When Quizlet became a unicorn earlier this year, CEO Matthew Glotzbach said he’d prefer to distance the company from the common nomenclature for a startup valued at or above $1 billion.
“The way Quizlet has gotten to this point is by building and growing a very responsible business,” he said. “It’s the result of the hard work of the team for a decade. We’re much more like a camel.”
It’s clear, though, that the tides might be changing. In edtech, the rich are getting richer. Last week, Mountain View-based Coursera announced it had raised a $130 million Series F round a day after The Information broke a story about Udemy reportedly raising new financing at a $3 billion valuation.
For anyone who has been following my edtech coverage in recent few months, this momentum is hardly surprising. Earlier in the pandemic, MasterClass raised $100 million, Quizlet became a unicorn and Byju’s became India’s second-most-valuable startup.
While edtech’s boom is predictable, the industry is known — to the chagrin of founders and to the benefit of long-time investors — for being conservative. Today we’ll look to understand how a boost in late-stage funding may impact the market on a broader scale.
High-flying camels
Ian Chiu, an investor at Owl Ventures, tells TechCrunch that the rise of big rounds brings a “watershed moment” to the $6 trillion education market. Owl Ventures was founded in 2014 and is one of the biggest edtech-focused firms out there, but Chiu says the recent strong capital flow shows that the sector is finally emerging as a sector other investors are noticing.
In a recent investor survey, Chiu said a number of IPOs will follow these big deals, along with “an increasing number now approaching and eclipsing $100 million revenue.”
Sure enough, Coursera’s new money brings its cash balance to $300 million, right around the money that Chegg had before it went public. Coursera CEO Jeff Maggioncalda did confirm that the company is eyeing an eventual IPO.
Other IPO candidates, according to a number of investors, include VIPKid, Udemy, Coursera, Duolingo, Guild Education and Quizlet.
While there might be a few edtech IPOs in the next three to five years, David Eichler of TCV said many might choose to remain private, noting that many companies went public and then went private like Blackboard, Instructure and Renaissance Learning.
“Part of that is because a handful of the historical market leaders have been very focused on inorganic growth and consolidation. It is hard (and sometimes inefficient) to do that in the public markets,” he said in an investor survey.
While the uptick of late-stage funding might take more edtech companies to an IPO, that’s not necessarily the only route to success. Let’s explore other uses of six-figure rounds in the education market.
Controlling the COVID-19 narrative
My first question when I saw the uptick in funding was if any of the capital was being used to offset some of the free users brought onto platforms due to the pandemic. Coursera, for example, opened up a course catalog for no charge for college students.
While Coursera said that the funding will help them fund COVID-19 initiatives, Maggioncalda said that the money is “not being used to offset.”
“We do expect many of our free customers to realize the benefit of online learning, and make long-term investments in digital. And we hope to be there as a partner for them,” Maggioncalda said in an e-mail to TechCrunch.
While Udemy declined to comment on the reported financing, when I caught up with Darren Shimkus a few months ago, he told me that edtech companies need cash from strategic investors in order to break into new markets. His point was that if you aren’t being naturally pulled into a country from customer interest, you need to go the route of an investor on the ground and with experience.
We saw an example of global strategy in action from Duolingo’s $10 million raise in April. The startup said then that it raised solely to bring on General Atlantic, which has a global edtech footprint of portfolio companies including OpenClassrooms, Ruangguru and Unacademy. Duolingo said that General Atlantic’s global platform and experience with online education in Asia would help guide its own growth, specifically pointing to its plans to scale up the Duolingo English test.
All these different data points show that edtech’s growth is coming with a unique need for balance. The sector is getting more popular, which is driving its ability to get richer, but its success relies not in these pandemic-era surges but in how it actually uses the boom to enter and solidify its footprint in new markets.