What do VCs Look for in an Edtech Solution?

Posted by James Smith on January 23rd, 2023

“A Learning management software, Illumnus raised USD 100K from angel investors.”

“Amsterdam-based Tribe, with an intent to boost digital skills, raised €3 Mn.”

“India-based top edTech startups, BYJU’s and Unacademy raised 0M and 0M in a round led by Facebook.”

All such news has taken the world by storm and has made all of us ask the same questions in sync – 

“How come VCs have suddenly started taking an interest in the Edtech startup world?”

 “Is this a sign that one must invest in the Edtech startup ideas?”

Read the article below to understand the Edtech market and figure out answers to many more questions. 

Reasons Behind Growing Interest of VCs in EdTech Segment

1.  Untapped opportunities

Even today, various regions and communities do not have access to educational resources. They are not able to have even the primary learning experience. Likewise, various people are eager to learn something new or polish their skills but cannot do so within the traditional educational ecosystem.

All such instances highlight a myriad of unexplored opportunities in the marketplace, which assures edTech VCs that investment in education startup funding ideas will be profitable to them.

2.  Wider acceptance

Edtech platforms bridge the gap between those who wish to learn and those who offer the same service by virtually bringing them on the same platform. They enable them to learn anything, anytime, and anywhere at their own pace. Also, these platforms operate using the finest of technologies like artificial intelligence and IoT. 

The above reasons garnered not only the interest of consumers but also of investors. 

3.  Need for a lifelong learning experience

By the time one learns a skill for a particular job, they get to know that another skill is also essential. It makes the scenario imperative to embrace the idea of lifelong learning. And eventually encourage investors and developers to invest their time and money into developing e-learning app development mobile apps that are expected to be the future of the education industry.

4.  Lower competition

Low competition and high market scope are two contributing factors for investors to support the idea of a profitable education investment fund. 

5.  Higher ROI

Various factors such as exponential growth of the Edtech industry, minimal competition, and widely accepted solutions indicate that the profit over investment, i.e., ROI is exponentially higher in the online education domain, and it can be regretful for an investor to overlook this opportunity.

While this clears the reasons why the Edtech domain is becoming a favorite of both educational investors and entrepreneurs, let’s take a look at the second important question –

Should one invest in the idea of launching their online education and Edtech startup?

Well, it’s not as easy as it sounds. Investors look at different factors before deciding whether to go for the edtech investment or not. We can take a glance at the next section of this article.

Essential Factors EdTech VCs Consider Before Investing

1.  Core Problem & Its Impact

Currently, various edtech startups are looking ahead to step into the education segment. However, the problems they are focusing on are either too small to consider or have already been solved. Because of this, Edtech venture capital firms have become too selective about the projects they fund. They have started asking different questions to the entrepreneurs to see if the problem-focused is on ‘must-solve’ or ‘nice-to-solve.’.

In simpler terms, the venture capitalists give a ‘green’ signal to only those Edtech startup ideas that – 

• Fit the market needs and customer demands

• Attract and retain talents

• Steers both small ideation level teams to substantial large companies

• Accomplish goals in extreme situations

2.  Robust Cash Flow

Various edtech startups operate with the business model that brings millions of dollars into their bank account for a particular time and then suddenly brings it to the verge of shutting down. To overcome the loss of educational investment fund for any organization, educational investors pay attention to this factor while investing in any educational startup idea.

3.  Competitive Landscape

The competitive landscape is another factor that venture capitalists (VCs) check before investing in any educational startup idea. They examine carefully if the edtech startups are progressively working on the problem they proposed to solve and whether they are finding it easy to beat the competition or not. The method helps to forecast the future of any startup to decide whether or not to invest in further.

4.  Scalability

Edtech venture partners also focus on the scalability factor when funding any startup. That implies the possibility of the Edtech idea growing over the next 2 to 3 years while remaining in the limelight and ensuring regular finance.

5.  Business Model

Consumer demands and market needs are changing with a passage of time. It makes educational investors curious about the startups that come up with unique and innovative business models and ensure better returns. It means that the business model you pick is yet another factor that can make your Edtech startup idea get the attention of the investors.

6.  Alignment To VC Mission

When it comes to funding, investors are not solely interested in Edtech startups that add to their profits but also provide them with a plethora of opportunities in the marketplace. It is again another reason why venture capitalists become choosy about Edtech startups.

7.  Experience

Lastly, some Edtech VCs prefer startups whose founders have substantial experience in this segment, are familiar with the education space’s hidden challenges and can use their knowledge and expertise in crafting better ideas.

We have seen what made investors turn towards the educational market and the set of factors they focus upon before investing in any Edtech idea.

However, one major question that comes to mind here, even if you avoid making all the reasons that edtech businesses fail, is – What are the different Edtech startup ideas that one can forth?

To tackle this question, let’s uncover the different Edtech categories or the types of Edtech app ideas that are changing the education landscape.

Read more about edtech venture capital