Venture

Edtech isn’t special anymore, and that’s a good thing

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Image Credits: SEAN GLADWELL (opens in a new window) / Getty Images

Edtech’s day in the sun wasn’t too long ago. As the pandemic struck, consumers became hungry for new virtual-first tools, Zoom school turned into a reality for millions, and it felt like every late-stage company was getting a chance to become a unicorn.

Fast-forward to today, and while the sector is still enjoying a boom in venture capital — I’m subtweeting Owl Ventures for closing a $1 billion fund at the beginning of the year — the sentiment has certainly changed.

To get a better feel for that sentiment, I spoke to seven edtech-focused investors about the seeming departure of tourist investors, what kind of edtech companies are venture-backable, and the general vibes within the sector. Surprisingly, my takeaway was simple: Edtech isn’t special anymore, and that’s a good thing.

Edtech is facing a reality check in the form of discipline. Investors explained that while the whole startup ecosystem is slower this year, edtech hasn’t escaped that trend. If anything, as USV’s Rebecca Kaden put it, “The boom in the category in the last couple years means most of our education-focused portfolio is funded quite well [ … ] rounds would be opportunistic rather than out of need, and most are focused on building their businesses for the next couple years.”

“While the growth isn’t the same as it was in the heart of the COVID boom,” she added, “many education businesses now are at completely different scales, and in a different position than before, allowing for new opportunities and strategies.”

Other investors echoed Kaden’s thoughts, drawing on how edtech is primed to act in a more disciplined market.

Jomayra Herrera, partner at Reach Capital, said that the public markets nearly shutting down has impacted all sectors, but IPOs have historically not been the primary exit path for edtech companies anyway. “Strategic players are still acquisitive, and we have even had a successful exit already this year,” she said.

For those looking to navigate the downturn, the investors had a bevy of tips. Here’s one bit from Emerge Education’s Jan Lynn-Matern:

Plan for preservation. For growth-stage companies, this means ideally reaching profitability with current funding or having a credible narrative as to why and how you can reach it with the next round of funding. Early-stage companies need to prioritize strong user engagement and revenue retention over growth, because these are vital indicators of sustainability.

To me, this means that the absence of generalist investors, or at least their silence, helps companies readjust to more realistic growth goals.

Read the full survey for an inside look at the spicy questions and thoughtful answers from leading education investors.

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