Education is a $4 trillion market globally in urgent need of an overhaul — so where within education are top venture capitalists optimistic about startups building large businesses by providing new solutions?
According to EdSurge, $1.45 billion of venture capital (a mere 1.1% of the $130 billion in US venture funding) was invested in education startups in the US in 2018; there were only 112 education-focused deals. In line with the trend in venture capital overall, this represented an increase in overall capital but a concentration in fewer deals (mainly large late-stage rounds).
Education is regarded as a tough market for achieving VC scale returns. Selling into school districts and universities is difficult and slow, and freemium models that go direct-to-teachers have struggled to monetize.
New software, content, and financing solutions for learning outside the traditional school system are more compelling business opportunities. This is particularly the case in vocational training where the return on investment of an educational program or tool can be quantitatively measured in job offers and salary increases
I asked four leading edtech VCs and six of the top generalist VCs (who have a track record of education investments) to share where they see opportunity in this sector:
- Jennifer Carolan, Reach Capital
- Amit Mukherjee, NEA
- Michael Staton, Learn Capital
- Annie Kadavy, Redpoint Ventures
- Aydin Senkut, Felicis Ventures
- Matt Greenfield, Rethink Education
- Hemant Taneja, General Catalyst Partners
- Marlon Nichols, MaC Venture Capital
- Jan Lynn-Matern, Emerge Education
- Charles Birnbaum, Bessemer Venture Partner
Here are their answers…
Jennifer Carolan, General Partner at Reach Capital (an education-focused VC firm in Palo Alto with investments including Abl, BetterLesson, Epic!, Handshake, Holberton School, Newsela, Outschool, and Tinkergarten):
“Human-centered learning has been traditionally limited to one’s physical geography but technology is unlocking learning opportunities that never before existed. We’re particularly interested in the marketplaces that are better matching supply and demand across experiential learning, educator coaching, tutoring, and online small groups.
Another area of interest is voice analytics and how it can be used to provide valuable feedback for teachers, accessibility supports, and knowledge capture.
Finally, millennial parents (90% of all new parents are millenials) are changing the landscape of parenting. 60% of all millenials (women and men) say having children is central to their identity and rate the goal of being a good parent 22 points higher than having a successful marriage. 65% of children under the age of six live in households where all available parents are in the workforce. These changing dynamics have dramatically increased demand for high quality childcare, preschool, and parental resources.”
Amit Mukherjee, Partner at NEA (a global VC firm with $20 billion in assets under management and edtech portfolio companies like Coursera, EdModo, Everfi, Bridge International Academies, and MasterClass):
“Education startups have two mega tailwinds behind them today that were far less apparent even 3 years ago. First, the student debt calculus has shifted to the point where students and families are looking for viable alternatives. Secondly, Gen Z is far more skeptical of traditional education and will likely explore far more experimental study and career plans. Within the ecosystem, we think the most successful companies provide either accreditation (e.g., Coursera offering full university degrees) or demonstrable skills (e.g., proof of market-ready technical skills). We think that ISAs will dramatically shift the current debt crisis, but are not sure yet if a $10B+ company can be created because of the shift to ISAs, since we think the landscape of winners may be highly fragmented. We are also actively looking for learning ecosystems that build strong communities into their platforms.”
Michael Staton, Partner at Learn Capital (an education-focused firm in the Bay Area that has invested in Andela, Brilliant, Edmodo, General Assembly, MakeSchool, Udemy, Vemo, and others):
“Right now, I’m most bullish on homeschooling on as a fertile beachhead to create co-learning models that don’t rely on school. We also continue to see future readiness and new economy skills training as subject areas only innovators can provide with high fidelity. Helping to make early childhood care way more sane, consistent, and a strong learning experiences for the mass market is also very ripe for new offerings. Music Education is starting to become an amazing consumer experience. We’re also starting to see AI as a backbone technology to a lot of areas within education.
Annie Kadavy, Partner at Redpoint Ventures (a San Francisco-based firm managing $4.8 billion, with edtech investments like Guild Education and 2U):
“Edtech is such a broad category – people are motivated to learn for reasons from credentials, to income advance, to pure entertainment. Most edtech companies I’ve seen have been B:C which, like consumer businesses in other categories, have struggled with difficult and expensive student acquisition.
The companies that seem to be seeing most success today are those that are thinking beyond B:C edtech into employment tech, where they can connect education to career outcomes or employee retention while also reducing the acquisition challenges by going B:B. Guild is pioneering this “education as a service” model and, while I am a biased investor, I’m also a huge believer in both the model and the impact that they are having.”
