K-12 Edtech Funding, '10-'15
So much has changed—yet there’s still so much to prove.
In 2015, investment in edtech businesses boomed. Investors put more than $1.1 billion into K-12 edtech companies (according to EdSurge Ka’Ching data), the most significant year of investing ever for the sector. Sure, measured against the rest of the venture world, overall edtech investment is still tiny, about 2 percent of the $58.8 billion invested by the venture industry in 2015. Yet that’s a big increase from the 0.9 percent of the market that overall education (just not technology) investing represented between 1995 and 2011, according to GSV Advisors.
Even investors who are fans of education want returns, however. And so edtech startups are working harder than ever to find sustainable business models.
The business models of hundreds of edtech companies started since around 2010 fall into two main buckets: “free for teachers” (which includes both “totally free” and “freemium” models) and “sales to administrators”. There are some notable outliers, Clever, for instance, effectively sells to other edtech companies by taking a cut of their sales to districts. Other edtech products primarily target consumers or parents.
“Free for teachers” companies aim to grow their user base aggressively by offering their products for free and so rely heavily on venture financing. Some of the best-known edtech companies that have taken this path include Edmodo (60 million users), Class Dojo (35 million users), Remind (more than 30 million users). But while consumer companies—Google, Facebook and Twitter and such—monetized their free products by putting ads in front of users, education companies were resoundingly advised in 2015 that they have to protectprotect, not sell, users’ and students’ data. That will lead, inevitably to “premium” services that schools and districts must pay to support. “Freemium” companies start here, offering a portion of their product for free (frequently to teachers), in hopes that schools or districts will pay for a full subscription.
Edtech User Base (2015)
How do edtech companies stack up with the total # of US teachers and students? Edmodo now has more global users than the two audiences combined and ClassDojo and Remind aren't too far behind.
Companies built around the “sell to administrators” approach aim to drive revenue from the moment they launch. They require energetic sales outreach and tightly defined products. Because the sales cycle to districts can be painfully long, they, too, need outside funding but that initial boost may be smaller than their “free” cousins—and may last longer.
Raising subsequent rounds of capital is increasingly heavy lifting for edtech companies: they took 50% longer (from 2011 to 2015) to raise a Series A round after their seed round and 50% longer still to move from Series A to Series B. That makes the “sell to admins” model popular, particularly among financiers.
Failures will come and consolidation is inevitable in a landscape with more than 160 math products, for example. The fact remains, the industry is still searching for that paradigm of success. “The real question is, is there anything new here? Is there a new business model that is going to be significantly better than what Pearson does? If there isn’t, then the modest successes will just get eaten up by the big publishers” warns Zeal’s John Danner.
NOTE CREDIT: https://www.edsurge.com/research/special-reports/state-of-edtech-2016/k12_edtech_trends/edtech_business_models?utm_content=bufferfd7f7&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer