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What do VCs Look for in an Edtech Solution?

By Sudeep Srivastav
May 21, 2020 8. min read
Last update on: June 29, 2020

“A Learning management software, Illumnus raised USD 100K from angel investors.”

“Amsterdam-based Tribe, with an intent to boost digital skills, raised €3 Mn.

“India-based edTech startups, BYJU’s and Unacademy raised $400M and $100M respectively in a round led by Facebook.”

All such news have taken the world by storm. They have made all of us ask the same questions in sync – 

“How come VCs have suddenly started taking an interest in the edtech startup world?”

 “Is this a sign that one must invest in the edTech market?”

Let’s dive deeper into the edTech market and figure out answers to many more such questions. 

But first, let’s get a clarity of how many education startups have raised funding this year and what’s the pattern.

In a hurry? Jump directly to –

The Current State of Funding in edTech Domain

Reasons Behind Growing Interest of VCs in EdTech Segment

An Outlook of the Future Scope of EdTech Market

Factors VCs Consider Before Investing in EdTech Idea

Types of EdTech Ideas to Invest in 2020

Challenges Your Startup Might Face in the EdTech Domain

How Appinventiv Can Help in Launching Your EdTech Startup?

The Current State of Funding in edTech Domain

1. According to EdSurge, Venture capitalists funded around USD 1.7 Bn into the edTech market in 2019. This investment was made in the form of 105 deals, a majority of which were large Series C investments. 

The investors gave around USD 919 Mn in 16 deals in Series C round, compared to USD 788 Mn across 13 deals back in 2015.

Edtech market investment 2019

2. Not only this, it has been found that the number of fundings under Series A, Series B, and Angel & Seed rounds has also increased exponentially. A clear idea of which can be taken from the following graph.

Edtech market investment by type

3.  The 2019’s deal value is 16% higher than that recorded in 2018, even when the number of deals were comparatively low.

4.  Apart from venture capital investment, a handful of private equity funds have also been raised to invest in the education sector. 

Additionally, around 29 US-based companies have gained a total USD71 Bn of market capitalization under the ‘publicly traded names’ category of this space.

publicly traded names edtech investment

5.  The startups that received recognition under the label of ‘Top edTech deals for 2019’, i.e., Coursera, BetterUp, MindTickle, Guild Education, EdCast, Andela, and A Cloud Guru – accounted for 39% of the edTech investment in the year 2019.

2019 top edtech funding deals

6.  The year 2019 witnessed 4 mega-rounds (above $100 Mn) in the edTech domain, compared to 2 in 2018, 3 in 2017 and only 1 in 2016.

Now as you are familiar with the present scenario of edTech market, let’s focus on the first core question, i.e, why are investors turning towards this domain.

Reasons Behind Growing Interest of VCs in EdTech Segment

benefits of investing in edtech

1.  Untapped Opportunities

Even today, there are various regions and communities that do not have access to the educational resources. They are not able to have even the basic learning experience. Likewise, there are various people who are eager to learn something new or polish their skills but are unable to do so within the traditional educational ecosystem.

All such instances highlight a myriad of unexplored opportunities in the marketplace, which gives venture capitalists an assurance that investment in education startup ideas will definitely be profitable to them.

2.  Wider acceptance

Edtech platforms bridge the gap between those who wish to learn and those offering the same service by bringing them on the same platform, virtually. They are enabling them to learn anything, anytime and anywhere as per their own pace. Also, these platforms operate using the finest of technologies like artificial intelligence and IoT. 

Because of these two reasons, the edTech ideas are not solely being widely accepted by consumers, but are also attracting more investors.

3.  Need for lifelong learning experience 

The rate at which knowledge is growing these days, the time by which one learns a skill to apply for any job, another skill leads the show. This makes it imperative for them to embrace the idea of lifelong learning. And eventually, encourage investors and developers to invest their time and money into developing mobile apps that are expected to be the future of the education industry.

4.  Lower Competition

Another reason why investors are supporting the idea of education mobile app development is that even today, there are various subdomains where only one or two brands are changing the story. Implying, there is lower competition and higher market scope, which turns out to be a profitable investment.

5.  Higher ROI

As mentioned so far, edTech market is growing exponentially, its solutions are being accepted widely, the competition is minimal, and so on. All these factors clearly indicate that the profit over investment, i.e, ROI is exponentially higher in the case of online education domain and it can be regretful for an investor to overlook this opportunity.

While this clears the clouds about the present scenario and the reasons why edTech is becoming a favorite of both investors and entrepreneurs, let’s take a look at the future of this domain to make better decisions with respect to the second question – Should one invest into the idea of launching their own online education and edTech startup?

