Tag Archives: Europe

It’s time to scale up European edtech

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Last week, Brighteye Ventures, a leading European investor in education technology, published the fifth edition of its European Edtech Funding Report. It looks like 2023 might be the trough of the cycle that peaked with the pandemic in 2021, and there are increasingly strong signals of a resurgence in investor appetite in 2024.

Reasons to be Cheerful

  1. After a period of decline, overall new venture funding for European edtech in 2023 surpassed the levels reached in 2020 ($1.2B vs $951M) and the number of deals increased on 2022 (288 vs 256).
  2. About 1/3 of all global edtech deals took place in Europe in 2023 (a record high proportion, up from 21% in 2019), indicating a high level of investor interest in the European market.
  3. International private equity and venture capital investors are currently holding a record amount of dry power, with $2586B ready for deployment at the top 25 PE investors globally.

Resilience?

From a European perspective, “resilience in the volume of deals” was driven by a rising number of deals under $4M, with over half of the completed deals being done at $1M or less. 

On the micro level of individual businesses, this thinly spread funding might make some sense, yet on the macro level of the industry and the customer, it also highlights part of the European challenge, namely lack of scale. You have to wonder if something substantial and world-class will be built out of some of these tiny deals. Usually “recessions” (possibly a relative term in tech) are a good opportunity for industries to restructure, with strong firms building on their strengths and weaker firms going out of business in what is typically a healthy evolutionary process.

Enable and simplify the work of the teacher

According to some estimates there are currently about 27,500 edtech companies in the K-12 sector, obviously not all deployed in all schools, but it’s not uncommon for schools to use hundreds of digital products. Imagine the life of a teacher. Her first concern is leading a classroom of 25-30 children, which is no mean feat in itself. When she deploys a digital solution it needs to:

a) positively impact learner outcomes

b) be easy to use and

c) ideally save time that she can use for interacting with students.

A teacher is best served by a smaller number of well-performing and frequently-used solutions than a huge toolbox of occasionally-used options.

Build a European Champion

In my view, investors in European edtech should focus on increasing scale and building a handful of segment-specific European/International Champions. At scale, a European Champion has the resources in terms of talent, know-how and money to develop and deploy top-notch learning solutions, yielding excellent learning impact and delivering good financial returns. It’s my hope (and expectation) that a group of investors will take the opportunity at this early stage in the new economic cycle to take our industry and the services we provide to schools to the next level.

European edtech & the emergence of supplementary education

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The Brighteye Ventures Edtech Funding Report released last week evidenced a positive and increasingly broad-based development of the European edtech sector:

Venture capital funding tripled over the previous year, reaching some $2.5B.

Average deal size also tripled to $8.4M, indicating increasing maturity of the sector.

Corporate Learning attracted the most funding ($926M), followed by K-12 ($659M) and Life-long/Consumer Learning ($652M), with Higher Education ($289M) and Pre-K ($136M) trailing. One possible reason being that B2C and B2B segments are sometimes seen as easier to sell into than B2G.

Six European markets raised more than $100M, up from just one market previous year.

There were six deals in excess of $80M in 2021, up from one in the previous year

Go GoStudent!

The biggest round in Europe last year was in K-12 at Vienna-based tutoring company GoStudent which is currently driving a very rapid international expansion.

(Online) tutoring has long been well represented amongst global edtech unicorns, with the heavy Chinese contingent prospering until the local market crash last year due to regulatory reforms. However, until recently online tutoring had not really taken off at scale in Europe, arguably because the European landscape is fragmented and both the quality of state-provided education and the cultural preference for equity, high.

Market for supplementary education likely to grow

I believe it’s likely that the global market for supplementary education (leaving China aside for now) will continue to grow strongly in the coming years, because:

a) It works

+ Positive impact on learner outcomes*
+ Potential to support teacher retention by reducing after-hours work for existing teachers hence making the profession more attractive
+ Potential to enable recruitment as teachers of university students, former teachers and other professionals, by first (re)-igniting their interest as a tutor,

and

b) There is growing demand for it:


+ More children attend schools than ever before, expanding the addressable market
+ There is increasing competition for top universities and jobs
+ Lower fertility rates boost spending per child
+ Growth in the number of families where both parents work, reducing the time available to help children with homework.

