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EdTech Startups: to Invest or Not to Invest?

Education development is traditionally considered the responsibility of the government, and when we hear the words "educational startups", Coursera and Udemy come to mind. However, they are not alone who improve the way we learn. There are more and more companies that try to facilitate the educational process by involving technologies. This results not only from realities of the digitalized present but also from the profitability of edtech startups. Here are the reasons to invest in education technology startups and related challenges.

Table of contents

  1. What is an edtech startup and how to start an edtech startup?
  2. What kind of startups do edtech investors put their money in?
  3. What inspires to invest in e-learning
  4. Questions investors may ask you before investing
  5. Challenges of investing in edtech
  6. Types of edtech ideas to invest in 2022
  7. Final words

What is an edtech startup and how to start an edtech startup?

Edtech startup is a startup which introduces IT tools in the classroom to achieve a more engaging and personalized learning experience. It includes learning management systems (LMS), learning platforms, mobile educational apps and much more.

To launch an edtech startup, some steps need to be made.

  • Generate a business strategy. What kind of problem do you aim to solve in the education field? Think about specific people with specific problems and create a business plan to present to potential investors.

  • Find a development partner with a proven background in industry.

  • Develop an MVP. It will allow you to evaluate the product and improve it in a few stages.

  • Support users and collect feedback by adding feedback and a suggestions section.

  • Promote your project (ASO, SEO, PPC, SMM and Media Advertising) and keep improving it.

What kind of startups do edtech investors put their money in?

Education has changed and continues to change. Today's online learning is not only lectures and textbooks that students can use. It uses a variety of resources that involve different channels of perception: video and audio files, animation, graphics which provides tremendous opportunities in developing edtech startup ideas. So it's not a surprise that the ranks of unicorn education startups are expanding.

Chinese giants like Alibaba, Baidu, Tencent generously invest in the industry. For example, Yuanfudao received $ 1 billion from Tencent. It provides live courses and has 160 million registered users in three applications.

Mark Zuckerberg's investment fund invested $50 million in Byju's startup — India's learning app.

Rethink Education, a venture capital fund specializing at education technology, invests in development of mobile learning, which enables creating mobile based courses teaching children via SMS, that is relevant in South Africa, where only ⅓ of the population has access to the Internet.

What inspires to invest in e-learning

Predicting startup development prospects is not easy. That's why startups are a risky business for investors. However, this fact does not stop investors and venture funds from early stage edtech investing for the following reasons.

The impact of Covid on the development of educational applications

The pandemic goes but old habits stay. Online education has become a way for many people locked in their homes to stay sane. Here are the factors that determined the tremendous role of elearning during Covid:

  • Availability. Not in the sense that one doesn’t have to go anywhere to study because all they need is already on their device. It is about how fast resources and materials are updated for digital platforms. Teachers and professors can update the knowledge base for students instantly so the latter can enjoy the newest information with no waiting for the subsequent year’s edition. Under the Covid conditions, it was difficult to anticipate returning to the offline soon enough, so the edtech advancement has been as rapid as ever.

  • Quality content. Not any digital content is of impeccable quality. There is as much great quality software as there is poor. However, the competition in the elearning industry has set very high standards, which means that only well-built products can sustain competition. The Covid era, when people were using elearning services more than before, showed users who is worth their attention in the long run and who is not.

  • Psychological comfort. You would hardly argue that an exam simulation at home through a device is way less stressful than attending a class. No feeling examined from top to toe, no stress around in an unfriendly room. In the end, people have got too used to being home while self-isolating.

The market still has an untapped potential

About 80% of global money is concentrated in high-tech IT projects. Startups are new oil. As for EdTech, innumerable studies, reports and reviews of the market and in particular eLearning indicate that interest in this field is constantly increasing. The global EdTech market value is set to reach $181.3 billion by 2025. Clearly, this number will grow with every year.

