June 21, 2022

Bull or Bear, Edtech Shows Resilience with Growth Potential

Whether it’s US tech stocks or cryptocurrencies, the big bad bear has reared its head, and the fear of an investment capital crunch has also spread to the start-up sector. 

However, as the old adage goes – opportunity arises in adversity. So today, let’s talk about edtech, which I believe is an opportunity of such – fundamentally sound to withstand a down market yet full of potential to thrive in better times. Below are a few of my observations. 

The health of the edtech sector is highly correlated to governmental policies, which are currently very favorable for the education sector.

Over the past two years, the pandemic has plummeted admission and enrollment at US public schools. Policymakers have since pushed forward subsidization to encourage learning institutions to adopt digital solutions to the “crisis.” 

Cherubic Ventures recently invested in US-based start-up Avela. Solutions offered by the edtech software company help match students with suitable schools based on criteria such as commute time, education programs, extra-curricular options, and keyword searches. On the other side of the equation, it also empowers admission and enrollment officers to make more efficient and equitable decisions on applicants. 

For Avela, subsidization signals schools are flushed with funds they need to and want to expend. After all, no procurement managers prefer to leave a budget unspent.

A historically rigid target market and clients with ample funding combine for an ideal environment for Avela and other edtech firms to grow their business, as well as withstand a still turbulent economy.  

The pandemic accelerated the demand and development of educational innovations.

One example is remote learning. Due to school shutdowns, the online learning concept that first gained steam in the adult age segment is now in high demand amongst the school-age population. 

Outschool is a remote learning platform designed with students aged 3-18 in mind. Students select courses based on different criteria such as age, schedule, subject, and price. The start-up offers a wide range of courses, from conventional subjects such as mathematics, biology, and creative writing to extra-curricular activities, including dance, software coding, cooking, and computer animation. 

Additionally, the upskilling trend is poised to open new doors. 

Many of the biggest companies a decade ago are no longer on the top-ten list today. Remember the dominance of Evernote? It has since been dethroned by newcomer Notion. Business competition is always fierce, and changes wait for no one. Workforces of all ages and in every industry are asked to self-improve to stay in lockstep with an increasingly dynamic job market. 

Hahow, another Cherubic Venture invested start-up, published a whitepaper in March concluding that in the current quarantine and remote-work era, workers are more anxious about the job market and therefore more motivated to upskill. 

Online learning platforms are also seeing adoption in the B2B segment. Employers are allocating more resources to optimize internal training and create virtual environments that foster employee interactions and peer learning, which all bode well for edtech platforms that offer corresponding solutions.    

The latest data illustrates that the pandemic has fundamentally transformed the edtech ecosystem.

Global venture capital investment in the edtech sector reached a record USD28 billion in 2021, a 300% rise from 2019, according to market research firm HolonIQ. There are 33 edtech firms with billion-dollar valuations today, and over 60% of these unicorns were founded after Covid struck in 2020.

Some say that the pandemic presented circumstances that benefited the rise of edtech, and the good times are about to end? However, I believe the rigid demand for education should buoy the sector. Even if there’s a consumer-end slowdown, overall demand for new education products and services has grown dramatically, with a much broader customer base. 

Market cycles will inevitably affect some sub-categories, but edtech’s trajectory is clearly pointing up, and promising market growth awaits. 

For some investors, edtech isn’t the “sexiest,” but it’s not about the latest buzzwords or overnight, over-optimistic success narratives. Thriving in both booms and busts requires concrete demand and a substantial and growing marketplace, and that’s why you should pay attention to edtech, whether it’s bull or bear markets.

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