2020 will be remembered as the year that education changed forever — or, at least it should be.

With 90% of students globally unable to attend classes in person and teachers switching to holding classes via Zoom, WhatsApp and Microsoft teams, the sector can no longer hide from the urgent need to digitise and embrace technology. Now more than ever, it’s evident that, if deployed properly, technology will be the key enabler to offset the potential widening of inequality in education caused by Covid-19.

Whilst EdTech is certainly not a new market, in recent years the sector has seen increasingly more capital being allocated to it: in 2018, around £90m was invested across 50 EdTech companies in the UK alone (a 140% increase from 2016). In 2019, $1.7bn was invested in EdTech companies in US, seeing $7bn worth of investment globally, entering the new decade with 14x more capital than the previous. Even in later stage companies, we’re seeing dozens of private equity funds being created and deployed solely to invest in the sector. The industry expects to see over 100 education companies with $1bn+ market capitalisation by 2025, despite the fact that the US currently has only 29 publicly traded companies (which total $71bn market cap).

In that sense, it’s no wonder that investors at all stages are turning their attention to the industry: the sector has gone from being valued at $56bn in 2016 to $175bn in 2020, and is expected to reach $420bn by 2025, growing by 15% CAGR.

Though the majority of EdTech investment has been in the US, according to AGC, China and India actually represent the fastest growing markets [1], which you may expect given the relative population growth rates. Vast and fast-growing populations call for modern ways of incorporating technology to provide education to the population en-masse. In a similar vein, Asia is closely followed by Africa and Latin America in terms of growth rates by region.

Europe is catching up, too. Between 2014 and 2018, the continent saw $1bn invested in EdTech companies, with a record high $450m in 2018 [2]. While the UK and the Nordics have historically dominated the market, Germany, France and Spain are emerging as new leaders in the sector.

Nonetheless, EdTech is hugely underrepresented in the total global expenditure on education. The education industry has historically seen very little digitisation, with just 2% of education being focused on digital. In 2016, the US spent 7% of its total GDP on education — a stunning $1.4tn — but education technology currently still represents only 5% of spend on education globally. Given the detrimental impact of Covid-19 on education across the world, it’s no wonder that industry experts anticipate now to be the tipping point for EdTech. Covid has forced even the most stubborn players to modernise and digitise, and the longer we stay in this environment, the harder it will be to revert to the way we used to do things. Students and teachers alike are also generally now tech-savvy enough to use and benefit from the numerous technologies that are available to them in the classroom.

It’s worth noting that what we refer to in this research as the education sector is actually a multitude of smaller segments of education that are ultimately very different from one another — pre-school (Pre-K), primary and secondary schooling and sixth form (K-12), higher education and corporate learning.

THE CHALLENGES

There are three sets of challenges that explain why EdTech represents such a small proportion of the global education market.

NUMEROUS STAKEHOLDERS

Relative to other industries, the education sector has a multitude of stakeholders: teachers, students, local authorities, policy makers, parents, administrators, faculties, recruiters and employers. The more stakeholders, the harder it is for an EdTech company to find the right business model. This explains why so many companies are resorting to Freemium models [1], offering a free version of their products and hoping to monetise by up-selling a ‘Pro’ subscription to the most engaged users in order to avoid the potential lengthy B2B sales cycles.

Education is naturally a heavily regulated industry, and with parents and authority as key stakeholders, there’s a lot of different parties to navigate, particularly in public sector education. Regulation and procurement processes can create a barrier to entry for early stage companies, as private EdTech companies that aim to be deployed in public sector schools will need to be rigorously tested and assessed, which can be a tedious and timely process. The procurement processes in the private sector are likely to be less regulated, although the private sector represents only 7% of UK schools.

LOGISTICAL CHALLENGES

The ever-increasing number of to-be students means there’s always a shortage of teachers. This means that education has to become standardised — like following a national curriculum — to enable access to the masses. Personalised education is unscalable due to the scarcity of teachers therefore students must fit in with the national curriculum, not vice-versa.

As Alex Kroll said here:

‘Education is about how to organize the process of mass education in a variety of directions to meet the state and corporations need for skilled workers. Education is about logistics’.

The more standardised mass education gets, the less efficient it becomes; therefore, the real challenge lies in how to scale a personalised approach to education considering the existing number of teachers and educators.

The logistical impact of teacher shortage also impacts testing. Research papers and thought leaders all agree that the current testing system is inherently skewed and does not give a correct representation of the knowledge and ability of the student. It’s favoured because it’s perfectly scalable. Current testing methods also prohibit the development of important skills such as critical thinking and problem solving, whilst focusing on skills, such as memorisation, that aren’t as critical in today’s society. The industry is being pushed towards developing a more viable solution that can both check and assess the students’ abilities, but is also scalable.

