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Welcome to the Third Edition of the European EdTech Funding Report
As we finally turn the page on a tumultuous 2020, we step into 2021 with a renewed sense of optimism. For all the sadness and disruption that 2020 brought, it generated a systemic shift in the education landscape that opened the door to startups across the globe to impact the future of learning, at every age. As shared in Brighteye’s 2020 market research, demand for EdTech products grew significantly, online learning became the new normal for consumers, educational institutions underwent a radical step change in technological adoption, and investors across the board were alerted to the potential of the sector.
At Brighteye, we are excited about this new era for EdTech and determined to help Europe lead the way. 2020 has been a record year for investment into European Tech more broadly, with potential to surpass $41bn when adjusted for reporting lags(1). With dramatically reduced barriers to customer adoption(2), increased appetite for impact investments1, and the ever growing interest of US investors in European markets(3), we see a prosperous trajectory for the entrepreneurs capitalising on these trends.
This report takes a deep dive into venture funding in the last 12 months across European EdTech, incorporating both historical and global data sets to provide greater breadth of context. We would love to have your feedback, and are always keen to connect with inspiring founders and investors, looking to help our world learn and grow. Get in touch ☺ (info@brighteyevc.com).
Methodology
We manually consolidated data from Crunchbase, Pitchbook, and Tracxn. The database searches include companies based within the European Union and categorised as EdTech (vertical) and/or education (keyword). All databases were downloaded on Monday 21st Dec 2020, meaning that some recent funding activities may be not be reflected within the figures.
Sources: (1) Atomico State of European Tech Report 2020/ (2) Brighteye market research/ (3) The State of European Tech Survey 2020
01 General overview of VC & PE capital invested in EdTech in China, US and EU over the last 7 years
The total capital invested across the China, US and EU grew by 1.5X between 2019 and 2020 and we saw an additional $6.4bn invested in EdTech companies (VC and PE investments combined) in the three regions. The VC investment in China represented 10X the level of VC investment in Europe in 2020, despite witnessing an encouraging 45% growth in European VC investment between 2019 and 2020.
Selected transactions in each region:
🇨🇳 China: Zuoyebang ($1.98bn, Series E), Yuanfudao ($3bn, Series G), Zhangmen ($38m, Series D) and EEO ($240m, Series C)
🇺🇸 US: Pluralsight ($2.9bn, LBO), Ellucian ($1.8bn, Debt), Campus Logic ($106m, Series C), Mindtickle ($85m, Series D), Headspace ($85m, Series C), Course Hero ($67m, Series B) and Lambda School ($64m, Series C)
🇪🇺 EU: Groupe Elsan ($3bn, LBO), Galileo Global Education ($2.5bn, LBO), Education First ($790m, LBO), Capita ($440m, LBO), Brainly ($81m, Series D), LearnUpon ($56m, PE round) gohenry ($44m, Series A) and Coachhub ($30m, Series B)
Source: Pitchbook, 2020 / *No reliable data source for effective comparison
Notes: the figures are based on filters that were selected manually to the Pitchbook database, data cleansing to avoid multiple verticals overlaps and availability of the data as of Jan 7th.
02 M&A in 2020: More capital, less liquidity in Europe
The pandemic and ensuing dynamism in the sector made it easier for EdTech companies to access capital with a $75m increase in VC funding in Europe (see next page), but perhaps harder for acquirers to value companies given revenue volatility. Transactions were primarily strategic consolidation or PE-driven for companies with steadier growth. Most notable transactions in Europe were UK based: Capita - Education Software Solutions, acquired by Montagu Private Equity for ~$500m, and Drops, acquired by Kahoot! For $50m.
In the US, where the sector is more mature, M&A activity was more plentiful than in Europe. Publicly traded Pluralsight and Rosetta Stone, followed the pattern of Instructure last year, by being taken private by PE houses in transactions of $3.5bn and ~$800m respectively. The industry saw it’s first SPAC of ($1.5B) for Skillsoft/Global Knowledge, Mathway was acquired by public Education giant Chegg for $100m, and Mystery Science was acquired by Discovery Education in a deal valued at c.$140m.
