How Money Shapes Tools and Schools

Investors have plowed over $2 billion since 2010 into startups addressing the US K-12 edtech market. Now what?

$2.3 billion.

That’s the number of dollars invested in education technology companies in the K-12 space in the U.S. since 2010.

Is that ridiculously big? Smaller than you thought? Just right?

In this chapter of EdSurge’s year-long exploration of trends in edtech, we’ll take apart that devilishly complex number. We’ll explore where it came from and where it’s going, and we’ll examine the implications that it has for entrepreneurs, investors and ultimately, students, teachers and schools.

But there’s no question that this number matters. Venture capital allows people to quit their day jobs and devote themselves to trying to build something great. While some prefer to bootstrap, companies that raise venture dollars often grow bigger faster, which profoundly affects the content and tools available for teaching and learning. And yet—too much capital can be just as damaging as too little. It’s certainly not free or without strings. And without evidence of momentum and success, that capital dries up as quickly as it came.

Six years into this phase of education technology, both investors and entrepreneurs are more savvy and circumspect about how capital is shaping the companies and products in our schools, as are the millions of students and teachers using these tools. They know there’s far more than dollars at stake here. When an edtech company goes bust, the hopes and spirits of teachers and students fizzle, too.

This is edtech’s red pill, blue pill moment. Press releases proclaim lofty goals and flashy dollar amounts, while news stories declare the booms and busts of the sector. For technology to successfully serve students and teachers, financiers and entrepreneurs must navigate a subtler, more complex reality. Here’s a glimpse into that landscape.

This report’s numbers are from 2010 to 2015.

Wonder how is edtech doing in 2016? Checkout the latest news:


Who are the investors?

We examine what is motivating investors (and the limited partners behind them) to back education technology companies and tools

“Billions” for education? Yes—but.

Investors did, in fact, plow $2.3 billion between 2010 and 2015 into companies developing technology for U.S. schools and students in grades K through 12. However, if this number seems low it’s because headlines often lump together many “education” efforts, including corporate and adult learning, higher education and international investments—add those together, and it’s easy to surpass $2 billion in 2015 alone.



for K-12 edtech ventures, which set a new record in the industry


EdTech Accelerator

programs started since 2011


We want to see change, we want to see students and teachers have a level playing field to learn.

Brian Dixon, partner at Kapor Capital

Still, more dollars have gone into K-12 edtech companies in the last six years than ever before—a significant step up for an industry with a rocky back story. The last time K-12 education technology companies received notable funding was in 1999 and 2000, when venture capitalists put $1 billion into 65 deals, funding projects as diverse as for-profit charter school chains (Advantage Schools) and computer labs for schools (ZapMe). When the stock market tanked in 2001, education companies crashed, too. Even as the economy recovered, broad technology investors steered clear of education.

Even so, multiple trends converged around 2010 to draw entrepreneurs and then investors back to K-12 education.

How the Money Flows

Before a company reaches an exit, money changes hands many times

Infographic on how the money flows, from the limited partners phase to the IPO
Infographic on how the money flows, from the limited partners phase to the IPO
Source: EdSurge

Aspiring edtech entrepreneurs saw a twinkling of support emerge from mission-focused organizations that believed fresh technology could shake up education and loosen the hold that publishing conglomerates had on schools. Early “incubators” such as Dreamit in Philadelphia and specialty groups such as StartL offered small investments to kick off startups.


When we evaluate education opportunities here at Learn Capital, we care —deeply— about scale.

Rob Hutter, Learn Capital

In 2011, the Bay Area-based Imagine K12 program launched and nonprofit NewSchools Venture Fund began making small seed investments of up to $100,000 in edtech startups, from a fund supported by individual and foundation donors.

Angel investors with high net worth and a passion for education began investing as well. Entrepreneur-turned-philanthropist Mitch Kapor and his wife Freada Kapor Klein channeled their angel investments into a social mission-driven fund with a strong emphasis on education.

Fast-forward: as of early 2016 about 14 edtech accelerators graduate over 100 startups each year, providing them with modest financial support—and a lot of contacts. Another significant factor here: “super angels” who invest as much money as a small venture firm might, such as LinkedIn founder Reid Hoffman (who’s backed Edmodo and Knewton among others) and investors Clint Korver and Miriam Rivera of Ulu Ventures. Together, angels, super-angels, incubators, and venture firms have put over $230 million in seed capital into more than 250 companies over the last six years.

