It has been a bumpy six months for the global startup ecosystem. Overall, venture capital funding levels fell by over 50% in 1H 2023 compared to 1H 2022, with the fall off in investment somewhat mitigated by hyper-activity surrounding generative AI. While this is certainly a decrease from recent years, VC funding remains similar to 2019-20 which were record-setting periods at the time. We expect more linear overall growth in VC to resume by year end even as the hype around AI cools, provided that the macro environment remains stable and inflation continues to subside.
Turning now to global Edtech, the market has continued to stutter, exemplified by Chegg’s fluctuating stock performance, when the company attributed negative results to the impact of students substituting free Chat-GPT for Chegg’s subscription based course preparation materials. A MENA-based Edtech company raised $100M for the first time, in My Tutor Source. This bodes well for the growing MENA ecosystem, previously more dependent on US and UK-based startups. The remaining large deals of ~$100M tended to be companies raising later stage funding, like Degreed and Begin. One European deal made the top 10- HacktheBox’s $55M Series B*.
Focusing on Europe, the announced $1.7B privatisation of Norway/UK-based Kahoot! by a Goldman Sachs-led group presents a bright start to H2 2023, with the compelling cash offer representing >10X multiple on revenue. Overall, we expect a minor increase in European activity in H2 2023. H1 2023 saw funding increase compared to H2 2022 and many of the companies that raised big rounds in early-mid 2021 will be coming back to the table to raise more funding. Beyond a rise in deal activity, what will perhaps be a better indicator of health in the ecosystem will be 1) the basis on which companies are raising (to seize opportunities or to stay afloat) and 2) whether companies can sustain capital efficient growth post-funding.
Here are our 5 key takeaways:
1. 1/3 of global Edtech deals done in Europe, but H1 2023 funding represents 29% of the 2022 total
It’s positive to see the European Edtech market holding firmer than other major markets in North America and Asia in terms of deals activity, but activity by funding and deal count is down across the board. European Edtech has a larger portion of a smaller pie…
2. Signs of life as H1 2023 more funding and higher average deal size than H2 2022.
Though the pie has got smaller, the European ecosystem has had a better H1 2023 than it had H2 2022, with more funding and higher average deal size than the prior period. In H2 2022, the European Edtech sector secured $0.4B but this marginally increased to $0.5B in H1 2023, despite few large deals. This can hardly be described as a ‘jumpstart’ however- the increase is significant though not enough to signal a rebounding market.
3. Globally, only 1 deal over $250M, with the largest European deal only $55M
As mentioned in earlier remarks, gone are the mega deals. Only one company raised more than £250M globally in H1 2023 and this deal was relatively unusual in that it was a growth round for Byju’s rather than a company raising a mega round to massively lift its growth. The slowdown in mega deals is even more acute in Europe, with the largest deal being HacktheBox’s $55M raise (Brighteye portfolio member).
4. UK maintains top spot in Europe with France, Germany, Greece and Spain making up the top 5
Interestingly, in the face of the funding and deal slowdown, the prominence of specific European markets mirrors previous boom periods. The UK maintains its prominence as the market with most funding and most deals, maintaining its typical distance to Germany and France in second and third respectively. It’s positive to see increasing momentum in Southern Europe, too, with Greece and Spain making up the top 5 (Greece largely propelled to prominence by HacktheBox).
5. A period for Edtech specialist investors
Both globally and at the European level, specialist investors have been significantly more active than generalists. This is unsurprising in the face of uncertainty, when investors need to be more convinced of their thesis than ever! This said, it’s intriguing to see Andreessen Horowitz occupying joint-second place in the most active Edtech investors globally, having done the same number of Edtech deals as Brighteye.
*Note HacktheBox is a Brighteye portfolio company.