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Wednesday, February 3, 2021

Edtech valuations aren’t skyrocketing, but investors see more exit opportunities

Less than a year after we put out an initial temperature check survey, it’s clear that specialist investors are even more bullish on edtech. Bears are hard to find right now: the sector, once undercapitalized, has brought in $10 billion in venture capital funding globally in 2020.

As investors told us last week, the biggest consumer opportunity in 2021 and beyond is lifelong learning (and portfolio companies have the profits to prove it).

But despite edtech’s noise, the second installment of our edtech survey shows that VCs think startups haven’t enjoyed parallel gains from a valuation perspective. The sentiment suggests that despite an apparent revitalization, edtech isn’t at the same level of “value” in investor eyes like sectors such as e-commerce, consumer and fintech.

As Mercedes Bent of Lightspeed Venture Partners said, “edtech didn’t tend to have heady valuations before the pandemic, and through 2020 I’m seeing edtech companies raise at valuations that are reasonable for Silicon Valley; still nothing like what we see in fintech.”

Now, valuations aren’t everything — but they aren’t nothing, either. Where edtech lacks in impressive valuations, investors see it gaining in exit opportunities. Many investors think that the exit environment is set to dramatically change in the next few years.

We’ve already seen Nerdy and Skillsoft, two edtech companies, go public via SPACs in the past few months. Private equity ownership is an interesting dynamic to be aware of here, especially as Vista recently scooped up PluralSight for $3.5 billion.

Here are the investors we spoke to, along with their areas of interest and expertise:

  • Deborah Quazzo, managing partner, GSV Ventures (an education fund backing ClassDojo, Degreed, Clever)
  • Ashley Bittner, founding partner, Firework Ventures (a future-of-work fund with portfolio companies LearnIn and TransfrVR)
  • Jomayra Herrera, principal, Cowboy Ventures (a generalist fund with portfolio companies Hone and Guild Education)
  • John Danner, managing partner, Dunce Capital (an edtech and future-of-work fund with portfolio companies Lambda School and Outschool)
  • Mercedes Bent and Bradley Twohig, partners, Lightspeed Venture Partners (a multistage generalist fund with investments including Forage, Clever and Outschool)
  • Ian Chiu, managing director, Owl Ventures (a large edtech-focused fund backing highly valued companies including BYJU’s, Newsela and Masterclass) 
  • Jan Lynn-Matern, founder and partner, Emerge Education (a leading edtech seed fund in Europe with portfolio companies like Aula, Unibuddy and BibliU) 
  • Benoit Wirz, partner, Brighteye Ventures (an active edtech-focused venture capital fund in Europe that backs YouSchool, Lightneer, and Aula)
  • Charles Birnbaum, partner, Bessemer Venture Partners (a generalist fund with portfolio companies including Guild Education and Brightwheel)
  • Daniel Pianko, co-founder and managing director, University Ventures (a higher-ed and future-of-work fund that is backing Imbellus and Admithub)
  • Rebecca Kaden, managing partner, Union Square Ventures (a generalist fund with portfolio companies including TopHat, Quizlet, Duolingo)
  • Andreata Muforo, partner, TLCom Capital (a generalist fund backing uLesson)

Deborah Quazzo, managing partner, GSV

How has edtech’s boom impacted your deal-making? Has the new interest from generalist investors made valuations too bubbly, or is the market growth helping everyone?

We met on Zoom with over 800 founding teams in COVID all over the world. We invested in 14 new companies and are just finishing rounds in two more. Valuation pressures are across tech sectors. I’d argue that education still lags average tech. The question for edtech is whether there is potential for a $100 billion company in the sector — will TAMs support it.

Edtech has traditionally had few exits. When do you expect to see that change? Are you optimistic about the boom in funding lately? On the other hand, what consolidation do you expect to see?

Exit volume is rising already with a wide range of strategic and financial buyers of edtech companies — something that didn’t exist before. You will see numerous high-value exits in the first half of 2021. It’s the public market “exits” that have really lagged and that I hope turns around in 2021 and 2022. There are numerous global companies that could go public and the addition of SPAC IPOs creates another positive dynamic.

Ashley Bittner, founding partner, Firework Ventures

How has edtech’s boom impacted your deal-making? Has the new interest from generalist investors made valuations too bubbly, or is the market growth helping everyone?

The boom has not directly impacted my deal-making. We tend to work with CEOs looking for category expertise and track record in the space. I do worry about overexuberance creating disappointing returns that sour interest in the sector. There are important TAM, business model, pedagogical and regulatory factors to consider in valuation.

Edtech has traditionally had few exits. When do you expect to see that change? Are you optimistic about the boom in funding lately? On the other hand, what consolidation do you expect to see? 

I think that will change shortly … I suspect many of the notable exits will come in future of work/human capital, consumer and in international markets for early education and K-12.

Jomayra Herrera, principal, Cowboy Ventures

How has edtech’s boom impacted your deal-making? Has the new interest from generalist investors made valuations too bubbly, or is the market growth helping everyone?
Edtech has a history of going in booms (when investors find new excitement for the sector) and busts (when investors realize the difficulties in scaling companies in the space). We happen to be going through a boom right now, which I think is an overall good thing for market innovation. While valuations across all sectors are expensive right now, I think more capital going toward innovating a sector that has an impact on everyone’s life will result in a net positive. We have a history of investing in the sector and will continue to do so as we see new, category-defining companies arise.

Edtech has traditionally had few exits. When do you expect to see that change? Are you optimistic about the boom in funding lately? On the other hand, what consolidation do you expect to see?
Edtech has had plenty of exits, but they are usually smaller and typically to PE firms or companies that have large distribution channels. There are very few large IPOs. I think we will start to see larger exits for three primary reasons: (I) accelerated consumer adoption of online and hybrid learning will increase market sizes, (II) as educators and institutions get more comfortable with leveraging technology in their practice we may see shorter sales cycle and more budget available, (III) many larger exits tend to be platforms as opposed to content providers (e.g., Canvas, 2U, Instructure) and with a higher standard for infrastructure there is a space for new competitors.
I expect even more consolidation in the bootcamp space. We’re already seeing it with Flatiron, Thinkful, General Assembly, Bloc and many others having already been acquired.

John Danner, managing partner, Dunce Capital



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