Edtech Investors: How Active Are Investors Really?

While there are a lot of different edtech investors, most are only involved in one U.S. K-12 deal a year

Infographic on how the money flows, from the limited partners phase to the IPO
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Source: EdSurge
Note: This data does not include undisclosed investors

As the number of these companies has swelled, investment firms that specialize in education have raised more than $300 million, including California-based Reach Capital, Owl Ventures, Learn Capital and New York City’s Rethink Education (see profile). For example, what started in 2011 as a “seed” fund inside nonprofit NewSchools Venture Fund has morphed into Reach Capital, which now manages $54 million and invests as much as $2 million in deals promising social impact in public schools on top of financial returns. Likewise, Owl raised $100 million in 2015 for “data-driven outcomes” in K-12 education deals and has played a pivotal role in bigger deals such as Newsela’s $15 million series B round and Quizlet’s $12 million series A. And publicly traded GSV Capital gives individual investors opportunities to own high-potential private companies, including over a dozen in education, which it later cashes out once those companies are acquired or publicly traded.


We’re looking for companies that are able to drive quantifiable improvement in student achievement. We are less likely to invest in companies that don’t have a clear revenue plan.

Tory Patterson, Owl Ventures

These investors at the critical junction between seed and Series A companies have kept a strong “mission” emphasis, helped by the priorities of those who entrust them with money. In an EdSurge survey of two dozen focused edtech firms involved in 30 deals in 2015, 40% percent report that at least 70% of their funds come from individuals. Both Reach and Owl have drawn heavily from investors with a personal commitment to education, as well as from education-focused foundations. Learn Capital, which got started with Pearson support, now also has significant international investors. By contrast, wealthy investors contribute less than 2 percent of the investment funds for more general venture capitalists.

Most Important Edtech Performance Indicators

Edtech investors favor revenue and revenue growth, and de-prioritize time to profitability

Pyramid performance indicators
Pyramid performance indicators
Source: EdSurge Investor Survey

That said, every “mission-minded” firm—even Kapor Capital which relies exclusively on its founders’ personal fortunes—emphasizes that its deals have to pay off financially. “We want to see change, we want to see students and teachers have a level playing field to learn,” says Kapor partner Brian Dixon. But a company can’t just have a great mission, he observes. “They also have to figure out a way to stay alive. That's the just the nature of startups.”

These investors expect more active usage—not just registered users—and real revenue. Both of these indicators may signify a company’s value to the schools willing to pay for it, and therefore its long-term prospects. Meanwhile, the investors we surveyed ranked “time to profitability” as the least important signal of a K-12 company’s success—perhaps a testament to the fairly early stage at which most respondents invest.

Edtech Investors Club

Edtech investors vary in terms of their focus on edtech, deal size, and level of activity

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Source: Learn Capital, Kapor Capital, 500 Startups, Owl Ventures, Social+Capital Partnership, GSV Capital, Reach Capital, Rethink Education Notes: Catamount Ventures and NSVF “Seed” Fund are no longer active investors in edtech companies. (Reach Capital now manages the NSVF “Seed” Fund’s portfolio.) Catamount partners formed Owl. Edtech investments in this graph may include international companies, higher education and professional learning companies.


GSV Capital invests in companies we believe are the ‘stars of tomorrow.’ We have multiple themes. About a third of our portfolio is centered on education technology, because in a global knowledge economy, education makes all the difference.

Matthew Hanson, GSV Capital

Capital in U.S. K-12 edtech startups is coming from more than just these investors, of course, a sign that real business value is being built here. 2015 was the single biggest year for the segment, with $741 million invested, including more than 50 seed/angel investments as well as more series B deals and dollars than in prior years.

Incubators and education-focused firms have managed to attract many other investors to the space—generalist VC firms and funds were involved in the top 10 deals of 2015. Still, that diversity is fairly shallow: many of these firms have just one or two US-focused K-12 education companies in their portfolios, sometimes accompanied by three or four focused on higher education, corporate training, or international education. These investors’ continued participation in edtech investing is critical—any sophisticated market needs a diverse array of investment vehicles and investor perspectives—but waning by all accounts.

Another actor to keep an eye on: international investors, particularly from China. In 2015 alone, Chinese investors poured more than $1.3 billion into 20 Chinese edtech companies.