M&A Trends
• Increasing PE involvement in Europe and the US, where PE funds have looked to create digital Education leaders that can scale products across large business and government customer bases in multiple geographies.
• Publishing M&A as the pandemic highlights the importance of digital expertise, innovation and breadth (Santillana Spain acq. By Samona Media for $1.5bn/ John Wiley & Sons $130m acquisition of mthree).
• Vertical Integration of high potential startups (RaiseMe acq. by Campus Logic (US), PrepLadder acq by Unacademy (IN), White Hat Jr acq. by Byju’s (IN)) Drops acq. by Kahoot (NO).
• Landgrab: Geographical expansion through acquisition (US based IXL Learning acquires Aus publicly listed EdTech leader 3P Learning for $135m/ Brazilian Hotmart acquires US based Teachable for $230m)
• Fewer IPO’s in 2020 (but coming in 2021) Only one new US EdTech company joined the public markets in 2020 (SkillSoft/Global Knowledge), but both Coursera and Duolingo (valued at $3B and $2.4B respectively in 2020 growth rounds) have indicated that they will look to IPO in 2021*
Funding Amount Source: Crunchbase and Pitchbook 2020 / *Source Bloomberg & Wall Street Journal
03 A 10X growth in EdTech VC investment in Europe since 2014
Figures exclude growth, private equity, grants and debt financing deals.
Technology in general has been a net beneficiary of the move to digital collaboration and distance work, learning, and living that we have experienced this year. However, this trend has not been consistent across sub-sectors of the tech landscape. EdTech has been becoming an increasingly attractive opportunity both for local and international investors over the past few years.
In 2020, we saw a protracted change in investor awareness as the challenges posed by the Coronavirus pandemic exposed the potential for systemic disruption through technology in a space where technological penetration is still shockingly limited (95% of academic resources still go to offline learning while 50% of learning happens digitally, a $2.7T gap per an October 2020 Citi/HolonIQ report).
Sources: Brighteye analysis – Manual consolidation of three databases from Crunchbase, Pitchbook, and Tracxn & Atomico State of European Tech 2020 Report
04 EdTech is proving to be an up-and-coming vertical in the European tech landscape
Figures exclude growth, private equity, grants and debt financing deals.
Although it is still a small proportion of total European VC investment (2.04% in 2020), the growth in EdTech funding has remained resilient, hitting a record level of $711M in 2020, 13x growth since 2013. This growth in funding is both a demand and a supply story, having been fuelled by increased innovation and adoption. Incumbents and new entrants have been forced to pivot, innovate and expand to help plug the holes exposed by the pandemic, whilst consumers, suddenly seeking rapid solutions, and traditionally analogue educational institutions, have had no choice other than to adopt new ways of working.
We believe 2020 has opened the eyes of the investor community to the potential of the EdTech space, and set the scene for significant growth in the coming years.
Sources: Brighteye analysis – Manual consolidation of three databases from Crunchbase, Pitchbook, and Tracxn / *Adjusting for reporting lags
05 The average deal size is increasing
Figures exclude growth, private equity, grants and debt financing deals.
Average deal size increased across most deal stages with the most significant increases at either end of the funnel. This is consistent with the findings of the COVID-19 report we published in November 2020 (read here), demonstrating that although many entrepreneurs were finding the funding landscape more challenging, those who were able to raise, were able to raise in greater size. This is likely a function of both an uncertain landscape requiring a longer and more cautiously calculated runway, as well as a positive shift in the addressable market opportunity.
Only Series B saw a significant fall in average deal size vs. 2019, despite the absolute number of deals at this stage continuing to grow. This is primarily explained by a bumper year in Series B rounds in 2019, with 6 companies raising north of $30m. When comparing to the 2014-2019 average, 2020’s Series B data is merely a reversion to the mean of the prior 5 years.
