EdTech Innovation: Investing in the Future of Education

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By Victoria Lakers

While many industries have been driving digital transformation for years, the pandemic created a sudden need to reimagine the classroom to enable educators to deliver lessons virtually. This created an immediate demand for improved online learning tools, and innovative EdTech products and services experienced an explosion of market growth. This has proven prior private equity investment in the space to be prescient, and created a surge of additional funding, as investors looked to capitalize on the growing market opportunity. According to the business consulting firm, Grand View Research, the global EdTech market in 2022 was valued at $123.40 billion, and predictions show that the market should grow annually by 13.6% from 2023 to 2030.

Digital transformation has manifested in various forms, including learning management systems, adaptive learning technologies, educational games, and artificial intelligence (AI), virtual reality (VR) and augmented reality (AR). Learning management systems (LMSs) proved highly beneficial during the pandemic as teachers relied on them to deliver and track student progress in online courses and assignments. Fortunately, many of these LMS companies received significant investments, both before and during the pandemic.

Notable companies with an LMS include Instructure, known for its Canvas LMS, which was taken private in 2020 by Thoma Bravo for $2 billion and completed an IPO again in 2021. Schoology, another prominent player, was acquired by K-12 powerhouse PowerSchool in 2019. (PowerSchool itself went public in 2021 with prior investments from Vista Equity and Onex Corp). Other noteworthy LMS providers include D2L Brightspace (TSX: DTOL) and Blackboard Learn LMS, part of Blackboard, which was backed by Providence Equity Partners. Blackboard merged with global EdTech provider Anthology in 2021 and is currently owned by Veritas Capital.

Additionally, adaptive learning technologies enabled personalized teaching, including the use of educational games and simulations to engage students and help them develop critical skills. The next frontier in adaptive learning tech will be the integration of AI, VR, and AR. Higher education has already seen the integration of AR and VR tools. For example, Case Western Reserve University, a private research university in Cleveland, Ohio offers human anatomy classes providing a mixed-reality, holographic experience which allows students to explore the body in 3D. Several universities have also created VR applications which recreate a visit to a base on the Moon.

While the level of investment in AI has skyrocketed recently, the adoption of AI in the classroom has been slow thanks to the fears around its potential to hinder rather than help education. Deepfake technology has given rise to videos of political figures pronouncing words they never uttered and AI chatbots allow students to create whole essays without contributing more than the instruction to write it. Fear of its impact caused certain districts in the US to put restrictions on the use of the technology. However, there are signs that the trend around AI adoption in schools is changing. The district of New York reversed its decision to block ChatGPT on school networks. In fact, in October 2023, New York City public schools announced they will launch an AI Policy Lab, which will consider how to use AI-powered tech responsibly for teaching and learning in the district.

Notable Companies

Numerous companies are driving this digital transformation in the classroom. Companies that are developing a wide range of innovative products and service in these areas include:

● AI-powered tutors: AI-powered tutors can provide students with personalized instruction and feedback. Some of the leading AI-powered tutor companies include Knewton, Carnegie Learning, and DreamBox Learning.

● Virtual reality learning experiences: Virtual reality learning experiences can help students to learn in a more immersive and engaging way. Some of the leading companies developing virtual reality learning experiences include ImmerseVR, Talespin, and Nearpod.

● Adaptive learning software: Adaptive learning software can tailor the learning experience to each individual student’s needs. Some of the leading adaptive learning software companies include Knewton, DreamBox Learning, and Carnegie Learning.

EdTech Investors

There are many investors supporting the evolution and growth of these companies. Pitchbook data found that in 2022, EdTech companies raised just over $25 billion from investors, much of which can be attributed to M&A deals. Notable private equity deals since the start of 2022 include Clearlake’s acquisition of Discovery Education from Francisco Partners, the take-private in 2022 of Houghton Mifflin Harcourt from Veritas Capital in a deal valued at $2.8 billion, the acquisition of Frontline Education by Roper Technologies in 2022 for $3.73 billion, In 2023, we saw the acquisition of Accelerate Learning by Providence Equity and Carlyle Group, the acquisition of DreamBox Learning by Discovery Education, and the take-private bid for Kahoot, by Goldman Sachs Asset Management and existing backer General Atlantic for $1.7 billion in 2023.

Conclusion

Digital transformation is having a major impact on EdTech companies and private equity investment in the sector. Companies developing innovative new technologies to support digital transformation in the classroom are well-positioned for growth. Private equity investors are also taking notice of the growth potential in the EdTech sector and are investing heavily in this space.

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