There's another "tech" vying for investor attention: edtech. A UK-based firm with a global reach talks to this publication about what it sees as potential and issues to watch.

The Digital Revolution has seen more than its fair share of “techs”: fintech, regtech, agtech, biotech and healthtech. And there’s “edtech”, a term capturing how modern technology is, so its advocates claim, transforming the delivery of education at a time when public budgets are under strain and adults must retrain in an increasingly volatile employment market. 

IBIS Capital, a London-based investment management firm, argues that the world’s education sector is worth $5.3 trillion but less than 3 per cent of that pie is digitised. Upside potential appears huge, in developed and emerging markets. A few days ago, IBIS Capital unveiled new data on the shape of the UK market. (IBIS Capital can make direct investments or go through IBIS Private Equity LLP using the fund it manages and advises; the firm also provides investment banking and advisory services.)

The UK ranks Number One in educational technology venture capital and angel funding in Europe, contributing 34 per cent (£178 million, or $231 million) of the total. The UK has more than more than 1,200 edtech companies, about a quarter of the total number in Europe. Some 184 institutional investors (funds, family offices) and 1,800 ultra-high net worth individuals with more than £20 million to invest, based in the UK, were actively seeking investment opportunities in the edtech sector. 

The edtech sector is growing at 17 per cent per year and could reach $252 billion globally by 2020, IBIS Capital says. More broadly, spending on education in general is expected to grow by 8 per cent per annum. K12 education is expected to develop a compound annual growth rate on the edtech side of a whopping 29 per cent, with higher education coming in at 19 per cent. And to cap it all, by 2035, there are expected to be one billion more students worldwide than today’s number. At the same time, however, falling birth-rates – as typically is seen as countries become richer – increase the need for a better-educated workforce to sustain growth. All these trends are positive, so it is said, for edtech spending. In countries such as the US where public budgets are under pressure - as seen in skyrocketing tuition costs - it creates demand for lower-cost alternatives. This is where technology comes in. 

Given the enormous sums involved, it isn’t surprising investment houses such as IBIS Capital are figuring out how to get a piece of the action and win first-mover advantages. 

Drivers come in various guises. To take one example, skills and knowledge can quickly depreciate in a world of relentless change, putting an added premium on the ability to retrain, so technologies that allow people to do that in a cost-efficient way make a great deal of sense. This example was given by Benjamin Vedrenne-Cloquet, one of the founders of IBIS Capital, in a recent interview with this publication. “In a marketplace that keeps changing you have got to keep updating your skills,” he said, speaking alongside another founder, Charles McIntyre. 

With billions of individuals using the internet for commercial reasons, such as banking, booking flights or checking up on friends, the education system around much of the world needs to break out of what remains an essentially 20th century, bricks-and-mortar world, he argues. Education hasn’t really felt the full disruptive force as experienced in sectors such as transport, retail or media, Vedrenne-Cloquet said. “That is what makes it an attractive play,” he said. 

The men run EdtechXGlobal, a whole ecosystem for edtech and also produce research and thought leadership in and around the space, as well as organise networking events where people can catch up on the latest hot ideas. EdetechXGlobal had more than 8,000 members as at the time of writing. The first thought-leadership event was held in 2013; an event on these lines was held in Singapore last November. And the men spoke to WealthBriefing shortly before London Edtech Week. (Companies involved in that event included TES Global – which supports teachers with more than eight million registered users worldwide, and BESA, a UK trade association for education suppliers.)

Developments are moving fast. EdtechXGlobal recently announced it was linking up with Google and nine other organisations to set up a new London EdTech Week for the first time. And IBIS’s collection of investments in education-linked technology firms include Primo Toys, of which Vedrenne-Cloquet is chairman. The company creates toys for toddlers to learn the rudiments of coding. Randi Zuckerberg, Mark’s sister, and former development director of Facebook is also an investor, and Learnlight, an online learning company.

Edtech is an area where capital must be patient rather than seek instant results, taking a timeframe measured in, say, five to seven years or possibly longer, McIntyre said. “We see this areas a long, rising tide,” he said. Given the lessons of the dotcom bubble, it is perhaps wise not to chase after the latest shiny “new thing” without taking time and care.

There has been more noise about initial public offerings in edtech, McIntyre said. “The whole market is starting to open up,” he said. Examples include Learning Technologies Group, which was floated on London’s Alternative Investment Market in December 2013 (at 13 pence per share, now around 44 p, with a current-year P/E ratio of 30 times.) Valuations will vary depending on the model that a business adopts, how scalable its business is and how sticky the revenues can be.

The mergers and acquisitions field in edtech hasn’t fully caught fire, however; it is active but there hasn’t yet been a headline-grabbing mega-deal. 

Sectors in favour
IBIS Capital said it likes business areas such as firms offering education “bootcamps” where a provider runs a relatively short, concentrated course of, say, 12 weeks around a particular skill such as a language or software code, Vedrenne-Cloquet said. There is a large segment of opportunity in international schools, such as the online channels of famous private school brands, such as Etonx, the online learning extension of Eton College; the extension is mainly focused on the China market.

In choosing edtechs to invest in, IBIS Capital will do the standard due diligence on management, valuations and revenues, as with any other kind of investment proposition. 

To invest in an education business, it is best that it be global and scalable, rather than local to ensure a wide range of revenue sources and to avoid the vagaries of political and other interference in education provision, Vedrenne-Cloquet said. “We are looking at digital solutions that are scalable, not culturally dependent and can be rolled out in multiple locations,” he said. 

Language training is an area full of promise given the need for firms to have linguistically-skilled members of staff, such as those able to speak English, he said. Another area where technology and training work together is the area of virtual reality and simulation to train in particular skills. IBIS Capital has an investment, for example, in a business called Immerse. This provides virtual reality training, open to simultaneous users in different places interested in areas as varied as oil and gas, mining, telecoms and aviation. (The latter sector, of course, has been a pioneer in simulator training for decades.) Another case is Touch Surgery in the UK, or the firm Ovid VR in Greece; these firms provide VR and immersive training in surgical procedures. The operating motto in such VR businesses might be “you can fail safely in a VR environment”. 

There appears to be a bewildering array of edtech firms and organisations in play. Examples include Lynda.com, which provides video course in software, creative and business skills; Pluralsight, which provides online training for software developers; Steve Jobs School, which covers a range of subjects and where 45 per cent of all learning is done on a mobile tablet; the wonderfully-named Granny Cloud, a team of “e-mediators” who get in touch with children to help with subjects, and General Assembly, which operates a network of campuses for individuals focusing on technology, business and design. Other examples include Makers Academy; Immersive Technologies; Lobster Ink; aspiringminds; digiSchool; School in the Cloud; and haiku. Many of these cases are, perhaps unsurprisingly, American. However, European examples include Circus Street (digital media training); Learnlight, based in Spain, providing online language tutoring for companies; and Life Is Tech, a Japan-based firm providing coding bootcamps for children.

Sorting through such an edtech universe is likely to be as challenging in the early stages as finding the most effective fintech or regtech firms. And as the investors will hope – mindful perhaps of the dotcom boom – rewards for firms able to stay the course and avoid hype could be immense.