This past year was a hard one, defined by the exhaustion of trying to return to “normal.” And in the edtech world, normal meant more ed and less tech than in 2020 and 2021.
This shift makes sense in a lot of ways—the Zoom classes of the early pandemic stunk. Test scores fell dramatically. Students across the U.S. (and around the world) stopped showing up to school. Young adults stopped working entirely.
Public and private edtech companies felt the pain of these poor results, announcing more than 8,000 layoffs in an industry that only employs about 100,000 people. Dozens of companies raised venture funding at equal or lesser values —“down rounds”— compared to rounds raised during the pandemic-induced edtech boom of 2020 and 2021. Dozens more companies sold, or are currently for sale, at bargain-basement prices.
It’s a tough time to build or invest in an edtech company. But there are still companies and investors who succeeded in 2022. They did so by taking a risk on one or more new hypotheses about how the edtech market should work moving forward.
Even a good hypothesis is not a guarantee. But having a clear point of view gives clients, employees and investors a narrative to rally around, which especially matters during hard times. Below are a few of the hypotheses I am watching in 2023:
Hypothesis 1: Results Matter
Education buyers—parents, schools, and talent development departments—will make more decisions based on efficacy and fewer based on relationships with vendors.
Key happenings in 2022:
- Two edtech companies, Akili and Floreo, had millions of R&D dollars in efficacy pay off when their products gained clinical validation this year.
- Industry heavyweight Canvas bought Learn Platform, citing the company’s capabilities in assessing product efficacy as a rationale.
Why it matters: The federal government spent almost $2 billion on tutoring over the course of 2020 and 2021, and venture capitalists followed suit in 2022, investing more than $300 million in tutoring companies. Despite this investment, we both started and ended this year debating what mix of in-person, online and on-demand tutoring services would have the most significant impact for students at the most sustainable cost.
Prediction: The “breakout” tutoring company of 2023 will differentiate itself by measuring and consistently reproducing meaningful student outcomes.
Hypothesis 2: Tech-Infused Schools
Every classroom and workplace now has reliable access to the internet. This infrastructure will allow new companies to emerge that capture and analyze learner activity data at a more granular level than ever before.
Key happenings in 2022:
Why it matters: Guild and Multiverse continued to headline the workforce market in 2022, raising $175 million and $220 million, respectively. Their success encouraged a boomlet of new companies that help employers make the most of their talent rather than recruiting new employees.
Prediction: At least one workforce management company not named Guild or Multiverse will raise $50 million or more in 2023.
Hypothesis 3: Going Global
The edtech world is expanding. Not financially—edtech funding is down from 2021 to 2022—but geographically.
Key happenings in 2022:
- Companies from at least 35 different countries raised institution-led venture capital rounds this year
- Educapital became the first international, edtech-specialist investor to announce a venture fund of more than $100 million in assets under management.
- Internationally-based companies and venture funds like Riid, Odilo, Scaler and Simplilearn raised hundreds of millions of dollars specifically to enter the U.S. market.
Why it matters: Once considered a U.S.-only investment opportunity, almost 50 percent of private edtech “unicorns” are now based outside the U.S. The U.S. remains the hub of both large edtech companies and investors, but a U.S. market strategy is less critical to success than it once was.
Prediction(s): There will be more international edtech “unicorns” crowned in 2023 than U.S.-based unicorns. Further, investors based outside the U.S. will raise at least 25 percent of publicly announced venture capital.
As in life, there are no guarantees in edtech. Not all of these hypotheses will bear out; many of last year’s “successes” will struggle, and some will shut down. There are also plenty of questions about the edtech market whose answers do not fit neatly into one of these hypotheses.
Still, hypotheses help contextualize the past and think about the future. They are a way to look for optimism—and growth—when the world feels dour. And they are a way to pressure test the intellectual rigor behind investing in a company you are excited about.
Bringing It All Together
The first two years of the pandemic gave the edtech world insight into where schools, companies and governments would like to spend their technology resources (though, for various reasons, often didn’t). In 2022, organizations started choosing where they would continue to spend their technology resources.
The year ahead may not be easier than 2022, but there are glimpses of forward progress to be proud of. Companies are working harder to make efficacy part of their value proposition. Technology that teachers could only dream of pre-pandemic is now readily available in almost every U.S. classroom. The student impact of edtech now extends far beyond the U.S.
Often, these trends will benefit investors. More importantly, a reinvigorated focus on efficacy, technology and globalization will benefit learners in 2023 and beyond.