13 May 2022
In contrast to the detrimental impact the COVID-19 pandemic has had on the provision of traditional classroom-based education, it has catalysed a long-term acceleration in the growth of technology-based learning with positive implications.
Global investment in the educational technology (EdTech) industry ramped up enormously in 2020 and 2021 in direct response to the complexities traditional in-person education faced during the pandemic. This investment is continuing despite face-to-face learning resuming, in recognition of the long-term role EdTech can play in educating students of all ages and demographics globally. As such, investors are increasingly recognising that EdTech offers a lifetime of personalised learning for those looking to optimise their academic and career paths, not only during K-12 educations.
EdTech is helping to level-up education through individualised learning programs at schools, whilst also providing opportunities for individuals to continue to upskill throughout their working lives in an easier, lower cost and more accessible way.
The concept of education has evolved from a focus on primary and secondary schooling to learning as a lifelong progression."
Senior Managing Director, Software & Services,
During the pandemic in the United States, many communities were provided with extra funding for digital devices. The Chicago Public Schools (CPS) district delivered 300,000 Chromebooks for students in the K-12 segment (kindergarten to 12th grade), providing a platform for digital transformation and personalised learning. These devices can run EdTech products that provide dynamic feedback and help students to improve in areas that need extra attention.
“The software that many of our clients are providing has really benefited students because you can teach to the individual instead of the more traditional model of teaching everyone at the same speed despite different learning styles,” says Velamati. “The goal is to get each student to learn in their own way, at their own speed but with the same end goal in mind.”
EdTech is also allowing individuals to develop skills and knowledge through shorter and more targeted programs, allowing for increased accessibility and diversity amongst its student demographics. It allows them to supplement and add to formal academic milestones. The three or four-year college/university degree still exists, but education consumerism, such as the use of apps for learning languages, means that there are more options for people to undertake throughout their academic and working lives – including while navigating life’s changes such as parenthood. Coursera and Duolingo were two EdTech businesses to launch IPOs in 2021, and Nerdy went public through a Special Purpose Acquisition Company (SPAC) deal, further showcasing consumer appetite for these types of educational mechanisms.
As workforce mobility increases and individuals seek alternative career paths as part of the ‘Great Resignation’ phenomenon prompted significantly by the pandemic, EdTech is giving them more opportunities to pivot to new careers, demonstrated by the growth in coding boot camps, for example, among other career development options.
This increasing consumerism of education, whether it’s delivered through a Software as a Service (SaaS) or in a digital format, is where you can rapidly consume learning modules at a very low cost and in very accessible settings."
Co-Head of Macquarie Capital, Americas, and Head of Software & Services
Conversely, EdTech is also providing businesses with an opportunity to reduce attrition and attract new talent by building stronger engagement with staff through training, support and career development, and acting as a point of differentiation that can attract talented and diverse individuals.
These advantages have prompted surging capital flows into the sector. Venture capital investment in EdTech reached a massive $US20.8 billion in 2021, according to HolonIQ, up significantly from the $US7 billion invested just two years earlier in 2019.
Along with a wave of venture funding, private equity investors are also targeting the sector. Blackstone made a major growth investment in Renaissance Learning, a global EdTech leader, in 2021, with Macquarie Capital serving as financial advisor to Renaissance.
Big software sector investors are also fervently targeting EdTech. In 2021, Evergreen Coast Capital acquired a majority stake in DreamBox Learning, the EdTech provider that uses intelligent adaptive learning systems, a deal in which Macquarie Capital advised the Dreambox board of directors.
Another headline deal in 2021 was Apollo Global Management’s sale of McGraw Hill1, a leader in educational content and digital platforms, to private equity investment firm Platinum Equity for $US4.5 billion. Macquarie Capital acted as sell-side advisor.
Global investments across the EdTech sector are not slowing down. According to HolonIQ2, Venture Capital reached 3 times pre-pandemic levels in 2021, accelerating global EdTech start-ups with more than $US20 billion in funding. Today, Europe and India are helping to lead investments across the sector and offset China’s $US8 billion EdTech investment collapse in 2021, resulting from a broad range of policies impacting China's leading role in EdTech. The international investment landscape, largely fuelled by capital from the US, Europe and India set new records for growth in the sector.
The broader EdTech sector also appeals to the growing trend for ESG (environmental, social and governance) and social impact investing. Many top private equity funds have ESG or impact-focused funds, recognising that investors are increasingly seeking opportunities that have a positive influence on communities and society at large. Education offers ESG and social impact opportunities that few other industries can match.
And although many EdTech businesses are now considerably larger than they were five years ago, the industry is still relatively embryonic. Investors see potential for considerable further growth, sizeable returns and additional societal benefits.
“I think education is still in the very early days of being disrupted by technology,” says Sam Shah. “It is in the second or third inning of its own evolution. There’s significant opportunity ahead, not only for investors, but for students benefitting from these advancements across their lifelong learning journeys with great positive impact on society.”