Aydin Senkut, Founding Partner at Felicis Ventures (a Bay Area firm with education deals like Civitas Learning, CreativeLive, Guild Education, Homeroom, and Tyker):
“As the fabric of our economy changes, training and reskilling workers rapidly to meet the demand for the jobs of tomorrow will become increasingly more critical. For example, 35 million more healthcare professionals will need to be trained by 2030, which is why we backed Osmosis, a company that is re-inventing and re-imagining healthcare education. Over 3 million American front-line employees at companies like Walmart, Disney and Discover now have access to a college education as a benefit via Guild Education which might be the most important opportunity they will have for a life changing promotion. Pluralsight helps thousands of organizations build and improve tech skills at scale which led it to be one of the most successful IPOs in 2018.
Education, more specifically re-inventing and democratizing professional training and skilling will always be an important focus area for us at Felicis.
We want to continue backing founders and companies that empower people to quickly, easily and effectively learn key professional skills to minimize the gap between job seekers and open jobs, create a more balanced (versus polarized) society which, we hope, would have a positive impact in the world.”
Matt Greenfield, Partner at Rethink Education (an education-focused fund invested in AdmitHub, Amira Learning, BrightHive, CampusWire, Clark, Edmit, Hickory, and others):
“In K-12, we are looking for administrative tools that solve difficult challenges for district administrations and that promote effectiveness and efficiency and fairness. We are also looking for engaging interactive student-facing tools that address new needs or deliver dramatic efficacy improvements.
In higher education our biggest theme is dropout prevention.
In workforce training we look for programs with a large ROI for the student — one of our favorite models involves the employer rather than the learner paying the training costs. We are also finding a smaller number of companies providing key software infrastructure — the necessary plumbing — for workforce training.
We stay far away from certain kinds of business: those that do not have a foundation in learning science, those that lack empathy for one or more groups of stakeholders, and those that are trying to do a job that is already being done well by larger companies.”
Hemant Taneja, Managing Director at General Catalyst (a top VC firm managing $5 billion that has invested in Brainly, ClassDojo, Grammarly, and UPromise):
“The future of education is something that is deeply personal to me. I’ve made investments in the space and have worked directly with education pioneers like Sal Khan to begin to rethink the future of education with a technology overlay.
We’ve watched software and emerging tech platforms unscale/remake content and commerce verticals and we’re starting to see this happen in education. Companies like ClassDojo that have developed very consumer-centric experiences for parents to stay better connected with teachers and their children’s school experience. They’ve shown strong user resonance and have scaled well both here in the US and globally.
The challenge for many education innovators — and main impediment for us investing in this space — is tapping into K – 12 school budgets. There are however other education areas that continue to be interesting, particularly companies like Guild Education and OpenSesame that address lifelong learning including workforce training/retraining.”
Marlon Nichols, Managing Partner at MaC Venture Capital (a new LA-based seed fund with investments in Catalyte, Codeverse, and Wonderschool):
“Many education technology companies target individual teachers, which presents a long path to sizable revenue (requires too many customers) while others usually attempt to navigate the lengthy and bureaucratic sales cycle of selling to school districts. VCs prefer companies that have short sales cycles that can scale revenue quickly so in general, edtech companies are difficult investments for venture capital.
That said, education is a giant opportunity in the US because high quality education is not evenly distributed across communities or social classes. It’s a crisis. Companies that address this at scale are attractive if the revenue model makes sense. That’s why I led the first round into Wonderschool, which delivers high quality education and child care at costs relative to one’s zip code. The schools double as the educator’s home so there isn’t a need for real estate investment.”
Jan Lynn-Matern, Founder and Partner of Emerge Education (the leading edtech seed fund in Europe, based in London with portfolio companies like Aula, Unibuddy, and BibliU):
“Crossing the chasm where online learning becomes more engaging than in-person education: Past attempts at moving education online have failed. Today’s live online schools are as or more engaging as the best in-person seminar, and at the same time are infinitely more scalable.
Millions of people using education to switch into high-earning careers in a short amount of time: Middle income jobs are under pressure from automation and globalisation. We will see the proliferation of online vocational schools that offer a viable route into higher-earning jobs in growth sectors.
The rise of a small number of super scale universities: People of all ages and from all geographies want to access higher education. Brick-and-mortar universities aren’t set up to cater to such a broad demographic. We will see tech companies and universities partnering to build highly scalable online higher education institutions.”
Charles Birnbaum, Partner at Bessemer Venture Partners (a global, multi-billion dollar firm that has invested in Brightbytes, Brightwheel, Guild Education, Knewton, and 2U):
“We continue to believe there is a tremendous opportunity for entrepreneurs to help solve the obvious skills gap problem that has led to significant underemployment in the U.S. Higher education is largely failing students and has now left multiple generations with a tremendous debt burden and willing to try alternatives for their own children. We are starting to see innovative approaches in the market that are mostly going directly to employers to help fill the gaps and fund programs that teach skills directly applicable to information economy appropriate jobs. It’s still the very early innings here and we expect the majority of higher ed to change dramatically over the next decade.”
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