Edtech was long defined by stodgy sales cycles, sluggish adoption and splashy pitches to K-12 districts with tight budgets, but the COVID-19 pandemic turned that reputation on its head in short order.
Now, companies in the space are entering Q2 — traditionally a slower time reserved for product development and extra focus on existing clients — busier than ever. In this piece, we’ll unpack some of the dollar signs indicating that edtech may be entering a new era.
Broader investor interest
A number of edtech founders who are not seeking venture capital have recently told me their inboxes are cluttered with notes from investors looking to chat.
It’s a refreshing break from the usual fundraising doom-and-gloom we’ve been hearing about during this pandemic, but I want to note the nuance: We’re seeing investors who have never been interested in edtech become bullish on the category as a whole. If these investors put their money where their mouths are, we’ll start to see an uptick of venture funding sector-wide.
For EdSights, co-founded by sister duo Claudia and Carolina Recchi, doors are opening. Before COVID-19, they say they mainly attracted interest from opportunity investors and edtech investors. Now, they’re talking to a number of VCs, none solely from edtech-focused funds.
“Before we were only getting traction from edtech funds or impact funds, whereas now any investors we’re talking to are not really just from edtech funds,” said Claudia Recchi.
EdSights has a chatbot that helps universities connect students with school resources. The company landed 16 customers in the first year, but in the past three weeks it has doubled its customer base to 30 paying universities.
Another founder, Zach Sims of Codecademy, said his company has similarly received a surge of interest from investors looking to offer the online coding company additional capital. We wrote about the company back in February, and Sims mentioned that the company has been doubling revenue year over year.
Now, Sims says Codecademy will likely more than double revenue this year, and while it isn’t actively seeking fundraising — he’s open to offers.
“The mailbox is full, if you will,” Sims said.
Hiring is a metric to watch
Fundraising isn’t the only metric that signals whether a company is doing well: Juni Learning, an online coding and math class for students, has tripled revenue year over year and in the last month has tripled its number of sign-ups.
“We’re trying to be measured in our financial projections because we don’t know what will happen in the middle of the year,” said co-founder Vivian Shen. The company declined to provide specifics on financials beyond saying its cash flow is “quite healthy.”
We can tell, however, that Juni Learning must be doing well, because it is hiring 200 new active instructors (paid between $20 and $22/hour) to keep up with demand. It is also beefing up its support team to “triage influx of student and parent interest,” Shen tells me.
Another deal that signals some success is Labster’s recent expansion in California. The company sells software that lets schools offer virtual STEM laboratories for student use. Because a physical lab is not an option in the near future, Labster’s pitch to schools has gotten arguably easier.
Recently, the company announced it has signed a partnership with California Community Colleges, which accounts for nearly 2.1 million students. Labster is profiting from the deal, it later confirmed.
But Lambda School is dialing back growth
Earlier this month, Lambda School, a YC graduate that offers an online coding bootcamp, announced that it is laying off a number of staff. When I first saw CEO Austen Allred’s blog post, I was surprised: Aren’t remote learning companies supposed to be thriving? Why lay off 19 employees?
Then I remembered this piece and this piece, and had a few background conversations. It’s clear that Lambda School had fundamental business problems rising before the pandemic. As Allred puts it in his blog post, Lambda School’s headcount reduction is related to the company’s plan to dial back growth in 2020 and focus more on student success.
Now through a pandemic lens, Lambda School will likely struggle to put newly minted students into high-paying job roles — a core requirement for its business model as it relies on income-sharing agreements. A bad hiring market is bad news for a company that depends on open jobs for revenue.
So while Lambda School is an edtech company that recently had layoffs, those problems likely stem from a mix of COVID-19 and earlier issues, not simply one or the other:
https://twitter.com/Austen/status/1252738475880640512
To close, edtech’s current momentum has a slight asterisk next to it — venture capital might be harder to secure than ever before, and economic shocks may force states and municipalities to dial back education budgets many already consider to be austere. Newcomers to this space will struggle to secure market penetration.
So instead of seeing an entire industry benefit from an overnight surge, we might see investors being a tad more picky. These first few dollar signs are helpful for this reason exactly.
After all, growth is no longer as important as profitability. And that means the edtech surges only tell us so much.
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