The increasing pupil to teacher ratio is even more prevalent for countries in South East Asia and Africa, where the shortage of teachers makes technology and eLearning essential for education to be possible in the region. This creates the perfect opportunity for young EdTech businesses, as well as existing tech companies, such as Lime, to launch EdTech spin-outs in order to tap into these issues.

DEFINING THE VALUE OF EDUCATION

In higher education, institutions are under a lot of pressure to justify to their end users (aka, students) that the value they provide is worth the money students are paying. With tuition fees at an all-time high, especially in UK and US, students are still struggling to make their first career move. Students complain that universities are too skewed towards the ‘knowledge’ side of the ‘knowledge vs skills’ dilemma and don’t actually equip them with the necessary skills to enter the world of work. To be fair to universities, the quest for skilled graduates is mostly driven by employers, as universities have historically aimed to provide a more general knowledge-based framework to help students make more informed decisions and achieve the best results. Nonetheless, given that students (particularly in the US and UK) pay increasingly more for their degrees, there’s a much higher expectation for institutions to deliver tangible value.

A few decades ago, universities had a monopoly on content, with students only being able to access information and knowledge through university libraries and resources. Nonetheless, with the rise of the internet and the information age that we’re living in, the fees that students pay are no longer to access content: it’s to receive curated content [here]. Given the overwhelming amount of content and readily available resources that students can access online, the value of content provided by universities is falling. While there clearly is a lot of value in universities providing and curating relevant educational content, the quantification of the value may be different to what it used to be. The challenge for educators is to demonstrate that they’re not only content distributors, but they’re content curators and ‘augmentors’.

Universities, especially in the UK and the US, used to heavily rely on government monetary support and fees from international students to maintain profits, and even then still faced an uprising in students questioning the value of their fees, even before Covid-19 hit. Now universities will face an even bigger challenge as increasingly more international students have become reluctant to travel (due to Covid-19 health concerns, fear from increased discrimination and racism, and worsening economic climates as an impact of the pandemic) and the likelihood of them having to resort to teaching online to keep fee-paying students engaged is higher, especially in the US and UK. The decrease in enrolment of international students, the lack of extra income coming from students accommodations and conferences, and losses on long-term investments mean that institutions, especially less prestigious ones, are at a great risk of insolvency — at the time of writing this, 13 universities in the UK are at a great risk of going bust. Institutions like Harvard have moved their fall semester online for the same $26,984 semester fee as they charge for on-campus education — and many other universities will follow suit. The current business models that universities operate on — which focus on bricks and mortar education — can’t be easily adjusted to allow a lower price point. Universities will need to find new ways to justify the ‘experience’ premium that an off-campus option costs, against a rising collective $1.6tn student loan debt-heavy customer base.

THE OPPORTUNITIES

With crisis, comes opportunity. Covid-19, supplemented by the availability of new technologies such as AR, VR, as well as the almost complete switch to mobile, have given opportunity for breakthrough companies in the education sector to innovate.

Tech can help free up teachers to focus more on what they do best — teaching. As learning becomes more and more tech-enabled, technologies can take on some of the teachers’ workload in areas such as marking, homework and general admin. This could then help solve the problem of overworked for teachers and potentially pave the way for more personalised, high-quality teaching.

There’s also an opportunity to create a more fluid education framework that targets every learner (not just students) and teaches them employable skills. With unemployment rates are growing as a result of the pandemic, a vast proportion of the workforce is actively looking to re-skill and change career, often resorting to online courses. Similarly, corporates are spending more to re-train and develop the skillsets of existing employees and more people are focusing on personal development and learning in this time. The move to life-long learning, combined with some of the challenges mentioned above, opens up opportunities in the education sector for emerging companies to take.

LEARNING TO EARNING

As mentioned above, education is becoming a more fluid, life-long experience for people all over the world, rather than being solely for the earlier years in an individual’s life. In a Covid-shaken world, re-skilling and up-skilling are paramount as workers try to keep up to date with the new requirements of a digital-first job market. L2E education providers are less theoretical and more practical, aiming to equip workers with the skills they’ll need to land a job and succeed at it. Companies are offering specialised digital tools, turning group activities into digital internship and placing students directly to employers. However, completion rates are the struggle of online courses — MOOCs were highly criticised for their 5% completion rate. Online learning is not entertaining and is monotonous, and so people often become disincentivised to finish the course. Interestingly then, companies have been innovating by creating more entertaining content and using learnings from other industries to engage, and keep, people’s attention. We are seeing online courses using advertising copywriters to adapt their content, as well as even corporates using GIFs and texts to convey professional learning content to their employees.

Interesting companies to watch: 42 Courses, Arist, CareerTu, Capaball, Edume, The Learning People.