Sources: Brighteye analysis – Manual consolidation of three databases from Crunchbase, Pitchbook, and Tracxn
06 The European EdTech ecosystem has seen major investments at Series A+, despite the crisis
Figures exclude Kahoot! 2020 raise to reduce distortion plus growth, private equity, grants and debt financing deals.
The European EdTech ecosystem has continued the trajectory that 2019 set up, with the bumper 2019 Series B year translating into a greater than ever level of funding for Series C deals. From just 9% of total funding at Series C stage in 2019, and the sector being almost non-existent 3 years ago, it comprised ~20% of total European EdTech funding in 2020. This reflects not only a maturing startup landscape but also a maturing investment landscape, with larger funds increasing their involvement, and provides a positive signal for the potential paths to liquidity in the next few years, which have yet to be clearly established in the European Tech ecosystem more broadly. On the heels of Kahoot!’s 2019 IPO, perhaps EdTech can lead the way.
In terms of number of deals, the biggest growth was at Seed, at almost a quarter of the total deals analysed, up from a stable level of c.18% over the preceding years. This is consistent with the pattern in the broader European Tech landscape, where seed stage investment has been remarkably resilient this year. The early stages of the funnel are often a reliable leading indicator for the future development of the ecosystem, which only serves to bolster our excitement about the future of European EdTech.
Sources: Brighteye analysis – Manual consolidation of two databases from Crunchbase and Pitchbook
07 The UK is the clear hub of the European EdTech ecosystem
Figures exclude Kahoot! 2020 raise to reduce distortion plus growth, private equity, grants and debt financing deals.
The UK maintained its dominant position in European EdTech, comprising ~40% of total deals funded and taking ~30% of the value of all deals. However, in absolute terms it registered a decline in both measures vs 2019. Similarly, France, having consistently ranked second in both deals done and value of investments, maintained its no. 2 position in value of deals done, but at a lower absolute value, and fell back slightly in deal volume, behind the Nordics, Germany, and Rest of Europe. Germany saw the absolute value of its deals done increase 5x vs 2019, whilst The Nordics, despite falling back on the leaderboard, regained the ground they lost in 2019, hitting a record total deal value, even when excluding its powerful outliers. Ireland, a significant player in the broader tech scene, is still finding its feet in the EdTech sector, however 2020 saw LearnUpon’s $56m round catapult them up the rankings, alongside a 3x increase in number of deals done.
However, the big winner of 2020 was what we have categorised over the past 5 years as Rest of Europe,and most notably Central and Eastern Europe (CCE), snapping up 4x the number of deals done and 12x the value of deals vs 2019. Notable CEE companies driving this trend include Brainly (~$81m Series D) and Preply ($10m Series A). Although the UK remains a clear leader, the breadth of European EdTech entrepreneurship is widening!
Sources: Brighteye analysis – Manual consolidation of two databases from Crunchbase and Pitchbook – Figures exclude growth, private equity, grants and debt financing deals / *NO = Nordics
08 The pandemic lifts K12 into the limelight, and B2C marches on
Although Corporate and Consumer continue to comprise the largest number of deals funded, it appears the pandemic exposed a very real and visceral need for additional support in the once maligned K12 sector. School focused startups almost doubled in number, and received >6x the funding of 2019 as investors eschewed the more lucrative, stable, high margin Corporate B2B market for a (hopefully honest) desire to systematically affect an important, and damaged sector. These deals were almost exclusively Seed and Series A, demonstrating a reassuringly responsive innovation landscape, with a strong bias towards the UK. Notable examples include Zzish and Eedi in the UK and Labster in Denmark.
Consumer also witnessed almost 3x growth in funding YoY despite the absolute number of consumer startups funded remaining constant. Consumer focused startups comprised 34% of the total number funded, but meanwhile received 45% of the total value of funding. This is logical within the context of a global pandemic within which the primary substitute for consumer EdTech (traditionally schooling) was excluded from the market for long periods, presenting a huge opportunity for fast customer acquisition in the early years category, e.g. MEL Science, Kano, Scrimba, lingokids. In the lifelong learning Consumer sector, the pandemic provided an opportunity to reflect on career paths, upskill and reskill, allowing many businesses to capitalise on the opportunity, e.g. Tandem, Ironhack and YouSchool.
