Education Is the New Healthcare, and Other Trends Shaping Edtech Investing

Opinion | Investors

Education Is the New Healthcare, and Other Trends Shaping Edtech Investing

By John Rogers     Feb 28, 2020

Education Is the New Healthcare, and Other Trends Shaping Edtech Investing

Private equity and venture funds have invested record sums into the global education sector—$30 billion in the past five years across K-12 and workplace learning. Since 2017, investment has accelerated with $14 billion allocated, according to research firm HolonIQ.

Despite the influx of capital, employers, schools and policymakers are only just beginning to harness the sector’s advancements in the delivery, accessibility and effectiveness of education technology. As adoption of these products and services increases around the world, so too does the opportunity for investors and entrepreneurs to generate positive social and economic impact alongside financial returns.

Here are five key trends to consider as education enters a new decade:

1. In the workplace, education is the new healthcare.

In the 1940’s and ‘50s, employers seeking to attract the best workers offered healthcare benefits. In the early 2000’s, employers offered free snacks and installed foosball tables.

Those perks have lost their luster, and with help from the Affordable Care Act, even healthcare is becoming less of a differentiator. Today, leading corporations hope to drive employee engagement, retention and advancement through providing education.

In 2014, Starbucks and Arizona State University pioneered a new kind of partnership. By offering high-quality, affordable online courses and programs, coupled with tuition assistance, ASU and Starbucks enabled thousands to become degree holders—debt free. In a recent interview with CNBC, Starbuck’s CEO Kevin Johnson pointed to the College Achievement Plan as a driver for sales growth, because employee engagement yields customer engagement.

To broaden this workplace education initiative, The Rise Fund partnered with ASU and other leading online universities to launch InStride, providing valuable educational credentials to the employees of forward-thinking corporations. In bringing affordable education to the workplace, companies like InStride, Guild, Degreed and EdAssist are addressing the biggest issues in higher education: career relevance and student debt.

2. Our schools are facing a mental health crisis.

Today, 95 percent of teenagers have access to a smartphone, and the average teen is now spending more than 7 hours per day on their screens, including over 1.5 hours on social media. But the proliferation of technology does not come without concerns. These tools can amplify feelings of loneliness and serve as a platform for cyberbullying.

Mental health problems, especially among teens, increased significantly in the last decade. Seventy percent of teenagers identify mental health as a major issue, worse than drug addiction, and gangs. Suicide is now the second-leading cause of death among 10- to 24-year-olds, and the rate has tripled over the last 10 years. In a Harvard Medical School study of 67,000 college students across more than 100 institutions, 1 out of 5 students surveyed said that they had thought about suicide.

“Teachers and administrators are hungry for effective ways to teach social and emotional learning,” says former U.S. Secretary of Education Arne Duncan.

Who will pay for these needed services? Most are paid by schools or districts, but other funding approaches are emerging. One of our portfolio investments, EverFi, finds corporate partners to fund their bullying prevention programs in schools. Other companies, like Presence Learning, are experimenting with models that may be reimbursed by health insurance, while Aperture Education helps schools to find grant funding for their services.

3. Schools spent a decade buying technology. Now they want it to work.

Education technology reached a tipping point in the last decade. Broadband penetration in K-12 schools reached over 98 percent, while low-cost computing devices like Chromebooks have proliferated in classrooms.

This has laid the infrastructure to support new instructional tools, many built by new companies that have emerged to compete with traditional print publishers. HolonIQ estimates that global spending on digital education tools surpassed $150 billion last year, and will double by 2025.

But purchasing is not proof that something works. Even more concerning: many tools may simply be gathering (digital) dust. A recent study by the University of Pennsylvania, only 30 percent of edtech licenses are actually used.

In any future economic downturn, expect technology providers who fail to show evidence of improvement—let alone usage—to get axed. Those seeking to avoid this fate would do well to invest in proving that their products work. DreamBox, (another portfolio company) invests in efficacy research led by independent third-parties including Harvard and SRI International. Lexia Learning, a subsidiary of Rosetta Stone, employs a team of PhDs who send their research out for peer review.

Recently updated federal guidelines have also raised the bar for efficacy evidence that educational services should demonstrate before public funds can be used to purchase them.

4. There is growing international demand for English-language learning.

Duolingo made headlines in December when it raised $30 million at a $1.5 billion valuation, reaching the “unicorn” milestone just seven years after the company launched. While it offers courses in several languages, a big growth driver internationally is English language learning, where it competes with online providers Babbel, Busuu and Rosetta Stone.

As businesses have expanded globally through tech and business process outsourcing, English language proficiency has become an important path to economic opportunity. According to studies by the World Bank, in India, those fluent in English earn 34 percent more on average than those who are non-fluent, while in Nigeria, the English-language wage premium is 40 percent.

In emerging markets, English language proficiency is a core component of what many parents look for as they seek high-quality schools for their children. That demand has fueled the growth of multi-billion dollar, dual-language K-12 platforms like Cognita, GEMS and Nord Anglia in markets around the world.

5. Will edtech be caught up in a backlash against ‘big tech’ over data privacy?

Rising edtech expenditures and privacy concerns have caught the eye of regulators. A group of U.S. Senators recently requested 50 technology companies—including education technology providers—to provide written responses to questions about student privacy safeguards. These inquiries come at a time when many believe the enforcement of federal education regulation is increasingly lax.

Edtech providers are as vulnerable as their peers in other industries. At a major cybersecurity conference last fall, an 18-year-old student detailed vulnerabilities he found in Blackboard, one of the most widely-used learning management systems in the country.

As U.S. edtech companies expand globally, they will also find themselves subject to stricter European data privacy laws, like GDPR. They may also find themselves at the mercy of sudden changes in national policies, such as the restrictions recently imposed in China on foreign investment in K-12 programs.

2020 and Beyond

The Rise Fund has made investments across these themes, and as we enter the next decade, the correlation between educational attainment and economic opportunity will continue to drive the demand for tools and services that bridge these two goals. For investors and entrepreneurs who choose wisely, opportunities abound for attractive returns and impact through the power of education.

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