The iGeneration is closely linked to technology

What previous generations called "technologies of the future" is already present for the Z generation. Whether we are ready for this or not, the commitment of iGeneration to information technologies increasingly defines the face of modern education. Successful edtech startups allow being in contact with the new generation of clients. That's why e-learning software is of interest not only to those who are thirsty for knowledge, but also for those who know how to invest.

Long-life learning becomes a necessity

The rate of obsolescence of knowledge in our days is increasing every day. What students learn today will become obsolete in 4—5 years by the time they graduate. From medicine and IT to the geopolitical situation — everything will work completely differently. The only right way out of this situation is to learn. And employees are eager to learn and upgrade their skills to adjust to the changing business environment. Therefore, the LMS development industry has great potential. Business uses a learning management system to organize employees training from scratch or to automate the existing staff development system. Examples of such systems abound: Litmos LMS, Docebo, eCoach, etc.

Emerging technology and tools in eLearning

The virtual world of information technologies has turned from a separate industry into a platform for the development of all other areas of activity — science, production, everyday life, and education. It is an education where technological innovations can bring real, tangible benefits. Take VR and AR. Despite the costs associated with the development and special equipment, the introduction of AR and VR technologies can significantly save on real exhibits. For example, in medicine, engineering or construction. The explosion of augmented and virtual reality, robots, 3D technology, using AI for apps have implications for education app development that haven't been seen before.

Mobile learning becomes a part of the educational process

The reason why m-learning is so popular with investors is clear. All people on Earth buy mobile devices and consume mobile content at a breakneck pace. Mobile devices can be used not only for entertainment and business. And they are no longer seen as a distraction from learning. mLearning is already an integral part of the whole learning process. It provides access to education on the go — you can open the app and practice in some subject wherever you are.

Microlearning is essential

eLearning can be a perfect addition to a full-time educational process and can have considerable potential to improve the quality and effectiveness of traditional education. The attention of modern students is difficult to concentrate on a single object for a long time. Hyper-attention, in which concentration on a set of objects occurs simultaneously, prevails in students. Classical video lectures are no longer relevant, as the new generation of learners weans off the massive flow of content. That is why many e-learning startups help to focus on specific information modules, in small portions — that is called microlearning.

Questions investors may ask you before investing

Say you are ready to invest in developing your own educational platform and have funds for this, which is great. But what if you have not? Then it is time to seek edtech venture capital.

The key to getting edtech vc is presenting your idea to investors correctly. You know well what your product is designed to do and what its audience is but this may not be as clear for the edtech investors. Your success in rising investment depends strongly on how you answer their questions. Here are a few of the possible ones.

Does the market really need your product? Is it a must-have or a nice-to-have product?

If the product has a potential to increase students’ or teachers’ productivity, it is a must-have. An exam simulation system, an ecosystem for remote classes, and a test builder can greatly simplify both studying and teaching. The rest are nice-to-have. Which, by the way, can be considered not that nice by students’ parents — for them, if you do not justify the opposite, a fancy piece of software is nothing but a distraction.

Are there measurable milestones for your product?

Visible results prove the effectiveness of a software product. The industry-specific results in the educational framework are higher grades, successful admission to colleges and universities, and learning a profession. If no such milestones are available, your idea needs improvement.

Will users pay every year for your product? How will you assure it?

Investors, and ed tech investors are no exception, want to be sure their money pays off. For that, you need to make a platform sticky enough to make users renew their subscription over and over again. Focus on quality instead of retention techniques — they will not make it if your edtech platform gives no value to users.

Challenges of investing in edtech

Despite the growth of the online education market, the entry of technologies into every level of education, investing in e Learning startups still faces challenges.

Determining the exact needs of users

Pioneers in any field get the most attention. The perfect situation is when your business fulfills a specific need of the audience like it was with one of the custom elearning platforms we developed. Based on their own hands-on experience, founders managed to elicit a gap to be filled and launch a successful product. However, in today’s market, it is difficult to be unique. Matching with the needs of future users is half the battle but takes the most effort.

