Owl Ventures Just Closed a $315M Edtech Fund. Here’s What It Sees From...


Owl Ventures Just Closed a $315M Edtech Fund. Here’s What It Sees From Its Perch.

By Tony Wan     Jan 25, 2019

Owl Ventures Just Closed a $315M Edtech Fund. Here’s What It Sees From Its Perch.

It’s been a record-setting year for venture capital investments in U.S. education technology, and early signs in 2019 suggest the industry is poised for another cash infusion. Already, one New York-based edtech company has raised $100 million.

Expect more dollars to flow. Owl Ventures, a San Francisco-based education technology investment firm, has closed $315 million for its third fund.

Owl has been on a streak, having closed on a new fund every other year since its start. It launched in 2015 with $100 million, and re-upped in 2017 with a $185 million coffer.

At least half of the investments from this new fund will be earmarked for Series A deals, says Owl’s co-founder and managing director, Tory Patterson. Some capital will also be reserved for later, growth-stage investments. In general, each check that Owl writes could be in the range of $5 million to $40 million.

Being able to raise successively larger funds is no small feat. And neither is closing it in a mere six months. Patterson says his team started fundraising back in summer 2018, and quickly attracted an international group of family offices, university endowments, sovereign wealth funds and foundations to chip contribute to the fund as limited partners.

For Owl and its investors, the education market appears ripe for reaping returns on these investments. “Private equity interest in the education space is at an all-time high,” he tells EdSurge. “You’d have a hard time finding a PE firm globally that doesn’t have education on its radars.”

Already Owl has exited two of its investments to private-equity firms—both last year. DreamBox Learning, a K-8 digital math curriculum, was acquired by The Rise Fund, the social-impact arm of TPG Capital. Accelerate Learning, a provider of preK-12 STEM resources, was bought by The Carlyle Group.

Owl’s other K-12 investments include Abl, a school-scheduling platform, and Newsela, a leveled-reading platform that uses articles from partnering news and information outlets. In the higher-ed space, Owl’s portfolio includes Kuali, a suite of administrative software and online program manger, Noodle Partners.

Historically, selling to schools has not been a business model that attracts investors. But technology sales have been aided by a little more clarity around what “works,” in terms of delivering gains in student outcomes, or saving schools and students money. (Sometimes both.) Companies like DreamBox have worked for years with researchers at Harvard and SRI to evaluate its program. The research arm of the U.S. Department of Education has been embarking on a listening tour to help educators make sense of edtech research.

“When companies are having profound, verifiable outcomes from third-party [research], it’s to everyone’s advantage to make those results publicly available,” says Patterson. “That’s a major force in driving adoption.”

So far, all of Owl’s 24 investments have been made in U.S.-based companies. But it hopes to cast a wider, global net with this latest fund, looking to startups in Asia and Europe.

The firm has also began focusing more attention on career-mobility opportunities, described by Patterson as services that “empower individuals with either the information, education and/or credentials so that they can stay relevant to the economy.” Recent deals in this category include Degreed, a digital credentialing platform, and BenchPrep, a corporate assessment and education service.

These days, he quips, nearly every startup pitch includes a mention of artificial intelligence. Owl has invested in several, including Quizlet and Bakpax, a mobile grading tool. But not all AI are the same, he’s learned: There’s a distinction between what we calls “true AI,” as in machine-learning technology that automatically get smarter with each user interaction, and predictive algorithms that are manually updated (by a human). On the whole, “we haven’t seen too many practical implementations of AI that have us jumping up and down,” he notes.

Another emerging technology that he’s watched—but not completely sold on yet—is blockchain. Enthusiasts see potential in the technology’s application for transcript and credentials, but Owl has not done any deals in this sector. “It’s a trend that in theory holds great promise, but we have not found a company that has enticed us,” says Patterson.

From this third fund, Owl has already made five investments, which will be announced in the coming months. Exits are on the horizon as well: Expect to see several of its portfolio companies acquired later this year, Patterson teases.

Going public isn’t out of the question either. “The IPO market will be very robust in 2019 and 2020, relative to the prior years for the edtech industry,” he predicts. “There are now sizable cohorts of companies that can soon go public, if they elect to.”

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