What do VCs look for in an EdTech solution?

At a Glance

With EdTech startups raising investment of up to $400million, it has left a lot of people wondering what is happening within the EdTech market. Is this a sign? Is there money to be made in EdTech investments? Do Venture Capitalists know something the general population don’t? Within this article, we will explore why VCs are showing an interest in EdTech, what they are considering before investing and the potential challenges to overcome.

What are the USPs of EdTech businesses for investors?

There are a whole host of factors that make EdTech businesses stand out to VCs looking for start up brands to invest in. When you take into consideration that in 2020, EdTech startups raised a total of $2.2 billion, compared to $553 million in 2019, you can see the immense growth the industry has seen, which continues to be apparent throughout 2021 (source: wired industry).

Firstly, they offer lower competition within specialisms, niches and subdomains where, in some cases, there are just one or two companies really making a difference within their area of expertise. The key to a profitable investment includes having low competition and higher market scope. Education apps offer this in abundance.

EdTech also offers exponential growth which shows an undoubtable ROI that will be attractive to any investor. This has been accelerated by Covid19 and the need to reach students remotely using virtual platforms. Some may argue that Covid19 has been the catalyst for change in the Education sector and made EdTech companies even more attractive to VCs.To put this into perspective, a section of the EdTech market that was worth $247m in 2016 and is anticipated to be valued $1960m by the year 2021 (source: HonlonIQ).

Another factor that it is impossible to overlook is the need for lifelong learning that is ever apparent within the job market. Yes, Education apps are great for our children and young people but are also accessible to adults looking to move into a new career or upskill within their current industry. EdTech is available to everyone and this wide target market makes EdTech a sure bet when considering investment opportunities.

In addition to the above, EdTech offers the opportunity to invest in something that is truly making a difference. Offering Education to communities, regions and people who wouldn’t usually have access to the resources Education apps can offer. This is an untapped market with people across the globe looking for ways to improve their access to Education and resources to improve their skills, knowledge and understanding.


Factors to consider

So, we know what you’re thinking, surely every VC wants to invest in every EdTech business available? But no, that isn’t the case. There are several factors for consideration before a VC will consider investing in a EdTech company, particularly a start up. They will need to consider the experience of the team, the type of EdTech business, scalability, the business model, the competitive nature of the landscape, the business cash flow as well as ensuring the EdTech business aligns with their own mission, vision and values. We’ll share more on the factors to consider before investing in an EdTech business in a few weeks.



Potential Challenges to overcome

Depending on the stage at which the EdTech business is at, a potential challenge can be the attitude of their target market toward the app. A good app developer will have ensured a series of testing and market research strategies to ensure the app they have developed meets the needs of their audience. Without this knowledge, they risk taking an app to market that does not solve the problem it set out to and therefore, does not have the desired impact. A lack of testing will be a red flag to a VC looking to invest.

There is also a need for technology infrastructure, having the right people with the right knowledge in place to be able to support the company’s growth. It is worth noting that with investment comes technological advancements. However, the need for technology infrastructure is wider than just within the business though. Covid19 and the lockdown has taught us that the digital divide is real and for a lot of young people in the UK, access to high speed wifi, devices to access resources and in some cases, reliable electricity.

Another potential challenge to consider is how the Edtech business will scale keeping monetisation in mind. There needs to be a careful balance between growing the business’s infrastructure whilst also ensuring income streams and revenue increase at the same pace. Alongside this factor, the ability to retain customers throughout this growth period is also key to the company’s long term success. Retaining customers may be done by ensuring a high quality service is provided consistently or that new features are continually being developed and added to the EdTech offering.

Lastly, another potential challenge is dealing with changes in the educator sector, as Covid19 has shown us, the Education landscape is one that is open to change so being prepared for students to be in school, homeschooling or a combination of the two will be key. EdTech businesses can overcome this by ensuring their offering is available on demand to suit student’s ranging availability.


Key takeaways

Whilst there are both challenges to overcome and factors to consider, there is also some unquestionable USPs and real money to be made for VCs looking to invest in start up businesses. The eLearning Market size is set to exceed USD $375 billion by 2026 (source: GM insights) and we’re pleased to be part of this exponential growth. You can read more about our crowdfunding here.