year, as people turn to e-learning tools to fill in the gaps variously arising from closed schools, closed offices, social distancing, and more free time at home because of the COVID-19 pandemic.

A recent and significant example in the field is Udemy, which provides a marketplace with 130,000+ video-based courses across 65 languages and multiple subjects (from coding to photography), is raising $100 million in a Series F round of funding that will bring the company valuation up to $3.32 billion. It is important to remember that Udemy closed a $50 million round earlier last February, as an additional market proof on investors interests in EdTech.

Another strong evidence of online learning growth is coming from some of the most recent deals: Udacity announced a $75 million debt round and declared to have reached profitability. In October, Kahoot announced a $215 million round from SoftBank. And in September, Outschool raised $45 million (and is now profitable); Homer raised $50 million (from an impressive group of strategic backers); Unacademy raised $150 million and the juggernaut that is Byju's picked up $500 million from Silver Lake. And even if online learning was already a rising trend before the pandemic, the diffusion of "virtual school solutions" can be considered as one of the main consequences of the worldwide lockdowns. The market was mostly unaddressed and uncapped, with not mature or "ready to use on a big scale" products. At the same time, these solutions were suddenly most needed as teachers and students could only interact online. Moreover, the potential data-gathering opportunity made the challenge attractive also to big players like Microsoft and Google. The market has been immediately flooded by multiple solutions, both coming from young startups, both from big corporations.

In this context, as schools’ needs vary from country to country, it is difficult for a single solution to take over the global markets quickly. For the Italian market, I would mention WeSchool, which also closed a €6.4 million round last August.

Finally, both online and remote learning tools need updated technologies to boost their growth and functionalities. With the increased use of devices and decreased opportunities for face-to-face interactions, educators need new ways to understand students' needs and weaknesses. Instead of trying to force videos and icebreakers, teachers and administrators are turning to data services to identify which students are struggling and at risk for dropping out. It helps with student comprehension and school retention, which impacts budgeting and resource allocation.

A relevant example in the field is PowerSchool's Hoonuit acquisitions. PowerSchool provides a suite of services for school operations and management, from homework and grading to HR, state reporting and student enrolment. Hoonuit acquisition (which is a software that empowers educators to make better decisions, optimize their institutional processes, and transform teaching and learning) is bringing on more direct data management and analytics tools that are focused on educators. Hoonuit also offers teacher training that uses predictive modelling to understand student outcomes and comprehension better. Another relevant example is Course Hero's acquisition of Symbolab, a math calculator which is capable of understanding students' most common pain points. Course Hero is a broader service that focuses on Q&A from a variety of subjects, and just with this deal, it has obtained a decade's worth of data that captured which math questions students found hardest.

The future of EdTech after the pandemic

After all the investment activities, there are big expectations for EdTech companies, especially concerning remote learning. The main uncertainty comes from how the future will shape whenever the pandemic is over. Will schools go back to be completely offline? Or will they continue using online tools? And to which extent? 

Schools were forced to adapt to the global socio-economic situation, and many of the chosen solutions were fulfilling the basic interactions need of teachers and their students. For what is my personal understanding of the market, there are four major challenges that EdTech companies will face to "stay" in the long run.

First, it is a question of Culture and regulations. Culture in the sense of digital capabilities and educational structure of each country (the way teachers educate and assess their students vary from nation to nation). Secondly, EdTech solutions have to provide new ways and functions to support both offline and online Education in order to boost teachers’ loyalty to these solutions also in the "back to class" scenario. Third, it is difficult to imagine a teacher jumping from different tools for different functionalities (i.e. Google Meet for calls, Kahoot for live tests, other tools for grading, and so on). Therefore, integration capabilities and willingness to collaborate among same-industry-players are must-have features for EdTech companies. 

Finally, these solutions have to be accessible to the majority of students, Education is a right, and it should be as much equal as possible all over the world. In the pre-Corona economy, only private schools were using digital tools, as they usually come with premium pricing. A wide software distribution could trigger more flexible pricing strategies (based on annual savings as Kami, which helps teachers digitalise worksheets, brilliantly did). Moreover, since today EdTech is a very fragmented sector, it is possible to foresee M&A aggregation potential in order to boost geographic presence, quickly gain market shares, and increase network effect.

In conclusion, I am really rooting for a hybrid digital school, where there is a seamless experience between online and offline learning, and in which teachers can leverage technology and data to provide the best-tailored Education for their individual students. In this way, the educational industry will evolve digitally along with all the other sectors (fintech, insurtech, foodtech and so on), and it would also be more resilient in the scenario (that I altogether avert, but could be still possible) in which another pandemic will happen.