Reality Bites. Expect core education investors to wrap around the sector while the tourists depart. Funding rounds will be smaller and more frequent and favor scale over formation.
Global EdTech venture capital investment dropped 80% from Q1 2022 to Q1 2023, largely due to a collapse in mega-deals with the global slowdown in investment activity. 2022 saw a progressive decline in EdTech venture capital, amid a broader decline across the entire venture landscape. Q1 2022 was very strong and generally on trend with the momentum of the prior year, however each quarter of 2022 saw less and less funding deployed as markets evolved and the economy deteriorated.
2023 has unfortunately confirmed a major depression in funding, that is more likely than not, a new normal for the year ahead, perhaps several. Just as investment is down across the economy, education ‘outsiders’ who joined in the investment frenzy of 2020 to 2022 have now generally withdrawn from education all together or moved to the next hype cycle, from Web3 to Generative AI.
Figure 1. EdTech Venture Capital Funding over time
The funding rounds that completed through Q1 2023 are instructive of the types of EdTech startups that are thriving in this environment or who are carrying momentum into the downturn. Notable rounds in Q1 2023 included the India-based 🇮🇳 Avanse Financial Services, an education-focused non-banking financial company, raising $98M in growth equity, 🇺🇸 Coursedog a US based higher education focused management platform raising $90M, 🇺🇸 MentorcliQ, a US-based mentoring software and services start-up raising $80M and the UK-based 🇬🇧 Hack The Box (Cybersecurity), which secured $55 Million in Series B Funding Led by Carlyle. It’s also worth noting that Chinese Testing and Coding Assessment Platform 🇨🇳 NowCoder raised a $50M series B round led by Sequoia Capital. These five transactions alone accounted for over one third of global EdTech venture funding for the quarter.
Beyond Venture Capital, M&A in Q1 was dominated by larger incumbents disposing of or acquiring assets. Pearson sold its OPM business to Regent Private Equity and K12 business in India to LEAD. Companies like Andela, Go1, Noodle and PhysicsWallah acquired smaller players to fill gaps in their portfolios, IXL acquired Teachers Pay Teachers, Perdoceo acquired Coding Dojo, Navitas acquired Study Group’s Australian business (Taylors) and Houghton Mifflin Harcourt acquired NWEA to name a few. Expect this trend to amplify through 2023 as more startups (and their investors) choose to join a larger strategic over another funding round.
Vista's $4.6B Take Private of KnowBe4, a security awareness training and simulated phishing platform, will offer a more attractive and enhanced growth platform for the business than the capital markets would have through the years ahead. Meanwhile, Google’s regulatory approval to acquire PhotoMath is a major win for the tech giant and brings a very interesting capability and user base into Google's artificial intelligence dominated landscape. PhotoMath has for a long-time dominated app store rankings around the world.