If social isolation has taken the conversation about digital education to the next level, shedding a light on the future of learning, investment in the sector is still shy when compared to other industries. Although intelligence platform HolonIQ found that the next 10 years will bring as much as $ 87 billion in investments to the sector – almost three times the previous decade’s amount – the bigger picture shows that only $1.66 billion out of the total $108 billion in US venture funding in 2019 was invested in edtechs, according to data from EdSurge.
This more conservative investment response when it comes to the education sector is a global behavior. “There’s little investment in edtechs at very early stages, and the reason is that the educational market takes longer than other markets,” says Thiago Chaer, cofounder and CEO at Future Education, in an interview with LABS. Future Education, the first accelerator focused on edtechs in Brazil, has accelerated in a span of three years, more than 40 startups – that raised BRL 10 million in funding and reached BRL 60 million in valuation.
“The best startups, the most recognized ones were born 6 to 9 years ago […] Geekie went to B2B, and it also has a B2C arm – its product has been changing a little bit over time, but it has a long cycle. Descomplica is B2C, they entered in higher education, their investment in B2C is gigantic, they reinvest all the revenue. It’s a heavy model, with intensive capital,” the expert highlights. Geekie and Descomplica are two of the main edtechs in Brazil.
But if edtech wasn’t exactly the main sector attracting the eyes of investors, not only in Brazil, but even in more mature markets like the US, this seems to be changing fast. From the largest ten funding rounds in Brazilian edtechs’s history, three of them happened in 2019, according to Distrito. The Brazilian innovation platform has also found that while venture capital in Brazil reached $ 99 million in February this year, edtech – along with agrotech, legaltech, and fintech markets were the ones that raised the most capital this same month.
Whether by attracting more funding to these startups or by simply putting the spotlight on digital education – the sector is gaining awareness thanks to the pandemic. “Startups in sectors that are meeting the needs of the new normal — where most of the US population is staying home to work, eat and live — are seeing more demand and interest,” says a takeaway from the latest edition of Venture Monitor, a report by PitchBook and NVCA, the National Venture Capital Association.
Innovation in the sector post-pandemic
“There is space for edtechs, many took the time [of the pandemic] to show their value. ODL platforms benefited quickly because everyone had to go online and had to use these platforms,” Chaer points out. “But we are still at a very simple level of use of these technologies, we are still going at the most basic level, which is content-oriented, we haven’t approached the most advanced level of personalization and use of AI yet, and this can be a frontier in the next 2 to 4 years.”
According to a survey held by Future Education about the coronavirus’s impact on the learning innovation ecosystem in Brazil, 49.4% of schools hired one or more solutions from edtechs to support the teaching and learning process during this period. Although most respondents believe that COVID-19 will have a negative economic impact on the educational sector in the short term, in the long term, the industry expects improvement – with new technologies and new products as the main growth drivers of these companies in the next twelve months.
After the pandemic, Future Education CEO expects education institutions to be able to rethink their business model. “How they charge the fee, how they could improve the experience of both students and parents. The discussion must go deeper than that. How these schools will operate in the digital model, how they will be, in fact, digital – is an agenda little-discussed yet.”
Challenges: disrupting traditional institutions
Data from Distrito shows that educational startups that support traditional schools with technology are the most popular model in Brazil: from the 434 mapped edtechs in 2019, 25.4% – or 111 startups – work by implementing innovative tools in these institutions, such as management systems, technology for the classroom, communication management in teaching, and data analytics for education.
But for Chaer, connecting edtechs with traditional institutions is also the main challenge. “Although we have 40,000 private schools in Brazil, and these 40,000 transact BRL 62 billion, who have the potential today to absorb innovation are about 2,000 to 3,000 schools,” he explains. “With non-professional management, there is a huge challenge in basic education. Higher education is more professionalized, but you still have large consolidating groups. It’s a market that speaks another language: startup manager versus school director.”
And this is not something particular to Brazil. EdSurge data from last year suggests that most software licenses purchased by US institutions went unused, while American districts saw more than 700 different edtech solutions used each month during the previous school year. “In Brazil, the churn of edtechs usually happen within 18 to 24 months: schools tend to switch technologies – one edtech leaves, another enters, creating a cycle of solutions exchange within the same school,” Chaer clarifies.
The future of education: more than digitizing the sector
“Investment volumes have grown in Brazil. A series A round, 4 to 5 years ago, was at $500k, today it already reaches $1 million. There is money, funds claim they are looking for good projects.” As the ecosystem in the country evolves with more funding and more mature solutions, the local edtech sector seems to be on the right path.
“Brazil is in an advanced stage, there are good discussions, a lot of ecosystems supporting edtechs, the educational system and MEC (Ministry of Education) already know they exist, mechanisms are being created,” Chaer lists. “There is the Ministry’s Plataforma Evidências, initiative to help edtechs to lead their government solutions. We are doing well, now what we need is a little coordination of these actions to be able to see more tangible results.”