Sources: Brighteye analysis – Manual consolidation of two databases from Crunchbase and Pitchbook.
Disclaimer: There are some overlaps between categories as some companies are targeting two or more different customer segments and the overall total shown here is higher than the actual total $ invested.
09 The amount raised in the top 5 rounds keeps getting bigger
The financing rounds are increasingly getting bigger. As a reference point, Digischool raised $16M in 2016, while, Brainly secured $81M in 2020, materialising a 5X increase in round size. We believe that this overall increase is driven by three factors: (1) proven EdTech acceleration over the last few years (especially due to COVID-19), (2) a European market that is becoming more mature and competitive, and (3) a new interest in the EdTech space by more generalist VC and PE funds.
Sources: Brighteye analysis – Manual consolidation of two databases from Crunchbase and Pitchbook
10 The most active early-stage EdTech investors in EU in 2020
According to Pitchbook and Crunchbase, the most active early-stage investors in EdTech in Europe last year were Brighteye and JME. It is interesting to see that generalists funds are “open for business” and participated in several EdTech rounds (i.e. mainly seed rounds) in 2020. While the top-5 positions are dominated by EdTech specialists (i.e. Brighteye, Sparkmind, Educapital), we were surprised (and very pleased!😊) to find an outlier (JME, a Spanish generalist fund). The deal activity proves that a certain degree of expertise on EdTech represents (logically) a real advantage to access and lead deals in this space. Having said this, the overall trend shown is great news for the European EdTech ecosystem as more capital is available for EdTech founders at early stage.
Sources: Crunchbase and Pitchbook as of January 13th . We are counting publicly announced investments in companies not previously invested in by each fund during 2020.
Note: Latest deals might not be included due to information lag. For more information on deals, please review both databases and funds’ websites.
11 A distorted funding seasonality due to the crisis?
Covid-19 disrupted a number of our normal schedules, and the European EdTech funding landscape was no different…
Q1 2020: The year started on a precarious tone, with news from Wuhan beginning to affect markets in the Far East, but little impact in Europe in Q1. Deal numbers were decent albeit small in value, and generally displayed expected patterns. However as uncertainty increased in Europe, investor activity decreased. March marked the start of the drop, with attention fully focused on ensuring portfolio companies’ liquidity as the pandemic worsened.
Q2 2020: June however bought some light relief as restrictions in many countries began to be eased, leading to a gentle increase in funding activity in July, dominated by Series A deals. However the ‘all time high July’ of the broader European Tech VC landscape failed to translate. August retreated back to its conventional European seasonality, as people everywhere made the most of a more relaxed governmental tone to take some time away, even if in a different format to usual!
Q3 2020: “back to school” and a ‘new normal’ began to expose the importance of EdTech as a sector. Despite September seeing >$5bn invested in European Tech broadly, it took a while for this zeal to feed into EdTech specifically, which typically demonstrate longer and more bureaucratic sales cycles.
Q4 2020: October made up for this lethargy, with more invested in one month than the entire rest of the year combined, with a strong skew to later stage rounds.
As the pandemic continues to evolve, even as we enter 2021, it is likely fundraising patterns again could look rather different to previous years. However with the move to Zoom cemented, it will be interesting to see the extent to which this ‘new normal’ really has allowed funding patterns to get back to ‘normal’.
Sources: Brighteye analysis – Manual consolidation of three databases from Crunchbase, Pitchbook, and Tracxn & Atomico State of European Tech 2020 Report
Predictions
Review of our four 2020 predictions from last year
It is fair to say we definitely couldn’t have predicted much of 2020, and it’s true that trends have been accelerated, and distorted, across the board, but let’s review last year’s report predictions to see how close we were…
Prediction #1: Proliferation of professional learning platforms for 21st century skills
Covid-19 made us question both the relevance & format of much of the education we consume. Young people are poorly prepared for the skills required when joining the workforce1 and older generations feel excluded from the constantly evolving technological innovation2. Coding bootcamps such as Ironhack have, outside of lockdowns, seen unprecedented demand for upskilling and reskilling, and those most agile, have made the most of the momentum to provide both online and B2B offerings. Cyber Security (Hack The Box), Sales and Biz Dev (iconoclass), Growth and Marketing (Growth Tribe), and data analysis (Stackfuel) trainings, just to mention a few, are facing insatiable demand. Investors are happy to fuel this too, with $73m, just short of our $100m target, invested into this space in Europe.
