EdTech VC tumbles to $707M for Q2. 'Bottom of the Market' meets the new Innovation Funding Stack

Farewell Mega Rounds, Hello Funding Diversity. Stop Praying and Start Playing in a New Chapter for Education Innovation Funding.

Education Intelligence Unit

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June 29, 2023

Q2 2023 may turn out to be the bottom of the funding market for EdTech VC๐Ÿคž, but it also may mark the beginning of a new chapter and more diversified approach to funding innovation in education.

Since 2010, almost $100B of Education focused Venture Capital has been deployed globally. Around $30B in each of the US and China, another $10B in each of India and Europe and the remainder spread across Africa, Asia, Latin America and the Middle East. The US led out the first half of the last decade, building to $1B+ VC investment years in EdTech VC and China led the second half of the last decade building up to a $10B+ EdTech VC year before bursting. This decade kicked off with an almighty global surge in venture capital and ultimately an overdose of private funding.

2021 was peak EdTech VC, reaching $20.8B through 3,000+ funding rounds and holding up 32 EdTech Unicorns by the end of the year. By December 2021, EdTech Venture investment was 40x larger than it was in 2010, nearly 5x the previous investment peak in 2015 and 3x pre-pandemic investment levels in 2019. 2022 halved EdTech VC to $10.6B and 2023 is on track to reach somewhere north of $3B based on YTD investment activity. So far in 2023 we've seen around $1.8B of VC through 476 transactions, marking another major decline from the $4.5 billion raised in the same period in 2022 through 652 transactions.

Schools, Universities, Parents, Teachers and Learners are more digitally aware, more discerning of technology and demand evidence of outcomes. Approaches to digital in education have matured significantly over the last few years, and with that more serious approach will come new ways of sourcing, procuring and assessing technology for the learning enterprise.

The contraction of venture funding turns a spotlight to other forms of funding that fuel innovation. HolonIQ is currently indexing and analyzing over $100B of Foundation Grants and Giving in education and will be sharing this analysis at our Back to School Summit in New York early September, together with new analysis of federal contracts. VC plays a critical role in funding high risk and high impact innovation, but it's not the whole story and we need to support the EdTech ecosystem with more flexible government funding and foundation-led philanthropic investments to protect and diversify the supply of capital fuelling new ideas and bold visions to transform the way the world learns.

โ€Figure 1. EdTech Venture Capital Funding over time

Notable transactions in Q2 demonstrate where investors are committing 'dry powder' and where they see scale and impact in a post pandemic and more tech-mature education and training landscape. Q2 saw highly innovative teams raise funding including ๐Ÿ‡บ๐Ÿ‡ธ Red6, a fascinating augmented reality training platform for military applications closing a $70M Series B. ๐Ÿ‡บ๐Ÿ‡ธ Pathstream, a workforce focused training and career mobility platform, raised a $39M funding round. ๐Ÿ‡บ๐Ÿ‡ธ Swing Education, a platform to help schools and substitute teachers connect, raised a $38M Series C. ๐Ÿ‡ฆ๐Ÿ‡บ Go1, a workforce focused learning platform, raised a $30M funding round and ๐Ÿ‡บ๐Ÿ‡ธ Uwill, a student mental health and wellness platform raised a $30M Series A. These five transactions together accounted for just under one third of global EdTech venture funding for Q2 2023.

For transparency in our analysis, we've stopped classifying ByJu's various transactions as funding/growth capital until we see resolution of the current events, hence ByJu's recent financing events do not appear in this VC/growth capital analysis.

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EdTech attracted 15 'Mega Rounds' (> $100M) in 2019, 30 in 2020, 53 in 2021 and 20 in 2022. 1Q and now Q2 2023 are the first quarters for many years without an EdTech 'Mega Round' and it's possible EdTech won't see another for some time to come.

While the number of EdTech funding rounds has dropped by around 20%-40% from 2022 levels, the major drop has been deal value. Figure 2 shows the run into and through the pandemic revealing a massive expansion of late stage funding with the prior several years routinely including funding rounds between $200M and $500M+. The lines between Venture Capital and Private Equity started to blur under the banner of late stage growth equity at extreme valuations that left little room for error, let alone a global market correction. We don't expect to see any newly minted EdTech Unicorns, nor Mega Rounds anytime soon. The compression in valuations and challenging funding environment are creating major pressure for models and platforms that relied on rapid succession fundraising and ever expanding valuation multiples.

A credible scenario we fear for EdTech at large is a simultaneous AI hype crash combined with the collapse of several banner EdTech brands that undermines broad confidence in innovation and technology in learning and teaching. The real potential through this 'back to basics' phase is to forge a group of teams and platforms that generate both financial and impact returns, embracing advanced technology where it makes sense and supporting schools, universities, learners and teachers where it matters most.

โ€Figure 2. EdTech Venture Capital Mega Rounds

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