Owl Ventures may be young among venture capital firms. But already it has a bird’s eye view of the global education technology market, with investments across China, Europe, India and the U.S.
Starting with a $100 million fund in 2015, Owl has since raised two subsequent funds—$185 million in 2017, and $315 million in 2019.
Now the San Francisco-based edtech investment group is doubling down with two additional funds totalling $585 million.
Of that amount, $170 million will go to its Opportunity Fund, earmarked for making follow-on investments for its existing portfolio. Since 2015, Owl has invested in 39 edtech companies.
The rest—$415 million—will go to its fourth fund (simply called “Owl Ventures IV”), from which it will invest in new education startups.
As with its previous funds, Owl’s investment focus spans the entirety of the life cycle—from early childhood to K-12, through postsecondary education and career development, says Tory Patterson, its managing director. And as it has done in the past, Owl will look to lead Series A deals and participate in later stages as well. “The sweet spot for our initial checks is in the $5 million to $50 million range,” he says.
What has changed, Patterson notes, is that the education market has gravitated toward direct-to-consumer businesses. For younger children, the pandemic has given parents an up-close look at their children’s educational experiences—and their shortcomings.
“Whether parents were interested or not, they are now seeing what their kids are doing,” says Patterson. “They’re going to have some opinion about the quality of the curriculum, and it’s going to be hard for parents to accept the learning and social-emotional gaps that exist. At the very least, they’re going to poke around and see what kinds of low-cost, effective and scalable solutions are out there.”
Parents—especially those in industries hit by the pandemic—may also be a target market for another reason. “The volume of people looking to shift gears and find new work is at an all-time high,” says Patterson, adding that many are asking: “How do I stay relevant, employable and in control of my career?”
Other edtech investors, including Rethink Education, are also eyeing opportunities in workforce development services and short-term training programs for in-demand jobs. About 27 million people are currently claiming unemployment benefits, according to data from the U.S. Department of Labor.
A Changing Landscape
These market shifts have already shaped the kinds of educational services attracting the lion’s share of investments. Companies offering consumer-facing and corporate-training products accounted for many of the biggest fundraising deals in the first half of this year. In total, U.S. edtech companies raised $803 million in the first half of 2020.
But the pandemic has also severely disrupted other education businesses, especially ones that rely on K-12 and higher-education sales. Faced with budget shortfalls, many of these institutions are cutting costs and services.
A recent survey from CoSN, a membership organization of K-12 technology leaders, found that 42 percent expect a decrease in district IT budgets (though about half expect to spend more on curriculum software and devices). A different report from Educause, the higher-ed equivalent of CoSN, revealed that three-quarters of colleges are bracing for technology budget cuts.
Interest in mergers and acquisitions for edtech companies have “significantly heated up,” according to Tory Patterson, Owl's managing director.
In the K-12 market, districts are likely to turn to companies with an established brand and record of effectiveness, observes Patterson. At the same time, he notes, “it may be very difficult for new entrants to be discovered and gain traction in this market.”
Owl Ventures’ portfolio includes some recognizable names in the K-12 edtech market. They include Quizlet, a provider of digital studying tools. For digital curriculum, it has DreamBox Learning for math and Newsela for literacy. But not all of the companies Owl has invested in have sailed smoothly through the pandemic. Swing Education, a substitute teacher-matching service for school districts, had to pivot its business to support pandemic pods to stay afloat.
Several of Owl’s investments have recently exited and delivered financial returns, including college scholarship tool RaiseMe (acquired by CampusLogic in July) and coding education platform WhiteHat Jr. (bought by Byju’s—also an Owl portfolio company—in August).
More deals are in the works. Interest in mergers and acquisitions for edtech companies have “significantly heated up,” according to Patterson, who says there are a “series of conversations underway for some of the bigger assets.”
Fundraising for Owl Ventures’ two newest funds began in late April. To finish the process in less than five months, Patterson says, is a testament to the interest that the education market has attracted from Owl’s existing investors, which include foundations, family offices, university endowments and sovereign wealth funds from around the world.
Historically, financiers have hesitated to bet on the education market. Despite a record $1.7 billion invested in U.S. edtech companies last year, that amount still pales when compared to the $130 billion deployed overall last year. But expect that to change. The education market is attracting new—and bigger—funders, says Patterson, and “I don’t think a lot of these edtech solutions are going to go back into the box” after the pandemic is over.
In other words, he, like many other education investors, are bullish that online learning services will remain in high demand among educators, families and financiers even after schools and businesses reopen their doors.