Venture capitalists see a lot of money to be made in applying technology to education. Even as VC investment dropped last year for several industries, edtech investment jumped to $2.98 billion in 2015, from $1.87 billion the year before according to a new report from CB Insights. That enormous spike is due mainly to several investments over $100 million. Even so, the conclusion is that edtech is thriving even while other industries see a drop in investment.
"Education is recession-proof generally," explained Andrew Rosen, CEO of edtech startup Interfolio and a co-founder of Blackboard and a couple of other edtech companies. "And education traditionally lags in technology. There's still lots of space."
Interfolio itself is an example of continuing edtech investment, having just closed a $12 million round of funding led by Quad Partners. Interfolio developed a platform that acts as an aggregator and management system for people looking for careers in higher education as well as providing strategic decision-making for colleges and universities to use in their talent hunts.
"Colleges have just recently started embracing SaaS-based programs," Rosen said. "It's still 2012 for some of them. Universities are realizing they don't need large IT installations anymore like Blackboard or Desire2Learn would offer anymore."
Switching over to SaaS (software as a service) products has been part of Blackboard's evolution over the last few years, and it is likely the company will keep working on that angle as new CEO William Ballhaus plots the company's next steps. But even as the products evolve and improve, the question of why VCs think they will get such great returns on their investment is less obvious.
"The findings in this report reflect what we see every day — our customers are working hard to adapt to changing industry dynamics and to ensure today’s learners meet their full potential and are prepared for tomorrow’s jobs," Ballhaus said. "As a result, Blackboard is laser-focused on listening to what they need, helping to address this opportunity through technology, data and services, and working with each of one of them to improve outcomes and student success."
The answer may be that the profit will come from corporations buying edtech that can be used for teaching professional skills to adults. Computer programming, business tactics and other vocational training is vital in the corporate world, and tools to speed up the rate employees learn them make sense as a product for companies. Not all of the money goes to those types of startups, but as examples: Udacity, which runs tech skills courses and TutorGroup, which offers a platform for distance learning, have real appeal to corporations and completed huge funding rounds last year.
"There is a trend for looking at ancillary and related markets for edtech," Rosen said. "Professional education tools support other [edtech projects]. Edtech needs to broaden its market reach to be successful."
Interfolio for instance, while centered around universities and other higher education institutions, is also trying out applying its platform to medical schools and hospitals connected to its client schools.
2016 may not be quite the bonanza year for edtech that 2015 was, but the CB Insights report suggested that there is still lots of opportunity for funding in edtech startups.
"There are still problems in education that aren't solved," Rosen said. "There's room for edtech companies with the right idea to solve them."
