EdTech has increased in popularity since the beginning of the Covid-19 pandemic, with students worldwide being forced to continue their education online. Due to the growth in the use of online education platforms, there is an expected increase in funding availability for companies in the sector. EdTech companies can acquire funding for their startups and companies through a variety of channels including private equity, angel investors, venture capitalists (VCs) and in some cases, grants.
What is EdTech?
EdTech is an abbreviation of Educational Technology. EdTech platforms help students with online learning, whether this is through an application such as a language learning platform, MOOC portal or test preparation platform.
EdTech platforms are increasing in popularity, with founders aiming to improve the way students learn online. EdTech platforms can also benefit parents aiming to help with their children’s learning, making materials more accessible. Teachers also use EdTech platforms to help their students learn from home, assigning homework and allowing them to submit assignments through online portals.
Where Do EdTech Companies Find Funding?
EdTech companies can source funding in the same way as other companies or startups. This can be done through running funding rounds or crowdfunding campaigns to attract investors. Both angel investors and venture capitalists can invest in EdTech companies, however there should also be funding available from institutional investors.
How Do Startups Traditionally Source Funding?
Usually, startups or companies looking for additional funding or investments will run funding rounds. The first round is the pre-seed round, which is typically where founders of a company invest their savings or personal income to get off the ground.
Next comes the seed funding round, where friends, family and other investors can inject capital. This is followed by series A-D rounds, depending on how much investment a business is looking to generate.
Companies can also generate investments through running crowdfunding campaigns. These campaigns take place online, and therefore can reach a large number of people. Alongside generating investment, these campaigns can attract potential customers as it is a form of advertisement for a business.
Angel investors can invest in all startups, including EdTech. These are individuals with a high net worth who usually have some experience within the industry they are investing into. Angel investors will provide funding for a company in exchange for an equity stake. This means that they will become shareholders in the company and expect returns in profit from their original investment.
Venture capitalists also frequently invest into startup companies. These are private equity firms with individuals in charge of investing the pooled funds of the partners. Venture capitalists function in the same way as angel investors, whereby they inject capital in return for equity shares. The key difference is that VCs will have access to any liquidated assets if the company goes bankrupt, whereas angel investors will not.
As a consequence, both types of investor are looking for businesses which they believe have the potential to create a large revenue.
What is an Institutional Investor?
An institutional investor is usually a global corporation or educational system that provides finance for an innovative concept within their sector. Many educational institutions, such as universities, fund startups which are created within their institution in the hope that they can progress.
When an institution has a facility to allow students or professionals to create a new company, this is referred to as a startup incubator. This incubator will be seen as a base for the startup, meaning they do not have to find alternative office or lab space out of which to operate.
The potential downside of creating a business in a startup incubator is that the institution may have a lot of control over the company. They will be investing in it in the hope that they can guide the company in a specific direction, and as a consequence are usually quite integrated in the decision making processes.
They may also have pre-requisites about how they want any money invested to be spent in order to help progress the company and also make additional revenue.
What Do EdTech Companies Use Funding For?
EdTech companies will use funding in a similar manner to other startup companies. This can be for asset purchase, moving out of a startup incubator into new office space or taking on additional employees.
During the beginning of the process, EdTech companies will have to conduct a lot of research into e-learning to ensure that their platform will be user friendly and also beneficial. They will also have to incorporate their research into their business model and trial their product with the desired audience, be it students, parents or teachers.