Venture Capital Investment in Global Ed Tech Plummets, Returning to Pre-Pandemic Levels

Staff Writer

The flow of venture capital into ed tech around the world dropped by nearly 50 percent last year compared to therecord highs seen in 2021, as stratospheric investment levels reached during the pandemic return to Earth.

That’s the core finding of anew report from HolonIQ,这将大幅放缓投资广告样稿ared to the rush of tech takeup over the past few years.

“The party’s over and it’s back to fundamentals and outcomes,” the report said.

Venture capital investors poured $10.6 billion into ed-tech companies in 2022, it found, representing a 49 percent drop from the $20.8 billion invested in 2021, and $16.1 billion in 2020.

Still, the overall funding figure came in above pre-pandemic funding levels, which hit $7 billion in 2019.

Patrick Brothers, co-CEO and co-founder ofHolonIQ, a market intelligence firm focused on the education industry, said it’s likely funding levels will continue to recede to pre-pandemic levels, and both companies and investors should be prepared to see ripple effects in the market, such as an increased focus on profitability and further declines in valuations.

“A near 50 percent drop will have a massive impact on the ecosystem,” Brothers said in an email, adding that because the drop is coming from “an artificial high,” the market and companies in it may benefit.

The more tepid funding level seen in 2022 is actually “a much healthier level and environment to support sustainable innovation in learning, teaching and up-skilling,” he said.

The biggest impact may be the “abrupt shift” investors have had focusing in on profitability, when top line growth in revenue had previously been the main priority.

Expect Fewer Blockbusters

The largest driver of 2021’s extraordinary funding level was the high number of mega-rounds, the report found, and the drop in these behemoth deals contributed to the fall in global funding in 2022.

There were 20 mega rounds, defined as those in excess of $100 million, in 2022, compared to 53 in 2021.

Some of the largest deals in 2022 includedByju’s ongoing fundraising,GoStudent’s $340 million Series D,Paper’s $270 million Series DandGuild’s $270 million growth round.

Looking ahead, Brothers expects to see a “dramatic drop in mega-rounds in 2023 compared to 2022,” and noted that the vast majority of big deals in 2022 closed in the first half of the year.

“我们希望继续在ed-te看到大型轮ch in 2023, [but] these will be few and far between,” he said.

In the U.S., total venture capital investment figures are still two and a half times larger than pre-pandemic funding levels, the report stated, with $4.2 billion invested in the country’s ed-tech sector in 2022.

In the 10 years before the pandemic, ed-tech venture capital funding in the U.S. grew steadily from roughly $400 million to $1.5 billion before it hit $2.5 billion in 2020 and $8.3 billion in 2021.

It’s “quite likely that the US will return to 2019, pre-pandemic, funding levels in ed-tech” this year, Brothers said. “We’ll know more by the time the first half has been completed and hope to see momentum in the market that inspires confidence and exceeds 2019.”

The cooling in the ed-tech market is evident by other metrics. Over the past two years, special purpose acquisition companies, or SPACs — shell companies that raise money for public offerings — haddrawn the backing of many education-focused investors. Now, many ed-tech SPACs are closing shop, asEdWeek Market Brief’sDavid Saleh Rauf recently reported.

Challenging Environment for Exits

The report also found there were no exits of ed-tech unicorns in 2022, and it’s unlikely 2023 will bring a better exit environment. The lack of exits poses a challenge to the ed-tech ecosystem, as strong exits are key to helping return cash to investors and fuel new investments.

Brothers said there’s currently a large number of ed-tech companies that are “well overdue” for an exit. While many opportunities will present themselves in 2023, he said, there’s a large gap between what buyers and sellers expect.

Companies that have enough cash in the bank or revenue coming in to wait out buyers’ expectations of a discount price at lower valuations will now be looking to drive up revenue and increase profit margins throughout the year, Brothers said, so that when valuations improve, they’ll be “exit-ready.”

A New Normal?

In the meantime, however, “there will however be a large number of companies that choose to merge with peers or join a larger organization to continue their impact and journey’s,” Brothers said.

Overall, Brothers thinks it’s likely the tumble in VC funding is “a permanent re-basing of capital flows into ed-tech.”

There’s a “reasonable chance” 2023’s figures might come in below 2022, but until it becomes clearer how macroeconomic forces, capital markets, and venture capital will fare in 2023, it’s too early to tell.

Either way, ed-tech companies would be “well-served to adjust to the new environment fast and work through the transition to thrive in a new normal,” Brothers said. “Those who choose to perceive this drop as a temporary one-off and hang on to old habits and models will struggle to compete.”

Image by iStock/Getty


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