Beware pernicious effects


However, there are some potential pernicious effects should be mitigated:
– Rising inequality, since the rich can better afford it than the poor
– Unreasonable pressure on students
– Competition with schools for teachers, potentially undermining public education systems.

Public-private-partnerships?

In some European countries including the UK and The Netherlands, additional public funding was made available for supplementary education during the pandemic. I am interested to learn what impact these interventions have made and whether the combination of core and supplementary educational provision in the future might be a path to raising average learner outcomes and supporting disadvantaged students?

I’m interested to learn any insights you might have on this subject. Feel free to drop me a line.

*The outcomes of the research are startling: an average student under tutoring performs about two standard deviations above the average performance of a conventional class. Or put another way, an average student following a tutoring program outperforms 98% of students in a conventional classroom! 
https://lnkd.in/gDYHazw

How many edtech companies are exporting more than $20M each year?

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Source: HolonIQ

Source: HolonIQ

The promise of education markets is well marketed.  Estimates have been made that global education and training spend will reach approximately $10T (that’s $10,000,000,000,000) by 2030, about 6% of global GDP, with approximately 55% spent on the K-12 sector (somewhat above $3T this year).

Global edtech spend is forecasted to grow from $152B in 2018 (a paltry 2.6% of total spending) to $342B in 2025 (a slightly less meagre 4.4%).

Growth in edtech spend

Source: HolonIQ.com

Applying technology to learning and teaching should be a massive opportunity to both improve learning impact and to build a successful business, right?

I’m convinced on both counts.  But if global spend on K-12 is $3T then why is the spend on edtech so relatively modest? It’s mainly important to remember that about 80% of spending in K-12 is on teachers and other staff, with additional spending on other fixed costs such as buildings. Conceptually, in a pure-play digital future, in which teachers might be replaced with AI and robots, this could be an addressable market. However, this seems unlikely to happen at scale any time soon, since it would be not only pedagogically unsound but also socially unacceptable.  (It’s my own belief that the human teacher is the “killer app” in education).

Spending on Staff

Source: OECD Education at a Glance 2018

It seems more likely that technology will be used to super-charge teachers and enable more flexible organization forms for teaching.

Is there a global market for K-12 edtech?

If we would assume for the sake of argument that 2.6% of spending on K-12 education is digital (see above), this would imply a current spend of about $85B.

I would like to understand how much success the edtech industry is having in scaling internationally. How much of the $85B is being spent on local vs global solutions and how big is the opportunity for global vendors? It’s important for us to understand this dynamic as an industry: it will inform our investment decisions and potential to make an impact on learning.

Although the edtech market is not yet very mature, it is of a sufficient scale that we should expect to see successful global operators in edtech in K-12, if the market has a (partially) global nature.  Imagine we set a very low threshold: 0.025% of $85B spend, roughly $20M.  How many edtech companies are there in K-12 today who are generating $20M sales or more each year on edtech offerings being sold outside their market of origin?  More than 100? Less than 10?  I simply don’t know, my guess is there are tens rather than hundreds or thousands.

Who is exporting more than $20M?

I am very keen to discover and understand examples of such companies (exporting more than $20M of edtech each year outside of their home markets in K-12).  I would appreciate it if you would reach out to me when you know of good examples, or if you know of any good reports on the subject.  (Of course there are a number of examples I am aware of and I am excluding the likes of Apple, Microsoft, Samsung and so on, which are more generic tech solutions than specifically edtech).