PERSONALISED LEARNING

An education system that bases students learning abilities on their year of birth is clearly outdated and doesn’t take into consideration the uniqueness of individual learning patterns. That system was optimising the resources available, both in terms of infrastructure and educators, but today’s world looks very different. Whilst the ratio of teachers per students isn’t improving, students now have the opportunity to have a more personalised learning experience thanks to artificial intelligence. Companies are leveraging artificial intelligence to understand learning patterns and adapt content to optimise the individual’s learning. Other startups are using technology to understand and ‘diagnose’ why students are making certain mistakes, identifying learning gaps and misconceptions and correcting them efficiently. This way, teachers can offload some of their workload to technology and focus on improving students’ learnings.

Interesting companies in this space: Claned, CenturyTech, Eedi, Sana Labs.

HYBRID EDUCATION

Even if an a fully online-only learning method doesn’t take off (as educators worldwide agree that it cannot provide students with the same level of soft skills that an offline method can), schools and education providers are thinking more seriously and urgently about improving their online infrastructure. While some schools have built their online learning infrastructure from scratch, like EtonX from Eton College, most education providers are looking at startups to help with providing effective modern digital learning tools. Several companies in this place are trying to recreate the dynamicity of the classroom environment online, allowing students-to-students discussion, material-sharing among teachers, teachers Q&A and class-wide assignments.

Interesting companies to watch: Showbie, Aula, Campuswire, Class for Zoom, Sophya.ai.

FIN-EDTECH

Education is expensive — there’s over $1.6tn of student debt in the U.S. alone hence why companies are working to find new solutions to make education more accessible and less privileged. Two new trends are emerging.

On the one hand, companies offering student loans are becoming more sophisticated, using complex algorithms to take into consideration factors such as education, employability and grades to offer loans to students-to-be that don’t necessarily have the opportunity to access to traditional financial resources, but have all the characteristics to succeed in their career. On the other hand, there’s a new generation of start-ups toying with the concept of Income Share Agreements. ISAs have the opportunity to shift paid education as we know it. Students would be able to study for free, and universities would be economically incentivised to recruit the best students and equip them with the skills employers need. Students would end up taking a bet on themselves, and the job market, and the value of education would ultimately be a fraction of a salary.

There is no right or wrong option: the current system is flawed and needs to be solved, but will the new structures solve a problem while creating a further one? That is, will education only be valuable as a function of the job market? Or is there a vocational value within education, besides a profitable career? Society will have to first agree on the value of education, then find a systemic solution for financing it. It is also true that education is becoming so varied that there can be many different solutions solving different parts of the education spectrum, rather than a single one-size-fits-all.

Interesting companies to watch: MPower, Student Finance, Prodigy Finance, Stilt, Vemo Education, Henry.

TEACHER-INFLUENCERS

What teachers aim for is to catch — and retain — students’ attention, as that is what drives engagement and results: the best teachers have indeed always been those who could grab and hold the classroom’s attention from beginning to end. As we move towards online learning, students’ attention has dwindled: students are bombarded with an overwhelming choice of content, and it’s harder to engage someone through a screen. However, this environment has created a great opportunity for teachers to take on the spotlight and become ‘influencers’, creating or curating high quality content and distribute it to a wide, highly-engaged audience. Throughout the pandemic, TikTok has seen a huge onslaught of teacher-influencers educating nations through short, engaging videos, demonstrating how impactful and valuable non-traditional teaching styles can be.

Interesting companies to watch: Pango, Scoodle, Zigazoo, Bla Bla App.

KEY TAKEAWAYS

The EdTech sector is vast, and each stage of education comes with its own set of issues. At Talis, we’re most excited about companies addressing some of the most critical problems in the education system. We recognise the future of education to be about life-long learning, and so, we want to see companies that are expanding the total addressable education market to all people of all ages and monetise on the appetite of lifelong learners, not only students, who are creating an education system that is age-independent. Given how Covid has accelerated the shift to digital-first learning, we also want to see EdTech companies that are rethinking the way traditional education frameworks work and are establishing new forms of alternative education, including new online-only schools to cater to a different customer base. The traditional school system to date relies on offline teaching methods, but we want to see companies that are capitalising on the switch to mobile to capture the attention of an always-on-the-move customer base and transform educational content to match different mediums.

With corporates increasingly looking to up-skill their workforces, there’s also a huge opportunity for businesses that are creating new lessons and content that reflect what corporates are looking for: potentially collaborating with them for a more streamlined approach. Similarly, in an age of constant information overload, we’re looking for companies that are allowing companies and businesses, alongside schools and universities, to distribute and commercialise their knowledge and be recognised as educational institutions.

For any comments, thoughts, opinions and more exciting companies in this space, hit me up at cecilia@taliscapital.com.