Silicon Valley Venture Capitalists

Flirting with Edtech Investing

Silicon Valley venture capitalists and their history falling in and out of love with edtech investments over the past two decades

Rethink Education

Rethink’s Investors Find Big Wins in Edtech Investing

Rethink Education finds big wins and good reasons to keep investing in edtech


What do funders invest in?

We explore the types of education technology products, technologies and business models investors are putting money into

Sometimes monopolies get broken up by lawyers; sometimes the market does it. For decades, many of the “products” offered to U.S. schools were served up by a tiny handful of large publishers. The recent flood of startups, including many led by former educators, galvanized those once-impervious powerhouses to rethink their strategies, leadership, and products.

But is the rapid pace of venture funding here just creating new giants? How can funding create viable edtech companies, those with enough depth and breadth to create value for schools, without eliminating the kind of competition that can keep them agile?

Investments in K-12 Edtech Companies

The largest 10 investments soak up almost half the funding each year

Graph of Investments in K-12 Edtech Companies
Graph of Investments in K-12 Edtech Companies
Source: EdSurge

One thing is clear: investors seem to be favoring a mighty few. Each year the top 10 deals tend to account for about half the year’s edtech funding. Across the last six years, about 15 percent of companies (50 total) have attracted 75 percent of investment dollars. This phenomenon is not unique to edtech; biotech is similarly lumpy. Still, many of the companies that have raked in the most funding over the last six years operate beyond just public K-12: Knewton and Chegg also draw revenue from higher education, while AltSchool (whose $100 million series B round was the largest K-12 deal of 2015) is developing technology within private schools.

Top 10 Companies with Most Funding by Year

A few companies drive deal value each year

Chart of Top 10 Companies with Most Funding
Source: EdSurge

However, much of edtech is still in the “build” stage. Most funding activity has been concentrated at the seed and early stages (angel, seed, series A). For instance, $887 million has been invested in 377 seed and early stage companies over the last six years, compared with $1.4 billion across just 71 later stage companies (series B and later). Even in 2015, seed companies accounted for about half of K-12 U.S. education deals, compared to less than 30% across all venture capital.

K-12 Funding by Stage of Investment

Expansion stage funding is becoming an increasingly prominent portion of total K-12 edtech funding

Chart of K-12 Funding by Stage of Investment
Chart of Deal Value by Stage of Investment
Note: This data excludes deals with undisclosed deal values. Seed stage deals are defined as seed/angel, while early stage deals are defined as Series A and Late Stage deals are defined as Series B and later.Source: EdSurge


Increasingly seed stage companies have a lot more figured out and a lot more revenue traction.

Michael Staton, partner at Learn Capital

These companies are doing more with less: the median size of seed and series A rounds of funding for edtech companies tends to be smaller than in tech overall. EdSurge data suggests edtech seed rounds in 2015 were around $900,000, while data from CB Insights put the median seed deal for technology companies that year closer to $1.4 million. In the series A round, the median series A deal for edtech companies is $4 million compared to $5.4 million in tech overall.

K-12 Funding Deals by Stage of Investment

Seed and early stage deals dominate in US K-12 edtech

Graph of K-12 Funding Deals by Stage of Investment
Graph of K-12 Funding Deals by Stage of Investment
Note: Seed stage deals are defined as seed/angel, while early stage deals are defined as Series A and Late Stage deals are defined as Series B and later.Source: EdSurge

However, consolidation may be on the horizon. Early stage fundraising seems to be slowing down, thanks to increased expectations among funders, competition between startups, and the broader investment climate.

K-12 edtech companies who raised series A rounds in 2015 took a median of 540 days to get there from their seed or angel round. That’s at least 150 days (or five months) slower than in past years, leading some companies to cut costs or look more seriously at revenue. At the same time, the number of dollars and deals in series B and later stages have both trended steadily upward over the last six years.

K-12 Edtech Products

Try out this interactive tool to get a deal-by-deal look at what’s been funded. Filter by product categories to see the information that’s most relevant to you and hover over bubbles to see more details.

School operations products received the most funding in 2015

Bubble Chart 1

A few deals drove school operations investment

Bubble Chart 1

Only 9% of deals in 2015 were valued at over $30 million

Bubble Chart 1
Product categories are based on EdSurge Product Index categoriesSource: EdSurge

Where might such consolidation happen? Consider the kinds of companies that have raised funding.

