Exciting times for EdTech

I deliberated putting a question mark at the end of that title. Education Technology is a topic of contradictions, and has a history of hype, so it is clearly bold of me to be asserting This Time It is Different. But, maybe this time it is different.

The recent State of Australian Startup Funding 2023 report showed that EdTech is currently out of favour with local Venture Capital firms and Angel Investors. By the end of 2023, the EdTech/Training category had fallen out of the top 10 most exciting areas to watch, behind Deep Tech, Legaltech, and Design/Publish/Collab solutions (see page 25). Additionally, EdTech startups raised $108m in 2023, again outside of the top 10, a reduction from 2022, and less than was raised by cryptocurrency startups (page 24). Angel investors were perhaps slightly more optimistic about EdTech, with the sector reaching position 10 of the top 10 most exciting sectors for 2024 when male angel investors were polled, and yet female angel investors didn’t have it in their top 10 (page 96).

Despite this lack of interest, Australian EdTech-related startups have been doing pretty well recently. Brisbane-based Go1 aggregates workforce learning and development content, and was valued at $3b last year. In 2021, online training startup A Cloud Guru achieved a $2b exit. While not dedicated to EdTech, SafetyCulture includes a training component, and was valued at $2.7b last year. Similarly, cybersecurity firm Secure Code Warrior includes training, and raised US$50m last year, and international student recruitment platform Adventus.io raised $22m. Outside of startups, ASX-listed international student placement and English language testing company IDP Education is valued at around $5.5b. And while it deserves more than a postscript, it’s worth mentioning the Australia-born learning management system (LMS) Moodle with its 377m users, 45m courses, and is one of the top 5 LMSs in North America.

Education is Australia’s largest services export industry, and the fourth largest export industry overall, behind the resources industries of Coal, Iron Ore and Natural Gas. The sector brought in $36b in the most recent year, already back to the level it was before the Covid pandemic. Australia also has prominence in global University rankings. On the current Times Higher Education world University rankings, Australia has 6 Universities listed in the global 100, which is 1/6th of what the USA has, while having less than 1/10th of its population. It’s also more than any of Canada, France, Japan, or South Korea, despite having a smaller population. (Although, special call-out to Singapore, with 2 listings in the top 100 with only 6m people.) If you look at the current QS Top Universities rankings, Australia does even better, with 9 in the top 100.

So, on one hand Australia is a success story, with an ecosystem able to produce wins in both international EdTech companies and selling education itself, but on the other hand, there is relatively little investor interest in backing emerging EdTech companies at the moment. What might make this change?

While there are ongoing trends that have underpinned interest in EdTech for a while, e.g. see this article from 2001 from Archangel Ventures, I see two near-term demand-side forces and two supply-side forces that will drive the creation of new technology solutions in Education.

On the demand side, there is an urgent need to reskill people into the tech sector. In May 2023, the Tech Council of Australia forecast that around 295,000 people would need to reskill into tech jobs, to meet expected demand for 1.2m Australian tech workers by 2030. To put it in perspective, this is approximately twice the number of people they expect to come into entry level roles in the tech industry via Universities. A traditional University pathway, taking 3 or more years out of the workforce to obtain a qualification, will not work for many people. What is needed are faster, high volume methods of reskilling that companies can rely on to produce capable tech workers in areas like data science/analysis, software engineering and product management.

Another driver of demand is due to the recent rise of Generative AI. Most forms of training and education include an assessment component, and Generative AI has been shown to pass a range of academic tests as well as people do. In early 2023, one study found 89% of adult students had used ChatGPT on their homework. By this point, I expect it’s higher. Previously solid tech tools for detecting students copying work from elsewhere are no longer reliable, and can penalise people who aren’t native speakers. It’s not feasible to have everyone go back to doing assignments in person without access to the Internet, either. There is a pressing need for a better way, or the benefit of having qualifications will quickly erode.

On the supply side, coming out of the Covid pandemic lockdowns, a generation of students has experienced the delivery of education mediated entirely by technology. While for many years, a portion of students have experienced distance/remote education, this time it was the whole cohort. Australia, and in particular the states of NSW and Victoria, had some of the most lengthly and/or restrictive lockdowns in the world. For instance, Victorian lockdowns over 2020 and 2021 covered 262 days, and while it caused many issues for students, parents and teachers (some that are ongoing), it also trained every student and educator on what works and what does not. Those people who were receiving education at the time have been coming into the workforce for the past 3 years. In addition, there are all the educators who had been there and done that. There’s nothing like first-hand experience with a problem to help design good solutions. This set of talent will be invaluable in producing new EdTech startups.

In addition to talent is a new supply of capital. Dan at Square Peg Capital has written about how startup success breeds startup success. For instance, when an executive or founder at one business has learned the recipe for success, has made some money, then gone on to help form a new startup. One model is that 15% of outstanding shares may be used in compensating top employees, with shares vesting over four years. Atlassian’s IPO made many early employees millionaires, and there have been a bunch of startups formed off the back of this. Similarly, Canva’s secondary share sale, delayed until this year, is expected to make many employees wealthy, and result in new startups being formed in the visual media space. A Cloud Guru’s 2021 exit will have brought wealth to the founders and early employees. While less structured, both Go1 and SafetyCulture appear to support secondary share sales by employees. As capital is put in the hands of people with a passion for EdTech, it will catalyse the EdTech startup ecosystem.

While I didn’t begin with a question, I think I’ve answered it anyway. Australia is being pushed and pulled in the direction of more EdTech startup success, and it’s going to be an exciting ride in the coming years.