Edtech Investors Avoided The Space This Year

It has not been a good year for edtech startup funding.

Barring some last minute mega-rounds, investment in the space for 2024 is on track to hit the lowest level in years. The same holds true for deal counts, as illustrated below.

There’s no single explanation for the slowdown. Rather, it appears there are several factors that had a role in suppressing investment.

One is the obvious fact that funding to most sectors has fallen significantly since the 2021 peak. IPOs and venture-backed M&A activity are down too. For edtech specifically, it hasn’t helped that the sector’s most famous and heavily funded unicorn, India’s BYJU’s, has been mired in troubles and seen its valuation collapse.

The return to in-person schooling after pandemic shutdowns — although by no means a new phenomenon — may also have lingering effects on the edtech funding environment. Educational institutions likely don’t feel as much pressure to spend on upgrading digital learning tools now that fewer students are remote.

The rise in funding to generative AI could also play a role for edtech. One school of thought is that leading platforms such as ChatGPT and Perplexity are seeing heavy adoption among students and educators. However, these platforms are not classified as edtech investments. If they were, edtech funding numbers would be much, much higher.

Where investment is going

Even amid a weak edtech funding environment, we did see some good-sized deals.

The year’s largest round went to India-based Physics Wallah, a platform focused on academic coaching and preparing students for entrance exams. It raised $210 million in September at a $2.8 billion valuation.

Mumbai-based Eruditus, focused on ongoing education for professionals, picked up the second-largest round: a $150 million October Series F led by TPG’s The Rise Fund.

But while India saw some large investments, U.S. startup edtech funding looked particularly weak, with not a single round of $100 million or more so far this year. The largest deal in the Crunchbase dataset was an $80 million October Series B for Austin-based SchooLinks, which bills itself as a college and career readiness platform for K-12 school districts.

Public markets chill to edtech

In addition to funding being down, exits were also muted this year.

The IPO market was especially slow, as it’s been for a while. In fact, the last time we saw a string of big U.S. edtech IPOs was 2021, when venture-backed unicorns Duolingo, Coursera and Udemy went public.

Since then, shares of language learning platform Duolingo have surged. But Coursera, a higher-education course provider, and Udemy, a skills training marketplace, are well below their debut prices.

We also didn’t see very large acquisitions of venture-backed edtech startups this year. However, private equity firms did demonstrate enthusiasm for the space with a couple of large purchases of publicly traded companies.

The largest deal was Bain Capital’s $5.6 billion acquisition of PowerSchool, a provider of cloud-based software for K-12 education that it took private in October. A not-too-distant second was KKR’s purchase of educational software provider Instructure for $4.8 billion, which it also took private.

What will it take for investment to surge again?

Education is a massive space, so it’s likely startup investment will rebound at some point. A reinvigorated IPO market and M&A scene would help. So would more data points showing that startups are making progress in areas like training workers in skills that improve their careers and helping K-12 students keep up and thrive in their coursework.

There’s also a potential shortcut I could envision that would make the edtech numbers look much livelier: If one or more big generative AI players created an education subsidiary, funding would likely follow in droves.