EdSurge categorizes edtech products in several groups on the Edtech Product Index. From 2010-2015, the “school operations” category, which encompasses administrator and school tools, saw the most action, as $736 million was doled out to 56 companies. Much of this value was driven by AltSchool’s massive $100 million fundraising round in 2015, but learning management systems like Schoology and data systems like BrightBytes continued to attract users and capital.

The “teacher needs” category is the next largest, attracting over $480 million across 84 companies over the last six years, driven strongly by commitments to Edmodo, Remind, and more recently, LearnZillon.

Many of the companies in this space have used their funding to build presence among teachers and students, typically through free or freemium products. (See Remind profile.)


The freemium model proliferated in a much looser funding environment. We are in the part of the funding cycle where terms and funding conditions have tightened considerably

Matt Hanson, partner at GSV Capital

Meanwhile, over that same six year timeframe, EdSurge’s “curriculum products” category received about half as much capital as school operations: some 94 companies have raised $387 million.

Finally, the “other” category here is enormous, with almost $700 million invested from 2010-2015 across 111 companies that don’t fall neatly into one of the above categories. Here, some investors are still steering clear of school sales and backing products that ask students (or their parents) to foot the bill, including tutoring marketplaces like Varsity Tutors and WyzAnt and study resources like Course Hero and Quizlet.

This report’s numbers are from 2010 to 2015.

Wonder how is edtech doing in 2016? Checkout the latest news:

Most Popular Edtech Business Models

According to an EdSurge survey of two dozen active edtech investors, business models focused on serving institutional customers are the most popular

Chart of Most Popular Edtech Business Models
Chart of Most Popular Edtech Business Models
sell directly to schools and/or districts
sell directly to teachers, parents and/or students
Freemium Institutional
free to teachers and/or students, selling premium offering to schools and/or districts
Freemium Consumer
free to teachers, parents and/or students, selling premium offering to teachers, parents and/or students
Source: EdSurge Investor Survey


The real question is, is there anything new here? Is there a new business model that is going to be significantly better than what Pearson does? If there isn’t, then the modest successes will just get eaten up by the big publishers.

John Danner, Zeal CEO

Across the first three categories at least, investors tell us they’re shifting their preferences toward companies that demonstrate strong revenue growth and a path to profitability. In a pivot from the 2011 era of investments that championed “free” products and hockey stick user growth, investors are hungry for companies that generate revenue. We surveyed two dozen such firms and heard a strong preference for enterprise business models that have an impact on schools. The fact remains, the industry is still searching for sustainable business models. “The real question is, is there anything new here? Is there a new business model that is going to be significantly better than what Pearson does? If there isn’t, then the modest successes will just get eaten up by the big publishers,” warns John Danner, a serial entrepreneur now running Zeal, an online tutoring tool.

Such sales are not quick, however, and it can take a decade or more to build a big education company that goes public or gets acquired by a larger player. In the meantime, the shape of edtech investment funding—and of the companies those dollars support—matters. Will this investment capital create a lively ecosystem or a will new generation of education giants emerge?


One Company's Journey to Skyrocketing User Growth

One of the most popular and well-funded edtech companies has two unique aspects to its story: it got its start in the Midwest, not Silicon Valley, and it hasn’t made a dime of revenue yet

Panorama Education

Is Data Analytics a New Model for Edtech Startups?

In many ways, Panorama Education is a prototypical edtech startup. Founded by an idealistic college student? Worked with an accelerator? Money from Silicon Valley elites? Check, check and check


What returns are investors making?

What kind of returns—financial or others—do investors want for their money? When will they see it?

Outcomes! Outcomes! Outcomes!

This is the moment when companies founded since 2010 must begin to demonstrate whether they can buck edtech’s bumpy historical trends and deliver standout results.

There have always been plenty of ways to lose money in education technology. But this time around, the current generation of edtech investors are betting that their portfolios will succeed by intentionally confronting some of education’s most challenging issues.

