According to the Chinese Zodiac, 2015 was the Year of the Sheep. But investors were anything but sheepish when it came to making bets on US edtech startups.
With a total of $1.45 billion raised across 198 deals through December 16, US edtech startups set another record in 2015. Companies whose tools target the K-12 space accounted for $537 million, while those serving higher education raised $711 million. The rest was made up by companies that focus on corporate or adult learning.
In this analysis, EdSurge counts all investments in technology companies whose primary purpose is to improve outcomes for all learners, regardless of age. To use two edge case examples, Social Finance (which raised $1.2 billion—yes, you read that right) is not counted because it is more of a financial company than an education one. But we do count AltSchool because it is using (and developing) technology to help students learn. Mergers, acquisitions and grant funding are also not included here.
An analysis of the yearly totals paints a rosy picture of edtech investment—up, up, up. But breaking down the totals by the five categories in our Edtech Index tells a different story. The majority of dollars continue to concentrated in deals in the post-secondary and the “everything else” categories, which have continually increased since 2010. (“Everything Else” contains a mix of products that help business professionals develop skills, are aimed at parents, or are not used in K-12 or higher-ed institutions.)
The results for the K-12 categories (Curriculum Products, Teacher Needs and School Operations) are mixed. While investment in School Operations tools has grown steadily since 2012, investment in Curriculum Products and Teacher Needs have fluctuated. The totals in these two categories tend to be driven by a large deal; for example, Curriculum Products in 2013 was led by Open English’s $65 million Series D round, and this year by Duolingo’s $45 million raise. Similarly, roughly one-third of the $183 million of venture capital that went to Teacher Needs tools in 2014 can be attributed to TeachersPayTeachers’ $64 million round.
A month-by-month breakdown of 2015 US edtech investments also reveals fickle funding patterns. By deal volume, February led the way with 21 rounds, but the following month set the low point with just 12. (Note: There were only 9 deals in December through December 16). Total amounts were similarly unstable; funding bounced from $240 million in June to $73 million in July, and from $98 million in October to $474 million in November (a new record month for US edtech).
Indeed, edtech funding displays this volatility on a quarterly basis as well; for example, total US funding fell from $435 million in Q2 2015 to $350 million in Q3, before spiking to $626 million in Q4.
When we apply a four-quarter moving average to our totals, which allows us to see better the direction the market is trending, the picture is a bit cleaner. Total US edtech funding has continued to trend upward from 2010 to 2015. In the graph below, the data for each quarter represents the average funding for that quarter and the previous three.
Beware: Here Be Outliers
These record-setting numbers may be deceptive, as a large percentage of funding is concentrated among a small number of companies. In particular, the top three deals throughout the year in each of our five Index categories account for an outsized amount of the total funding to that category.
|Curriculum Products||Teacher Needs||School Operations||Post-Secondary||Everything Else|
|Duolingo - $45M (June)||Presence Learning - $25M (Nov)||AltSchool - $100M (May)||HotChalk - $230M (Nov)||Lynda - $186M (Jan)|
|Newsela - $15M (Oct)||LearnZillion - $13M (Sep)||Knewton - $42.3M (Oct)||Udacity - $105M (Nov)||General Assembly - $70M (Sep)|
|Slate Science - $12M (Jan)||Nearpod - $5.6M (Apr)||Instructure - $40M (Feb)||Udemy - $65M (Jun)||Varsity Tutors - $50M (Nov)|
|% of category funding from top 3 deals||49%||62%||57%||56%||51%|
Indeed, over the past five years, a single deal has regularly driven the headline funding figures. The graph below plots the total US edtech funding per quarter, with the largest deal that quarter highlighted in green. A single deal could account for as little as 15% (Q2 2012) to as much as 46% (Q3 2010) of the total funding in a quarter. On average in 2015, a single deal accounted for 28% of a quarter’s funding.
By and large, these outlier deals are going to established companies in the post-secondary space, or to those whose businesses can serve for-profit institutions and lifelong learners.
It’s Not All Brobdingnagian
So if the big guys are getting the big bucks, what does the market look like for the little guys out there? First, the good news: Between 2014 and 2015, the number of seed and angel rounds increased a bit, while the average deal size jumped from $934,000 to $1.1 million. Similarly, the average size of A and B rounds both increased in 2015:
|Seed & Angel||Avg Deal Size||$934,000||$1,100,000|
|# of Deals||79||83|
|Series A||Avg Deal Size||$5,100,000||$5,500,000|
|# of Deals||57||48|
|Series B||Avg Deal Size||$20,800,000||$32,500,000|
|# of Deals||21||15|
But the number of Series A and Series B deals fell in 2015. At the same time, the ratio of the number of Series A to Series B deals climbed to 3.2, from 2.7 in 2014. This increase suggests that investors are becoming more reluctant to invest in Series B deals. A symptom, perhaps, of early investor darlings’ seeming failure to establish a core business model?
Big Time International Funding
In addition to the $2 billion in domestic funding, EdSurge identified 95 international deals that tallied a further $934 million, bringing the global total for the year to $2.98 billion. These deals occurred in 22 other countries; most are concentrated in China, Great Britain and India.
|Country||# of Deals||Total $ Raised|
|*Includes Belgium, Chile, Denmark, France, Indonesia, Ireland, Italy, Northern Mariana Islands, Philippines, Russia, Singapore and Venezuela|
Much More to Come
Over the next few months, EdSurge will diving deeper into the edtech funding landscape, exploring funding trends and showing not just who is being funded, but also who is providing the funding. One quick teaser: Of the 580 US companies in our funding database, how long has it been since each received funding? It turns out that 431 (74%) have raised money in the past three years.
So which companies are in the other 26%? Are they still around? And if so, are they looking for new capital? Or have they already found a way to achieve stable revenues? Look out for more information coming in February!