As we look forward to 2024, investors all around the world are searching for opportunities. With most of the acute pandemic effects behind us, some investors are starting to pull their cash off the sidelines and put it to work. It seems that EdTech could be one of the industries that benefit from this renewed confidence and investor activity.
In this article, we’re going to explore why investors are interested in EdTech as an industry, what challenges exist in the current funding landscape, and what the possible outcomes are for 2024 and beyond.
Why Will Investors Come Back to EdTech?
It’s true that the EdTech industry isn’t the darling that it was back in 2021 when COVID-based quarantine and health requirements pushed online learning to reach a never-been-seen-before critical mass. Post-pandemic, we saw steep declines in investor funding, and there is still a lot of murky water to wade through in terms of what the education sector is going to look like moving forward. But it is clear that, despite this pullback, there is justified investor interest going forward in the sector. Underpinning this is the simple fact that instructors and students rely on EdTech tools and software dramatically more than they did before the tipping point of the pandemic.
Here are some of the key reasons investors will return to education technology in 2024:
The integration of AI
2023 marked a very important inflection point for artificial intelligence, and we saw significant breakthroughs in large language models (LLMs), which will have far-reaching implications for the future of Education. The biggest opportunity in the EdTech space is to deliver truly personalized learning on a 1-to-1 basis that adapts natively to where that particular student is. This allows for the student-teacher ratio to be more balanced, and it makes high-quality education much more accessible than it was before. These improvements can unlock value in the space, and it’s definitely going to play a big role in how the industry evolves in the coming year.
Learning management systems (LMS) are evolving
For a while, the LMS was the darling of the EdTech ecosystem, promising a single system that could house all student data and deliver improved flexibility and agility for administrators. However, while this technology is powerful, it hasn’t quite lived up to its full potential just yet. In recent years, though, the technology is finally starting to find its feet, and the recent evolution (integrating big data and AI) is very promising for this cornerstone piece of the EdTech industry. Managing the transition to online classes, maintaining academic integrity, and delivering a single source of truth for educators and administrators are all components that have wide-reaching effects and that make the entire process easier and more effective – thus freeing up time to focus on the actual education itself.
EdTech is reaching beyond the classroom
Another reason that investors see potential in the EdTech industry is because the technology is not just having an impact in the classroom, but also in a number of other spheres of influence. One example is the MOOC movement, where courses are being published online for anyone to take – leveraging the best of EdTech and creating opportunities for people to upskill themselves without having to be in a classroom. Lifelong learning is a goal that many are aspiring to, and EdTech helps to make that scalable and viable – while simultaneously widening the customer base for the tools themselves.
EdTech is a tool for mitigating inequality
From a social impact perspective, many investors are excited about EdTech because it can help bridge the educational divide and make the knowledge and skills much more accessible to many more people. EdTech can be a democratizing force that breaks down the silos of knowledge and allows anyone to develop themselves and become contributing members of society, regardless of their background or circumstances.
EdTech startups are set for scale
Many EdTech products are purely software-based, and that makes them imminently scalable to a wide range of different contexts. Investors like this because these companies can pioneer rapid growth models and tackle large global markets without having to invest huge amounts in the underlying infrastructure. This makes the margins attractive and opens the doors for venture capital investors who need to see a route to highly leveraged exits.
EdTech is expanding into skill-based education
We’ve witnessed a significant shift in how hiring is taking place across a wide range of industries – focusing more on skills than on credentials. This shift is having major ramifications for traditional educational institutions, which must adapt their offering to meet the market demand. However, these challenges represent a significant opportunity for EdTech providers to facilitate this transition. The right technology can be extremely valuable for merging knowledge acquisition with practical skill acquisition – which in turn helps to prepare young graduates for the working world they are emerging into.
The ROI on EdTech investments is becoming easier to measure
For a long time, it was difficult to build a solid investment case for EdTech implementations because it was very difficult to isolate the variables and measure the efficacy of what was being introduced. However, this landscape is changing. As more data gets collected throughout the learning experience, it makes it more plausible to measure the effectiveness of the interventions, and this gives investors more confidence that real impact is being generated. In addition, there has also been a lot of progress in finding creative ways to quantify qualitative student growth factors and responses. While not perfect, these methods do transform the way that we think about particular tools, and that can only serve to help us make better decisions moving forward.
These components all point toward a healthy investment case that can be made for the right EdTech opportunities in 2024. Those who can capitalize on this and deliver the sorts of solutions that solve real problems are well-placed to get the financial support they need to scale their operations and their impact across the country (and the world).
What Does the Funding Landscape Look Like?
This is where things get a little bit trickier because the funding landscape for EdTech companies in 2023 was a very challenging one. After a surge in valuations off the back of pandemic-esque innovations and a shift to virtual learning – the industry saw funding come crashing down to earth in 2022 and 2023.
Research from Crunchbase shows that the total funding in 2023 was almost two-thirds lower than the previous year. Part of this can be attributed to the fact that total venture capital outlays are down across all industries, but education funding has been hit harder than most other sectors.
When trying to analyze this decline, it’s important to put the last few years into context. The frenzy of the pandemic created a significant boost to online learning, so the funding was always going to regress somewhat to the mean once in-person learning returned. In addition, after significant activity in ‘21 and ‘22, we haven’t really seen any major public market exits or significant acquisitions in EdTech this year, and those can often be outlier events that can skew results like these. Finally, and very significantly, China’s influence and impact on the EdTech market was cut dramatically through their own government regulations restricting afterschool programs, and most importantly, curtailing foreign investment.
The other component of this equation is the funding from US governmental sources. During the pandemic, the relief granted by the federal government to thousands of school and university bodies across the country represented a significant influx of cash into the system, which could then be invested in cutting-edge educational technology. This was an anomaly, and as the governmental endorsements and programs return to a more realistic level, we were always likely to see some pullback in terms of investor involvement. It also remains to be seen whether there will be any policy changes in terms of education that impact this space. On a federal level, they’re trying to reliably assess the current state of the education system and where things will go in the next few years – and so this is going to be a moving target for a while.
However, even taking all of the above into account, we still believe that the funding landscape for EdTech in 2024 is going to improve and that we’ll start to see growth again. There are a number of tools and platforms that will attract investor interest, and this is likely to stir the markets a bit in the year to come. In addition, the demand for better learning experiences continues to grow (both inside and outside the classroom), and that creates opportunities for startups to solve problems and scale operations.
Challenges and Opportunities
As you can see, this investment case is not straightforward, but even with the headwinds in the funding landscape, we still believe that EdTech remains an attractive investment opportunity, and that will see a resurgence in 2024 and beyond. There is demand for these learning tools, there are investors looking for opportunities, there are innovations that are changing the game, and all of this comes together to suggest that we’re in for a positive ride in the coming year.
Of particular note: despite all the progress so far, the education system still has significant room for improvement. And this is exactly what incentivizes new entrepreneurs and current strong players to go out there and solve big problems.
Here at The Renaissance Network, we’re passionate about helping the EdTech industry to realize this potential – providing support in terms of hiring, strategy, and leadership – across a wide range of contexts. We’d love to hear from you and see how we can help!
