Longtime Edtech Investor Reach Capital Raises $165M for Third Fund
Few investors have watched, and fueled, the growth of the edtech industry as closely and consistently as Reach Capital, one of a handful of venture firms that has focused its investments in education technology startups for the past 10 years. And with the rise in adoption of edtech tools—largely due to the pandemic—Reach sees plenty of other opportunities emerging for another decade.
Today, the San Francisco-based firm announced it has raised $165 million for its third fund. Financial backers include Sesame Workshop, Kaiser Permanente, National Geographic and AIMS Imprint of Goldman Sachs Asset Management. This money will support approximately 20 investment deals at the seed, Series A and Series B stages, according to Shauntel Garvey, a co-founder and partner at Reach Capital.
Reach has now raised $311 million across its three funds and invested in 90 edtech startups.
As usage of edtech products has spiked during the switch to remote learning, so too have the volume and size of investment deals for digital education providers. And trailing closely are education funds from new firms and old ones, including ETS and Salesforce.From EdSurge: “A Record Year Amid a Pandemic: US Edtech Raises $2.2 Billion in 2020.”
“That we were able to raise a third fund points to a maturation of the industry,” says Garvey. “With the pandemic, people are coming around to realize the importance of having the right edtech tools that ensure that students have great educational experiences.”
Remote learning has also exposed and exacerbated socioeconomic divides, resulting in uneven access to educational resources (especially for families that still can’t get online). Garvey says that’s been top of mind for her team as they evaluate opportunities, and she points to Reach portfolio companies like Paper, which works with school districts to provide free tutoring to students, as examples of solutions that help alleviate inequities.
At $165 million, Reach’s newest fund may seem small, at least compared to recent fundraising benchmarks set by its peers. Owl Ventures, another edtech-focused venture capital firm, raised $585 million for two new funds last year. Learn Capital is currently raising $250 million for its next fund.
Successful investors sometimes raise bigger subsequent funds to write bigger checks for more established startups. Reach, though, is sticking to its specialty, says Garvey: “We are still very much committed to supporting companies at the early stage, and we feel we can identify these winners early.”
Investing in early-stage startups, which are often still fine-tuning their business models and product-market fit, is risky. But if the company succeeds, there can be a big payday. Last November, Discovery Education paid $140 million to acquire one of Reach’s portfolio companies, Mystery Science, which had raised just $4.5 million in venture capital.
That was the most recent of Reach’s seven exits to date, and Garvey believes others will follow. “Earlier, it was mostly private equity firms that were doing most of the acquisitions. Now we are seeing more strategic acquisitions, like the Discovery deal. I do think the big tech players—Apple, Google, Microsoft—will be more active in the future.” Besides these avenues, she adds, the emergence of SPACs also offers another exit opportunity.
The firm has been honing its betting senses for almost a decade. Reach’s roots go back to 2012, when it was a seed fund at NewSchools Venture Fund, an Oakland-based nonprofit education philanthropy. After investing nearly $12 million in 39 education startups, the team that led the work spun off into its own firm, Reach Capital.
Some of its earliest investments in K-12 companies now boast a wide footprint. Among them: ClassDojo, a communication app that claims 51 million users across 180 countries, and Nearpod, a digital lesson platform used in 99 of the 100 largest U.S. school districts.
Reach has been branching out into other sectors of the education market as well. Services offered by its portfolio companies now range from a coding bootcamp and college mentoring service, to medical flashcards, a daycare directory and a podcast app. It’s also looking beyond the U.S. Earlier this week, Reach participated in a seed round for FourthRev, a London-based company that works with tech companies and colleges to offer digital skills programs.
Garvey credits a large part of the Reach’s success to its diversity. In the venture world, where women represent just 12 percent of decision-makers, Reach is one of the few firms led by a majority-women team. Beyond gender, she notes her colleagues—former teachers, entrepreneurs and technologists—also bring a broad spectrum of backgrounds and experiences to their work.