Investors Rethink EdTech As Dealflow Declines

Despite big exits, big new rounds of funding, and a steady drumbeat of new product launches, investors seem to be taking a step back from the education industry in 2015.

Few industries have been as seductive, or as frustrating, for technology investors as the business of education. For people who make their living by financing technological solutions to problems consumers and businesses often never knew they had, the glaring inefficiencies in education today represent a tempting target.

As society struggles with the role education must play in a world where the tools of most trades are changing at a pace seemingly set by Moore’s Law, lifelong learning is no longer a platitude.

However, the technological tools available for educating are inadequate. The first generation of massively open online courses have had (well-documented) problems with user retention. And investors appear to be catching their breath and re-evaluating how to rebuild or replace the ivory tower and other edifices of education.

According to CrunchBase data, U.S. EdTech companies raised $1.2 billion in funding across 357 venture rounds in 2014. In the first five months of 2015, only 111 investments were tracked — less than a third of that total.

While last quarter marked a funding high for education companies, over half of this total can be attributed to Lynda’s $186 million mega-round closed in January, and the number of investments recorded has been on a steady decline since Q1 of 2014.

“The challenge is, in general, education is a pretty slow to move category, particularly if you’re trying to sell into schools and universities,” says Steve Murray, a partner with Softbank Capital, and investor in the education technology company, EdCast.

“In many cases they don’t seem to show the sense of urgency that the corporate world does. That has something to do with why the level of investment goes up and down,” Murray says.

Against this backdrop, it appears that investors are, indeed, rethinking their approach to EdTech.

“In a global economy where skills are changing increasingly quickly, 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. It’s a very different way of thinking about education than diploma-based or certificate-based,” says Stripes Group managing director Ken Fox, an investor in online education marketplace Udemy.

Udemy, which earlier this week raised $65 million, and EdCast, which launched a new tool to open its platform to educators outside of its core group of universities, are both attempting to find solutions to the retention problem that’s plagued other offerings.

“When we’ve traditionally talked about education and online learning its been in the context of putting traditional education online — and that’s not what we’re doing,” says Udemy chief executive, Dennis Yang. “It’s still a very new phenomenon where people still don’t really realize that there’s access to great practical skills development online.”

Udemy’s efforts to make education accessible involve democratizing the process. Any teacher, instructor, or coach can post content in the Udemy marketplace, and users determine which courses are the best match with their personal learning style.

“Most attempts [in online education] have been less than 100% successful,” says Murray. “There’s a bunch of interesting models: Khan Academy, Udemy, Udacity. Everybody’s trying to find what that model will be that will work for the consumer and the content creator.”

Murray noted that keeping students engaged is perhaps the biggest hurdle for any of these online education platforms, and it’s this problem of engagement that EdCast is looking to tackle with its new ed-casting tool.

“The dirty little secret [in education] is that the number of people signing up is quite high but the number of people completing courses is quite low,” Murray says. “EdCast’s answer to that is that the learning network will provide this ongoing engagement between content creator and consumer.”

On Saturday, EdCast founder and chief executive Karl Mehta and a slew of notables including former Secretary of Defense William Perry, Joi Ito from MIT Media Labs, and Mark Surman from the Mozilla Foundation launched the new service at Stanford University.

EdCast’s chief executive, Mehta, uses Larry Page’s toothbrush metaphor for consumer technology to describe how the new EdCasting tool is working to change education.

“Consumer technology should be like a toothbrush, used at least twice a day,” Mehta says, quoting Page. “We are solving that toothbrush-level engagement problem for lifelong learning through edcasting.”

The vision, according to Mehta, is to connect consumers with their role models so that they can learn in “bite-sized” portions, daily.

Unlike Udemy’s open marketplace model, EdCast works with universities and industry luminaries to provide a robust platform for reaching students beyond the ivory tower.

“I don’t think that investment in education-related technologies is over, but I think there’s some hesitancy. Some people stuck in companies that have taken too long to get to scale are saying, ‘Geez! This education technology segment is tough,'” says Murray.