Assuming it’s likely the international opportunity is currently under-developed, are there things that we can do together as an industry to unlock this potential?  At Sanoma we have successfully scaled our bingel platform in primary education across geographies, and are now working on the same with Kampus in secondary education.  Therefore within a Group it seems to be possible.  Are there other examples across Groups or through partnerships that have scaled successfully across international markets?  What can we learn from these examples?

HolonIQ

Source: HolonIQ

The Chinese, Americans and Indians have the advantage of huge internal markets.  At the same time, many of their edtech ventures are focused on capturing that big local opportunity.  However, it seems only to be a matter of time before some of these companies go global.  Whilst lacking their scale, could we Europeans (better) develop the capability to scale across geographies as a competitive advantage in edtech?  What would we need to do to make that happen?

Of course it’s a possibility that K-12 education and edtech markets will remain mainly local.  In which case we as an industry can adjust some of our investment hypotheses accordingly.  Yet I expect growing teacher shortages, pedagogical innovations and technological progress will drive change in our markets. We should organize ourselves to be ready for these changes.

 

Scaling European Edtech

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I recently came across this interesting report from Navitas Ventures – Global Edtech Ecosystems 1.0: Connecting the World of Education Technology.  Navitas analysed 20 cities with leading edtech ecosystems representing about 40% of global edtech.  Beijing, the Bay Area and New York are top of the class, with Boston, London and Shanghai challenging.  They also assessed a further 14 emerging ecosystems at different states of maturity.  It’s clear that edtech is thriving across the globe!

Scale is essential to success in digital and you can see that in edtech too, with the predominance of China and the USA.  In addition, given the demography and emerging status of the edtech ecosystems in India and Sub-Saharan Africa, it’s likely that together these four regions will give birth to a generation of edtech giants.  Edtech could significantly improve the life chances of hundreds of millions of people in these regions by increasing access, participation and engagement in education.  It’s a powerful promise!

HolonIQ

Source: HolonIQ

What about Europe?

Europe has some natural advantages in the edtech space.  We are home to many world-class education systems such as Finland. There’s a rich start-up scene in a number of European cities with London leading (but will Brexit make us BETT-sick?). Paris, Stockholm, Berlin, Helsinki and Amsterdam are vibrant and promising too, in fact there are more than 3000 edtech ventures across Europe today. Furthermore, there is significant and reliable spending on education through governments and ready access to venture and growth funding privately.

However, we lack scale

A lack of scale probably results in us under-serving our own customers.  It restricts our ability to expand to international markets. And it potentially exposes us to competitors grown in the big markets.  A lack of scale is restricting our potential.

European Champions

To address this, I think we need to create a European edtech network with strong go-to-market capabilities so we can effectively scale successful concepts across the continent.  I believe this network would be well served if it includes a handful of Champions to acts as magnets to talent, ideas and capital.

Learning organisation

I am interested in your ideas about how we could bring more scale to European edtech and what you think about the idea of building a European network with Champions.  How could we make that happen?  I’m also curious to learn from some of the challenger and emerging edtech ecosystems: how are they approaching this, what’s working and what’s not?  Learning is in our DNA, we need to put those skills to work if we are to bring this potential to life.

Creating a European Champion in Learning

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CMD cover

We’re an ambitious company and we are working on building a European Champion in Learning.

Last week we held our annual Capital Markets Day event in Helsinki – which is a good chance for us to share our plans with the investment community.  It was a positive day.  The team was in good spirits and there were lots of great questions from the participants.

I talked about our approach to building a European Champion. Check out the video of the session here.

Our starting point is strong: we serve 10m pupils and 1m teachers in some of the world’s best and most advanced education systems.  We’re a front runner on the digital transformation and have a strong financial performance and track record.  We have a solid plan and believe we can add even more value for our customers in the future.

We have a three pillar strategy to build this European Champion:

  • Win in local markets, by serving our customers well
  • Work together across borders to create one integrated company
  • Make selective acquisitions in current and new learning markets

We’re really excited about the opportunities for the business and our team is going for it!

I’m interested to hear your views and if you see opportunities that you think we should be developing too.

CMD strategy