An Outlook of the Future Scope of EdTech Market

When focusing on the future of edTech space, the online learning market size is anticipated to grow exponentially. Many more startups are entering the market with the support of reputed education app development services providers to connect students, teachers, and administrators anytime, anywhere, and across the devices. And eventually, get a bigger slice of the market that was worth $247 Mn in 2016 and is anticipated to be valued $1960 Mn by the year 2021.

edtech market forecast 2016 to 2021

Not only this, it has been forecasted that the educational market will experience a seismic shift from traditional approach to that one involving integration of cutting-edge technologies, like AI (Artificial Intelligence), AR (Augmented Reality), Blockchain, and so on.

education technology market 2018 to 2025

Now, as you are familiar with the booming edTech market and the investors’ approach towards it, you must be eager to step into this segment. 

But, is it that easy? Do venture capitalists (VCs) invest in every edtech startup idea presented to them?

The simple answer is – No.

The investors take a look at different factors before deciding whether to invest or not into any educational venture. A glance of which can be taken from the next section of this article.

Factors VCs Consider Before Investing in EdTech Idea

Factors VCs Consider Before Investing in EdTech

1.  Core Problem & Its Impact

Currently, there are various startups who have or are looking ahead to step into the education segment. However, the problems that they are focusing on are either too small to consider or have already been solved. Because of this, edtech venture capital firms have become too selective about the projects they fund. They have started asking different sets of questions to the entrepreneurs to see if the problem focused is ‘must-solve’ or ‘nice-to-solve’.

In simpler terms, the venture capitalists gives a ‘green’ signal to only those edTech startup ideas that- 

  • fits to the market needs and customer demands,
  • attract and retain talents,
  • steers both small ideation level teams to substantial large companies,
  • accomplish goals in extreme situations, and more.

2.  Robust Cash Flow

There are various startups in the EdTech segment that operate with the business model that brings millions of dollars in their bank account for a particular time and then, suddenly bring it at the verge of shutting down. To overcome the loss of funding any organization, investors are also paying attention to this factor while investing any educational startup idea.

3.  Competitive Landscape 

Another factor that venture capitalists (VCs) are checking before investing in any educational startup idea is competitive landscape. They are examining carefully if the startups are progressively working on the problem they proposed to solve, and whether they are finding an ease to beat the competition or not. This way, they are forecasting the future of any startup and deciding whether or not to invest it any further.

4.  Scalability

When it comes to funding any startup, edtech venture partners also focus on the scalability factor. That implies, the possibility of the edTech idea growing over the next 2-3 years while remaining in the limelight and ensuring regular finance.

quote by blume ventures5.  Business Model 

With the passage of time, the consumer demands and market needs are also changing. This is making investors curious about the startups that come up with unique and innovative business models and ensure better returns. This clearly means that the business model you pick is yet another factor that can make your educational startup idea get attention from the investors.

best strategy to rule investors heart

6.  Alignment To VC Mission

When it comes to fundings, investors are not solely interested in education startups that add to their profits, but also provide them with a plethora of opportunities in the marketplace. This is again another reason why venture capitalists become choosy about educational startups.

7.  Experience 

Lastly, some of the venture capitalists (VCs) prefer startups whose founders have substantial experience in this segment. Whose founders are familiar with the hidden challenges of edTech space and can use their knowledge and experience in crafting better ideas.

With this, we have seen what made investors turn towards the Educational market and the set of factors they focus upon before investing in any EdTech idea. 

But, one major question that comes to mind here is – What are the different EdTech ideas that one can forth?

To tackle this question, let’s uncover the different EdTech categories or simply said, the types of EdTech app ideas that are changing the education landscape.

Types of EdTech Ideas to Invest in 2020

edtech startup types

1.  K12 Education Apps

The foremost type of EdTech application you can create is K12 Education apps. These web and mobile solutions provide school students and tutor kids with high-quality videos designed primarily on the academic curriculum. 

BYJU, PlanetSpark, and Blackboard Radio are the top EdTech startups to refer to when entering this category.

2.  Test Preparation Platform

These types of edTech platforms enable students to prepare for entrance exams like LNAT, USPC, Mensa, IELTS, Gaokao, and CFA. These software and mobile apps empower them to remain updated with the latest information, track their progress, gain confidence, as well as prepare for the exams at their own pace and convenience.

When talking about this subdomain of the education industry, the top startups to get inspired from are NeoStencil, Classplus, Examify, and Top Rankers.

