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Education Technology Startups Raised Over Half A Billion Dollars In Q1

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Education technology-focused startups raised over $500 million already in the first quarter of 2014, marking the single biggest quarter for capital committed to the sector in the past five years.

What began as a trickle in 2009, with 20 companies raising over $64 million at the beginning of the year, is now a flood as funding leapt to $500 million in 99 venture-backed startups, according to CrunchBase data.

“It’s interesting because public education hasn’t changed that much in 150 to 200 years and there had been almost no technology going into it,” said Don Burton, managing director of the Techstars Kaplan Edtech Accelerator program. “It’s not only that there’s this huge behemoth sector of the economy that spends $1.2 trillion on educating kids, but that it’s old, it’s long in the tooth and it’s bound to get disrupted.”

Education investment actually falls into four large buckets in the U.S., investors said: technologies targeting the K-12 classroom; technologies or services focused on secondary education; continuing education and professional learning; and consumer-facing educational products and services.

Investors now are backing companies that are making a massive push to sell directly into the U.S. public and private education system. “Expenditures in K-12 software is one of the fastest-growing sectors in the market,” said Schoology chief executive Jeremy Friedman.

On one end of the spectrum in K-12 education sits companies like AltSchool, which raised $33 million in a recent round of funding, according to Hemant Taneja, a managing director at General Catalyst Partners. “If you’re really going to transform education, it needs to be about changing the classroom experience,” Taneja said. AltSchool aims to do just that by incorporating technology into every facet of the learning experience, from the iPad minis students receive to the classroom itself, which is equipped with video and recording equipment to track “breakthrough” and “breakdown” moments.

At the other end are companies like Schoology, Edmodo, Desire2Learn and Clever, which are selling new educational platforms to educators in public and private schools, and other institutions, as well as Tynker, which offers an app that teaches kids to code.

While education at the K-12 level hasn’t seen the kind of revolution in technology adoption that other industries have, there are a few changes, especially in the U.S., that are making it easier for investors to launch and sell products.

The Common Core Standards Initiative, a state-led effort to standardize education launched in 2009 by governors and state commissioners of education, has created a single educational framework across much of the U.S.

“Prior to the Common Core, every state would get to define its own educational standard and oftentimes very large districts would get to tweak their own educational standards,” said John Yoo, CEO and partner at TeachersPayTeachers.com, an online marketplace for classroom materials. “The promise of the Common Core and getting every state to adopt it is that the 44 states that have adopted it are now one singular market.”

So the entrepreneurs across the U.S. that are launching education technology companies and selling them to local school districts have the comfort of knowing that their technologies apply to the curriculum from Seattle to Syracuse.

Beyond the adoption of a standardized educational system for companies to sell into nationally, there’s also a generational change happening among educators. “The interest in technology is coming because there’s a shift in the actual teachers themselves,” Yoo said. “For the most part, baby boomers were making up the large majority of the teacher pool and now they’re gone. There’s an influx of a lot of younger teachers.”

Finally there are the billionaire philanthropists and massive technology companies that are paying for new infrastructure and software to bring American schools online and using new technologies.

Taken together, it’s a recipe for renewed interest in selling to a market that has been traditionally slow to adopt new technologies. And judging by the increased pace of early-stage investment, venture capitalists are catching on.

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