👉 Mark: 3.5/5 👌 Hmm.. ok
Prediction #2: The # of Series A rounds will increase by >40%
Half way there…?! Although the $ amount of Series A rounds rose by 30% the number of Series A rounds only increased by 20%, according to our analysis. 40% growth in deal numbers was actually seen at Seed stage.
👉 Mark: 2/5 🥶 Ouch
Prediction #3: Learning platforms will incorporate more humans
With BYJU’S and Yuanfudao raising in excess of $2.5bn between them this year, and tutoring platforms of all sizes and disciplines being rocketed into space, as one of the key substitutes (traditional schooling) is disrupted, there is no doubt that human based learning platforms have had their moment in 2020. However, the question is to what extent this was through necessity rather than the realisation of a long-term trend. Either way, Covid has highlighted the importance of community at every stage of life, so to us, the human element, peer-to-peer interaction, and cohort based digital learning is here to stay. 12 learning platforms incorporating humans raised Series A, beating our target of 10!
👉 Mark: 5/5 🎉 Yay!
Prediction #4: Learning platforms will also become more automated
A total of $66m was invested in AI driven learning platforms, across stages, and across disciplines- from medical training, to language learning, to mental and emotional health, surpassing our target of $60m. The majority of these were seed stage, so this space still has a long way to mature!
👉 Mark: 5/5 💅
Sources: 1British Chamber of Commerce Business and Education study/ 2https://doi.org/10.1177/1461444804042519
Brighteye’s five 2021 predictions
Continued unbundling of post-secondary education: There will be a proliferation of online and tech enabled educational programs, strongly tied to career outcomes as the demand for skills needed to upskill/reskill dramatically outpaces traditional institutions competency and capacity, and governments make more funds available (e.g. CFP in France). People will be able to train across an increasingly broad array of specialties via skill sharing platforms, non accredited/lightly accredited programs that bypass established universities. At least 20 such companies will be funded at the seed/pre-seed stage in Europe in 2021, and 6 such companies will close a Series A/B.
Increasing overlap between learning and productivity tools, particularly for B2B. The most effective learning happens at/close to the time that lessons can be applied in a practical context. Product like Gong and Chorus have shown that such just-in-time learning can meaningfully improve productivity in a sales context. We expect that 2021 will see such approaches expand well beyond sales as EdTech meets future of work.
Distance learning or after-school tools that enable parents to give their children an advantage in literacy and numeracy in in pre-K and K6, will finally find broad product market fit, with parents' willingness to pay increasing significantly to offset the disruptions to regular schooling caused by the Covid crisis. We will see some companies in this space surpassing $100m in annual revenues. This will also spur a host of new generation offerings tackling this sub sector, leveraging new AI powered solutions. Funding in 2021 to breach $250m.
Community learning will continue to gain in importance. The role of community has already begun to prove to be an effective approach to enhance the overall learning experience of students (i.e. ThePowerMBA, YouSchool, Tandem). In 2021 (and beyond), we believe this trend will be strongly reinforced, whilst we will also see more innovation in the community learning green space. We even anticipate a stronger shift from “community as a learning add-on” to “community as the core of the learning experience” to ultimately accelerate the learning process. More than €40m will be invested in early stage startups that leverage communities to improve learning outcomes in Europe in 2021.
A bumper year for Series A (trying again…)
We return to one of our 2020 predictions with more conviction - Second time lucky? With 40% growth in the number of Seed rounds over 2020, plus EdTech supportive macro headwinds , we expect Series A funding in 2021 to breach $250m.
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