US Edtech Funding Already Nears $1 Billion in First Half of 2019

Financing

US Edtech Funding Already Nears $1 Billion in First Half of 2019

By Tony Wan and Wade Tyler Millward     Aug 7, 2019

US Edtech Funding Already Nears $1 Billion in First Half of 2019

The U.S. education technology industry appears on track to surpass the amount of investor funding tallied in recent years. For the first half of 2019, the industry saw $962 million raised across 65 deals, the highest amount of funding at the halfway mark since at least 2015.

By comparison, in the first six months of 2018, companies raised $750 million across 62 deals.

US education technology investment total funding, 2015-2019H1

In this analysis, EdSurge counts all venture investments in U.S. educational technology companies whose primary purpose is to support educators and learners across preK-12 and postsecondary education.

Our analysis excludes companies whose primary business is to offer loans and happens to serve students (like Social Finance, which raised $500 million earlier this year). It also excludes publicly traded companies and funding that startups received just for participating in accelerators. Some companies count their accelerator funding into their subsequent seed rounds.

Driving the funding totals up this year are two nine-figure deals. Coursera, the Mountain View, Calif.-based online learning platform provider, raised $103 million in a Series E round. Andela, the New York-based company that trains programmers in developing countries, raised $100 million in a Series D round.

These two deals make up 21 percent of the total venture funding raised by U.S. edtech companies in the first half of 2019. The two companies were also among the 10 companies that raised the most funding in 2017 as well.

Rounding out the podium for top dollars raised in 2019 with $90 million is Examity, a Boston-based provider of exam proctoring tools used by colleges and universities, assessment groups, professional certification boards and employers.

The high tally for venture funding this year is not unique to the edtech industry. Deals across all sectors hit $66 billion, on track to match 2018’s record year, according to an analysis from PitchBook and the National Venture Capital Association. The first half of 2019 saw 123 deals of over $100 million.

US education technology investment total deals, 2015-2019H1

In terms of the number of deals, the tally for the first six months of 2019 isn’t too far off from previous years. History shows that most funding and deals happen in the first half of the year.

Looking at the top 10 deals so far in 2019, companies focused on workforce training dominated investor interest. Coursera, Andela, Degreed, A Cloud Guru and Lambda School all offer courses tailored for people who want to pick up new professional skills (usually involving programming and computer science). A strong economy and tight labor market may drive increased corporate spending on learning and development for existing workers. Companies are also increasingly offering their own courses to attract, train and recruit potential candidates for open positions.

Top U.S. edtech funding deals, 2019 1H

Wayee Chu, a general partner at Reach Capital, a San Francisco-based edtech investment firm, sees a broader market interest in edtech given the recent deals led by generalist investors that don’t generally play in this sector.

One example is Great Hill Partners, which invested in Examity in April. Last year, Great Hill also put in $110 million in Connexeo, a provider of school administration and payment software.

And the $40 million deal in Zum, an on-demand ride service for schoolchildren, was led by BMW i Ventures, a venture capital company connected to the German carmaker.

The industry has seen record-high, high-year-mark averages among seed rounds and Series A rounds. However, compared to 2019, the industry saw a higher Series B average in the first half of 2017 and a higher average for Series C and later stage rounds.

The chart below shows how the first half of 2019 compares to the averages posted for each type of round during the full years of 2015 to 2018.

Average deal size, US education technology companies 2015-2019

Our analysis for the first half of 2019 only looks at U.S. edtech companies, but their counterparts overseas have also attracted plenty of venture capital. Three Chinese companies landed nine-figure Series D deals. Two that offer online tutoring services, Dada and Gaosi Education, raised $255 million and $140 million, respectively. Online homework platform Knowbox raised $150 million.

Other notable rounds from outside the U.S. came from two open online course platforms. London-based FutureLearn raised $65 million, and Bangalore-based Unacademy secured $50 million.

Mergers and Acquisitions

Healthy exits drive venture capital interest, and so far this year the mergers and acquisitions have concentrated on training services, observes Cassidy Leventhal, a vice president at the New York-based edtech investor University Ventures.

Leventhal noted in an email that the “large exits for Revature and Trilogy this year set an especially high comp for bootcamps and other training programs that partner with colleges and universities to create career paths for students.” Revature, a technology skills-training company, sold to Investcorp for an undisclosed price. Trilogy Education, which provides software-training bootcamps for universities, was acquired for $750 million by 2U. Bridgepoint Education—now known as Zovio—bought coding bootcamp Fullstack Academy for $17.5 million and 2.5 million shares of common stock.

University Ventures was an investor in Revature, as well as Portfolium—an online portfolio-making platform that connects recent graduates to potential employers that sold to Instructure for $43 million.

The biggest acquisition in the first half of 2019 goes to Turnitin, the company best known for its anti-plagiarism software that was acquired for $1.75 billion by Advance Publications, a family office-owned media conglomerate that also owns Condé Nast. “For some family offices, education is an attractive bucket for them because there is a mission-driven sense there,” says Kelly Fuller, a director at BMO Capital Markets’ technology and business services team. “We’ve seen impact funds increase their interest in education for that same reason.”

Last year, Pluralsight went public and was the first edtech company to do so since Instructure in 2015. The next edtech company to go public isn’t yet known, but multiple investors said they consider Coursera, the top fundraiser of 2019 so far, a strong candidate.

Not all acquisitions were cheered on by investors, though. Knewton, an adaptive learning engine that became a digital courseware company, was reportedly bought by Wiley for way less than it raised.

   

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