Patrick Brothers
Investors are incessant in their hunt for the next emerging market. The investment du jour? Edtech.
The tastemaker in this case is an article from David Bainbridge claiming, “Edtech is the next fintech.” While most of us can appreciate the wordplay, comparing edtech to fintech, or other “hot” industries, is a dangerous game — one that can severely damage the mission of education.
I believe the comparison is problematic for many reasons, but first and foremost, the numbers are at best misleading, and, at worst, wildly inflated. The marker in the article — the one that had investors seeing edtech as a new shiny object — was the valuation of the edtech market at $250 billion. That’s enough money for anyone to pay attention. But it’s a gross overestimation. The edtech market does not even come close to this estimate.
Where the number starts to fall apart is when other research about the market is held up for comparison. For example, Navitas Ventures just completed a data analysis of the edtech market. We mapped 15,000 startups in more than 50 countries. In this deep dive of data we found a trove of insights, including 26 innovation clusters across eight stages of the learning life cycle. What we didn’t find? $250 billion in investment opportunity. The closest number in the data was $50 billion of existing investment. But, that takes into consideration investments starting all the way back in 1997.
While I stand by the data and analysis in Project Landscape, using only our own data may seem biased. Taking into consideration other numbers in the space, however, the same conclusion can be reached.
At the global level, CB Insights projects that deals globally will crest just over 500 in 2017, at $3 billion globally. In the United States, numbers like $1 billion in edtech funding are suggested by EdSurge. Over at HackEducation, expert Audrey Watters lays out the 13 biggest investments this year in her own critique of edtech investment numbers, and those amounts only add up to about $1.4 billion. It seems any way the numbers are sliced, it is still a long way to get to $250 billion.
Even in the world’s fastest-growing edtech market, China, the numbers do not match. A report from JMDedu estimates that $1.5 billion via 170 deals took place in 2016. It’s worth noting here that much of this amount was in mergers and acquisition. Then there is the $1.2 billion in 2016 Chinese investments that Goldman Sachs notes, and the $1 billion the Chinese government invested in edtech in 2016.
There are people who will add to those amounts the $30 billion the Chinese government announced it will invest in edtech by 2020. But, to those people, I say that money is earmarked for technology generally, not startups specifically, so the funds do not truly count. Plus, $30 billion is still a far cry from $250 billion. Even when a massive deal like the $200 million raised by China’s VIPKID — a company valued at $1.5 billion — is factored in, the edtech market falls short of the projections investors are fawning over.
Beyond straight addition, there is the problem of what aspects of the market are being considered. In the above examples, numbers are pulled from mergers and acquisitions, various stages of investment and deal flow. If the same inputs are not being considered across the board, then how can investors truly know the opportunity in edtech?
This homes in on the second problem with the $250 billion valuation. How are EdTechX and IBIS Capital, the original publishers of the number, arriving at the number $250 billion? It starts with a forecast. A forecast of $157 billion in 2016 growing 17 percent. But, that forecast is not investment in edtech — it is vendor revenue. The $250 billion market study is in fact likely a proxy for technology spend — transactions that include schools paying for learning-management systems and general IT spend. But, potential revenue and this nuance isn’t what everyone took from “Edtech is the next fintech.”
And that is the biggest problem: The way edtech is evaluated varies depending on who is doing the measuring. It’s a problem because it further obfuscates how edtech should be measured. Evaluating market opportunity in edtech the same as any other market perpetuates a big movement of dumb, short-term money into a sector that is smart and long-term in how it thinks.
The potential of education, and subsequently edtech, cannot be measured by deal volume, capital, monthly active users or quarterly cash flow. Instead, there must be different measurements that center around learner impact.
The reason? The edtech market is complex — with rules all its own. What is being “sold” is not technology, it is the education of future generations. So, unlike finance, where technology that promises to save money is an obvious investment winner, in edtech, a solution that promises to “disrupt education” does not have the same guarantees. Questions about how and whose education and what’s wrong with the current system will stand in the new solution’s way.
Innovation in education, the kind edtech companies purport to bring, is about fundamentally changing the way students learn. That is something that is neither quick nor easy. As Phil Hill writes, “The challenge for ‘scaling’ in EdTech is not fundamentally about new technology.” The change is about people: teachers, faculty members, students, parents and community members alike.
The people dynamic is what most new investors to education miss. They enter the market with intentions of “flipping” their investment, earning quick money, and lack the patience or mindset to stick it out. When that happens, when new investors realize that it takes twice as much time to get half the returns in education, they exit, often leaving well-meaning teachers and students hanging in the wind without the new product they were promised.
This is the true problem with the idea of “Edtech as the next fintech.” Investment in this market requires understanding its unique attributes, and entrance not based on perceived profit opportunity but because it’s an opportunity to impact a public good that transforms people’s lives. If investors cannot understand that, then I hope they forget what they’ve been told about edtech and move on to the next “emerging market.”
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