Complexity of external market entry

Learning English is a global market, because people on all continents want to know English. Most startups consider it necessary to enter the world market, moreover, from the very beginning. However, it is obvious that it is not so simple for e-learning projects: it is necessary to support several languages, and the educational base in different countries varies greatly. Besides, educational market infrastructure varies due to social and cultural backgrounds. Sometimes we think that we are all the same, but cultural and social constructs are in fact unique.

The market still needs new solutions

So far, innovation in education is basically the transfer of curriculum online. Innovations do not offer new solutions which should improve the quality and increase the speed of learning. Digital Universe doubles every 2 years. The speed at which we now learn does not correspond to the explosive growth in data. To win the competition, a new educational app should give something more than the opportunity to print certificates of completion of certain courses. Not every startup succeeds in this.

Need for technological infrastructure

Despite the technological advancement in all spheres, certain regions are still struggling with poor Internet connectivity that does not allow for loading heavy media files like video lessons. This makes it nearly impossible for some categories of students to fully benefit from edtech platforms and narrows the audience for educational startups. In the dilemma between high-quality and highly accessible content like text in favor of videos or interactive media, businesses choose between covering the maximum audience or a narrower one with no connection issues

Lower monetization

There are lots of free educational courses and lessons available online. Many skills like web development or foreign language can be learned by using only free resources. Such approach levels up one’s skill to analyze and search for information but devalues paid educational resources academicians and developers put effort into. In these circumstances, the problem of lower will to pay for educational materials arises. Everyone creating these wants to be useful but also get paid.

A solution to this problem is teaching long-term skills with a platform. One can learn French for free which also entails systematizing tons of information thus additional effort that could be put into studying. On top of that, a paid platform with notifications and progress tracking cultivates one important aspect of education, self-discipline.

Types of edtech ideas to invest in 2022

These have been around for a while already and remain valid in 2022.

K12 education app

K12 software stands for school management systems for primary and secondary education institutions. Some allow for finding and enrolling in schools while others provide educational materials and videos created in accordance with the curriculum.

Exam simulator

Software for test preparation is designed to simplify the process of admission to various universities. Each country has their own rules of admission and specifics of the educational system so the scope of ideas is almost limitless. Future designers, doctors, engineers, and others will appreciate the opportunity to test their knowledge in an environment as close as possible to a real exam in the comfort of home.

MOOCs

Massive open online course (MOOC) systems like Coursera and Udemy are aggregators of all kinds of courses run by various universities and tutors. Anyone with access to the system can purchase a course and learn any skill they like as well as share this experience with other users.

Language learning app

One can hardly learn a language from the ground up with an app alone but still, language learning apps are an excellent support for the basic language classes. Duolingo with its reward and achievement system motivates users to proceed and Tandem allows to find natives of the language learned for live practice. It is up to you whether your language learning app will be designed for self-education or at institutions as assistant to teachers.

eLearning app with gamification elements

In addition to an exciting learning process, people want to see results of their hard work instantly as well as be rewarded for it. Gamification is a technique aimed at satisfying these desires and works equally well for kids and adults. For a business, gamification provides a higher user retention, so consider incorporating gamification elements into your app.

Learning management system (LMS)

Systems crafted for educational establishments help their workers administrate, keep records, and automate routine tasks, as well as collect analytics and share it across workers.

The LMS market size worldwide was valued at $12.8 million in 2020 and is expected to reach $81.2 million by 2030, growing at a CAGR of 20.5%.

Final words

One famous venture capitalist said that it's not so sad to invest in an unsuccessful startup, as not to give money to the next unicorn. If you are sure that very soon the world will experience the greatest educational revolution, and you are trying to bring us closer to this moment and make the coming changes positive, combine your effort with the developers that will help make your great idea a successful startup.