A Shift in Educational Technology Private Equity Investments

Educational Technology, otherwise known as the EdTech industry is among the few sectors where profit meets purpose. In recent times, there has been a rapid shift from gauging success in education from attendance to learning. Surprisingly, if today, you conducted a quick survey among Silicon Valley investors and entrepreneurs, you’re likely to conclude that there is still less emphasis on whether children are learning or not, and more focus on actual attendance. 

With the rise in impact investing, Private Equity (PE) firms have been at the centre of recent massive investments in EdTech. So far, more than $30 billion has been pumped across K-12 and workplace learning techs under five years.

PE firms are now attracted to investments in training systems, corporate education, and vocational training programs. While it may not be easy to fully comprehend the impact of education on uplifting communities, closing achievement gaps, or poverty eradication, the effect of private equity on the education sector is tangible and measurable. 

However, since the pandemic, schools and colleges are among the hardest hit. As of March 2020, 87% of the world’s student population has been affected by school closings. Graduation ceremonies, proms and other annual rites of passage have been postponed indefinitely or cancelled; but most importantly, students have been obligated to stay home, whether that meant they continued learning online or not.

Opportunities

Given the challenges faced in the past and today, many PE firms are now focusing on technology and vocational education. Developers will typically sell educational tech to schools and enterprises, where it helps decrease the cost of learning while boosting access to education.

As opposed to the conventional learning structure, vocational training offers skills-focused learning. The system nurtures innovation among learners, something that has caught the attention of PE investors.

According to CFA Jennifer Wong, Portfolio Manager at Glenmede, companies targeting lowering rates on student loans have received private equity backing in the past few years, which means some investors believe in their ability to generate returns. 

“You could also make the argument that on an impact basis, they have extended lower costs of education to more people. However, critics would also be quick to point out that while lower costs of education are now available, these products are not targeting those in most need,” Wong noted.

Moving forward, the Portfolio Manager at Glenmede projects a greater interest by Private Equity in impact investing in the education sector, coupled with an intersection between conventional financial players and pure impact investors.

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