The Three EdTech Deals of 2020

The impact investment market has a strong focus on tech and one of those areas is EdTech (for the natural reason – improvement of opportunities for all).

Estimated to be a $4 trillion worldwide industry, London’s EdTech ecosystem remains the largest in Europe valued at $3.4 billion and attracting c.40%[1] of all European VC investment. Brown Rudnick continues to lead in advising EdTech companies as the pandemic continues to fuel this surge of interest.

In December 2020 Brown Rudnick advised Arbor Education Partners Group Limited on its sale to The Key Support Services Limited, part of the Darwin Acquisitions Limited group. This was the third EdTech deal of 2020 that Brown Rudnick advised on and a successful exit for two of the firm’s fund clients, Social Venture Fund II GmbH & Co KG (SVF) managed by Ananda, one of Europe’s largest social impact venture funds and Nesta Partners Limited. In April 2020, Brown Rudnick advised lead investors, Nesta and Oxford Sciences Innovation PLC, on the £7m Series A Funding round in online textbook resource, BibliU and in July 2020, the firm acted again for Nesta and SVF on a c.£1.4m investment round into Third Space Learning, a personalised online maths tuition platform.

Brown Rudnick partner, Sarah Melaney, and associate, Max Binney, reflect on the wider trends seen in the EdTech markets and what is still to come.

The 2020 EdTech Market

It’s very well documented that the COVID-19 pandemic has accelerated the rate of change and forced suppliers to embrace technology. EdTech has really benefited from the pandemic – the pace of change was incredible with the whole system going digital within a matter of weeks. Change to the EdTech market has been driven by the fundamental economic concept: supply and demand. There is greater demand, with consumers (educational institutions and employers) rapidly finding themselves requiring solutions and having had little other choice than to adapt to the “new normal” of providing remote learning and working and embracing the technology that allows them to do so. On the other side is supply, where market players, both old and new, have been adapting, innovating, and growing to provide services and products in markets created by the pandemic. Where traditionally EdTech has played a supporting role with the provision of workflow optimisation and content provision, the market, over the past year, has seen the emergence of more technologically advanced core educational ecosystems (as opposed to add-ons to the existing system).

This growth and change in EdTech is reflected in the investment figures; the total capital invested across the U.S., China and the UK grew by 1.5 times between 2019 and 2020 with an additional $6.4 billion invested in EdTech companies[2].  Traditionally, an arena for VCs, private equity has also been eyeing up the space.  Across the pond in the U.S., M&A activity was buoyant, whereas in Europe M&A tended to be restricted to strategic consolidations underpinned with PE investment.

We have also seen the emergence of new funds such as EIM Ventures – the CVC arm of Education in Motion, the parent of a family of K-12 international schools operating in Asia. Where technology was a risk that might compromise a student’s best interest, educators now have confidence in technology and its ability to give their institution the edge.

So, what happens now?

We believe that there are some key themes that will impact the market going forward:

• Further investment into the sector: During 2020, it appears that the proportion of deals being at the seed investment stage grew significantly. A bumper crop of series A and potentially series B may reasonably be expected to follow. As noted, while VCs have a track record of EdTech investing, PE is taking a more active interest in the area. Consolidation of the workflow optimisation arena has already occurred in our view. However, PE is acutely aware of the demand from employers for more skilled workers.
• More solutions that seek to synchronise the whole value chain: As discussed, EdTech focussed on key add-on areas such as content and management systems/ optimisation. These companies often, therefore, capped out at a certain stage. In the past five years, we have seen the add-on EdTech community consolidation and the emergence of companies that seek to deliver as much of the value chain as possible. COVID has accelerated companies coming to market in this field as educators have sought to move to online platforms. Educators need help.
• A call for better internet and greater internet security solutions: As the pandemic hit, educators swiftly moved to platforms such as zoom to provide lessons. Coupled with this is an inherent security risk. Zoomboomers have been reported to enter classrooms with some disastrous consequences. As our children begin to be educated by the web, demand for greater cybersecurity and better internet connections will be required.
• Greater innovation in workforce development: It is estimated that by 2030, there will be a skilled worker shortage of approximately 85m people equating to $8.5 trillion[3] in lost turnover. This is likely to lead to a demand in two things: (a) demand from employers for upskilled workers particularly in key growth areas such as digital and health and (b) a demand for highly effective online training programmes for employees. Currently, many companies have inadequate in-house training systems. Companies are in desperate need of workforce development technology start-ups – greater investment into workforce development technology is a potential solution to the predicted skills gap. This area is going to be a hive of activity for founders, VCs, CVCs, and PE houses and will likely see the emergence of some unicorns.
• Use of big data: We will see product developers look to expand the use of big data to determine how to personalise products so that the consumer can learn more effectively and efficiently thus filling the skilled worker gaps.
• An increase in the number of higher education platforms: The demand for higher education is growing at a rate where demand is far going to outstrip supply by 2030. In the UK, approximately 50% of young people will have entered higher education by the age of 30[4]. These figures are fantastic, but if this rate continues, the UK higher education sector simply doesn’t have the capacity to cope. As one VC investor stated, “two universities per day would have to be built every single day for ten years to meet that demand.” EdTech is going to have to step in.
• An increase in spending by higher education providers on digital solutions: Furthermore, EdTech is also vital to the financial sustainability of the university sector. Money has typically been spent by universities in the creation of larger campuses to house an ever-growing number of students – both home and international students whereas IT systems haven’t seen that much investment. Once the pandemic is over, we expect that universities will be investing in EdTech platforms that show off their USPs ensuring that they maintain their market positions.

All in all, it seems like EdTech is set to continue thriving. Collaborations will be important for both the platforms and the educators to maximise value.

Written by Sarah Melaney, Partner and Max Binney, Associate at Brown Rudnick LLP

[1] Best in Class: Global Trends in EdTech from a London Perspective dated September 2020 and published by DealRoom.com and London&Partners

[2] The European EdTech Funding Report 2021 dated 15 February 2021 and published by Brighteye Ventures

[3] https://www.kornferry.com/insights/articles/talent-crunch-future-of-work

[4] https://www.theguardian.com/education/2017/sep/28/almost-half-of-all-young-people-in-england-go-on-to-higher-education#maincontent