3.  MOOC Portals

MOOC (Massive Open Online Course) portals are basically distance learning courses offered online by top universities across the globe. They let students register into any university worldwide and complete any course they want, along with connecting with other people who have enrolled for the same course. In other words, these platforms enable students to boost their knowledge and get ready to step into the real world smartly.

budget required to develop Mooc like coursera

4.  Tech Learning Solution 

Alike online learning portals that help students to study any particular topic or subject, these platforms empower them to excel in coding and programming. The three best EdTech startups lying in this app category are Coding Labs, Aeon Learning, and Edureka.

5.  Gamified Learning Apps  

These types of applications enable learners to study and test their knowledge while playing a quiz or participating in any such activity. Some of the best examples of this type of EdTech apps are Moose Math, Masha and the Bear, Shifu, and Vismory.

6.  Language Learning Platform  

As depicted from the name, these platforms help users in learning a new language or practise any already known language. And that in a highly gamified and interactive way.

cost to build language learning platform

7.  Career Development Apps  

While they seem much like MOOC platforms, they serve to a different purpose. They facilitate graduates and other professionals to understand the basics of their dream job and prepare for the same in a faster and effective manner.

8.  Learning Management System

Learning Management System (LMS) is another type of online education startup idea that you must consider this year. It refers to a software or platform that works like a corporation and provides the facility to administer, track, report, and deliver the learning resources, along with other products like discussion boards. 

As per the experts, the LMS market was USD 9.2 Bn in 2018 and is likely to be valued USD 22.4 Bn by the end of 2023. Something that makes education enthusiastic entrepreneurs step into this segment.

9.   School Administration   

Last but not least, School administration applications are the type of education ideas that are highly used by teachers and school administrators to manage schedules, calculate payroll, invoicing, organizing special events, and more. The best examples of which are Asana, Gibbon, Fedena, and Evernote.  

Whilst these EdTech app ideas will help you make real money on your investment, the journey is not a piece of cake. Various hurdles come into the way to enter the marketplace and enjoy the limelight.

So, in order to prepare you for the EdTech market, we will be throwing light on the obstacles that can hinder your path.

Challenges Your Startup Might Face in the EdTech Domain

Challenges faced by edtech startups

1.  The fragility of the outer ecosystem  

While the educational ecosystem might seem like a perfect environment to go with the ‘one-size-fits-all’ approach. It is not so.

When you dive deeper into the education and learning segment, you would realize that the social and cultural factors make a huge difference in the existence and success of every learning solution.  

So, understanding the delicacy of the education environment and building your EdTech startup while considering all the language and cultural barriers is the foremost challenge to address.

2.  Need for technological infrastructure   

Even today, various regions across the world are deprived of basic infrastructure and resources including electricity and the Internet. The network latency is much higher than the one expected, which makes the app pages take hours to load. And when it comes to video lessons, the buffering continues for years.

This makes it nearly impossible for the students to reap the perks of using the top EdTech solutions and contribute to the success of the marketplace. Which clearly implies that lack of proper technological infrastructure is also one of the challenges that turn EdTech startups into a failed attempt.

3.  The attitude of the Targeted Audience   

By offering real-time and personalized services, edTech solutions are adding a sense of convenience into the environment. However, some students are seeing this as a way to escape from a disciplined learning environment. This is further making it tough for teachers and others to deal with the unmotivated students.

Making a balance between convenience and consumer engagement is yet another challenge that you need to focus upon.

4.  Lower Monetization   

Since people are more interested in free courses and study material, most of the EdTech startups embrace the freemium model for scaling their business. This monetization strategy, no wonder, brings higher downloads to the brand. But, it does not provide them with a higher retention rate. 

A prime reason behind which is that people are ready to pay only for things that bring long-term success to them. Or better say, things that aid them in knowing and polishing the skills that are highly in demand in the business world. 

The absence of such business models that earn by informing and preparing users for the top employment opportunities is again a reason why the EdTech market is not booming.

Now, while these are the challenges that are required to deal with ensuring a win-win situation in the education market, it is not wise to strive to handle them on your own. You must take the help of the best education app development services providers for the same. Someone like our team of EdTech software developers.

How Appinventiv Can Help in Launching Your EdTech Startup?

Apart from being a leading digital innovation partner, Appinventiv is also a reputed education mobile app development company that aids in shifting from the traditional classroom education system to a virtual learning world. 

Our team of educational web and mobile app developers has served various  online education startups and establishments with highly innovative and business-centric solutions to overcome the existing market challenges. Our experts keep themselves abreast with the changing consumer and market needs and have expertise at integrating the latest technologies like AI, Blockchain, AR/VR, Cloud Computing, and IoT in a digital solution – a glimpse of which can be taken from our ‘Nova learning’ platform case study.

And, in case you have any further queries, connect with our educational app experts today itself!

Sudeep Srivastav
Sudeep Srivastav
CEO, Appinventiv
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