Why Ed Tech Is Taking Off In Latin America

The past three months have redefined the education technology market among startup companies. Concerns about free content from YouTube and educational nonprofits, as well as user engagement and retention, were beginning to sour investors on the opportunity afforded by providing for-profit education to the lifelong learning sector.

Now it seems recent transactions are providing a signal that some in the education technology space have cracked the code and are thriving in a for-profit model. Specifically, last month we saw LinkedIn acquire Lynda.com for a whopping $1.5 billion, and Udemy raised $65 million led by Stripes Group.

Global Ed Tech

Global education spending is estimated at $5.5 trillion, of which e-learning represents about 3 percent, or $1.7 billion. However, e-learning is expected to see considerable growth; outpacing all other categories of learning and growing at an average rate of 23 percent per annum, it will reach $4.8 billion by 2020.

A continuously evolving workplace, demanding more technical skills from employees, combined with the astronomical price of traditional degrees (author’s note: trust me on this one, my daughter just got accepted to Columbia University) and the continued demand for skilled developers and programmers, have made online education a priority for professionals. In fact, some are calling e-learning the unbundling disruptor of traditional education.

As Stripes Group managing director Ken Fox, recently said, “Getting a job has a lot less to do with where you went to school and what your GPA is, and more to do with what you can actually get done.”

While the U.S. accounts for about 22 percent of the global education expenditure, many believe the international e-learning opportunity will outpace the growth expected in the U.S. We are starting to see some evidence of this as emerging markets, which lack access to a solid traditional education system, try to make up for this. For example, it is estimated that two-thirds of Udemy’s 7 million users, and 50 percent of its revenue, are based outside of the U.S., where access to education can be more challenging.

Ed Tech in Latin America

For many of us, the recent eduK investment in Brazil, led by Accel’s Kevin Efrusy, signaled that Silicon Valley VC players were intrigued by the ed tech space in Latin America. Having more than 2 million students enrolled in its 600 courses, eduK is now looking to expand beyond its borders into the rest of South America with the help of $10 million in new funding led by Accel.

With more than 600 million people, and an educational system that has lagged behind the developed world and hasn’t been accessible to everyone, Latin America indeed presents an interesting opportunity for ed tech players.

With smartphone penetration increasing from about 25 percent in Latin America today to roughly 50 percent by 2018, and marked class differences based on educational backgrounds, many are seeing e-learning as the ultimate class equalizer. It’s no wonder that Coursera is seeing more than 22 percent of its users based in Latin America, and is placing considerable business development efforts in the region.

Most Latin American content producers started producing content on YouTube as a way of experimenting their reach and style, pretty much like Khan Academy did back in 2006. But they quickly found out that they couldn’t make a living with it.

While YouTube has always amassed the largest amount of content creators, it has failed to present a sustainable business model for its authors. They obviously have the best video technology, and producers don’t need to be concerned about hosting, CDNs or transcoding costs because YouTube takes care of it all. They also gain huge distribution by taking advantage of the power of search and their suggestion algorithm on both properties.

Unfortunately for the end user, YouTube is more like an ocean of knowledge that spreads only 1 millimeter deep, and to the “real” learner, this poses a problem.

Faced with a need to create an ecosystem that assured a for-profit approach for both the content producers and aggregators, several local players have emerged over the past five years:

Descomplica: Known as the Brazilian “true-online” classroom; has been live for several years and is one of the most successful stories of the LATAM ed tech startups, raising more than $14 million from Social Capital and Valar Ventures.

eduK: This Brazilian startup offers online courses broadcast live in a freemium model. They recently closed a $10 million round led by Accel and Monashees.

TareasPlus: With offices in San Francisco and Colombia, TareasPlus has the largest catalogue of Spanish-speaking instructors and more than 1,000 courses, 45,000 lessons and 700,000 registered students, which makes it by far the largest course marketplace in Spanish, even surpassing Udemy.

Platzi: Previously known as Mejorando.la, this Y Combinator startup is the preferred destination for many students in Latin American who want to learn how to code.

veDuca: This Brazilian online video platform aims to democratize access to quality education via video lectures from universities worldwide.

With a population almost double that of the U.S., more than six countries worthy of investment-grade debt rating by Fitch and S&P (Brazil, Chile, Colombia, Mexico, Panama and Peru, among others) and a pervasive and ubiquitous penetration of both social and mobile technologies, it’s no wonder why the Latin American ed tech play is so attractive.

Brazil seems to be the preferred investment thesis of VCs, mainly because it provides a common language and transactional cohesion from a single currency used by more than 200 million inhabitants. However, the Pacific Alliance countries (Mexico, Colombia, Chile and Peru have a combined population of 206 million and US$3.4 trillion GDP) also offer an interesting opportunity in that they have a higher GDP per capita than Brazil, share a common language and have some uniformity across educational systems.