Why Edtech Startups Fold

Edtech startups face product, market, financial and operational risks

The four main types of risks edtech statups face are: product, market, financial and operational
The four main types of risks edtech statups face are: product, market, financial and operational
Source: EdSurge, CB Insights analysis of why startups across industries fail

In 2007, Larry Berger, co-founder of Wireless Generation, wrote a frank assessment about why it was so hard to be an edtech entrepreneur. At the time, three major publishers controlled almost 85 percent of the K-12 textbook market, leaving little room for newcomers. Fewer than a dozen companies had revenue in the $100 million to $200 million range, he reported. In addition, “venture capital is K-12 education-phobic,” he declared. His own company was funded largely out of the pockets of angel investors and the management. That made Berger a cult hero in 2010 when News Corp. paid $360 million to buy Wireless Generation—even though the resulting unit, Amplify, suffered a troubled fate.


It can take seven to 10 years to build a great company in education—a time horizon that may not be a good fit for most traditional venture capitalists.

Jordan Meranus, Ellevation

President Obama’s Council of Economic Advisors summed up the problem succinctly in a 2011 report: “It is difficult for producers of [education] technologies to demonstrate the effectiveness of their products to potential buyers, and market fragmentation creates barriers to entry by all but the largest suppliers.”

Five years later, the edtech field has changed. At this year’s premier industry event, the seventh annual ASU-GSV Summit, a quarter of the showcased 37 companies, valued at more than $250 million apiece, were founded since 2010. About a dozen of the 37 companies—including some revitalized if familiar brands such as McGraw-Hill—focus on K-12.

Edtech companies still require more time to build than their commercial technology cousins. “It can take seven to 10 years to build a great company in education—a time horizon that may not be a good fit for most traditional venture capitalists,” says entrepreneur Jordan Meranus, cofounder of Boston-based startup, Ellevation.

By turning to foundations and high-net-worth individuals for much of their funding, however, the current generation of edtech venture capitalists may have bought their investment portfolios a bit more time. Edtech companies have also found ways to draw on incubators and “blended capital,” such as mission-aligned foundations, stretching their dollars further.

photo of Jennifer Carolan

Jennifer Carolan
Co-founder and General Partner, Reach Capital

Misconceptions Around Double Bottom Line

25 sec
photo of Brigette Lau

Brigette Lau
Co-founder and General Partner, Social+Capital

The Right Balance Between Social and Financial Impact

26 sec
photo of Brian Dixon

Brian Dixon
Partner, Kapor Capital

Who Pays the Bill

28 sec


Given the complexity of factors that affect student performance and outcomes, the link between effectiveness, company performance and exits isn't as clear as you might expect.

Peter Yoon, Managing Director at Berkery Noyes

And although delivering on a social mission in addition to a financial one may at first seem like an added burden, investors increasingly believe that it will make their portfolio companies stronger—more relevant and more appealing to a primary customer, schools. “We certainly think that delivering strong outcomes to schools could become a defining competitive advantage in the space,” says Amit Patel, a principal with Owl Ventures.

But the current data-rich era is changing this, too. Several nonprofit groups are working on ways to benchmark the effectiveness of technology, including LEAP Innovations and the newly formed Technology for Education Consortium. “Most of our companies measure their efficacy,” says Jennifer Carolan of Reach Capital. Among the measures: How students fare on standardized tests and “pre” and “post” (using a technology tool) test results. Investors like GSV Advisors are awarding “return on education” awards that factor in improved student outcomes at lower costs. And some of the most well-funded companies in the space, like BrightBytes, help schools gather data on the effectiveness of other technologies and curriculum so they can make informed decisions.



We certainly think that delivering strong outcomes to schools could become a defining competitive advantage in the space.

Amit Patel, principal at Owl Ventures

There have not yet been big dollar outcomes for the 2010 generation of K-12 edtech companies. Several edtech companies have reached the public market in recent years, namely 2U (higher ed), Chegg and Instructure (which serves both K12 and higher ed). Chegg, founded in 2005, debuted in the public market in 2013. The other two, both founded in 2008, had initial public offerings in 2014 and last year respectively. And although many hope deep-pocketed tech companies will swoop in to make big purchases, most have so far chosen to build, rather than buy, their way into education. Companies such as Google. Amazon, Apple and Microsoft are increasingly involved in K-12, but only a paltry one percent of the 647 acquisitions made in the last five years by 15 large companies have been in education.

The Different Types of Edtech Buyers

From 2010 to 2015, there were three main kinds of acquirers in the edtech space

Infographic on the Different Types of Edtech Buyers: media and technology companies, Private equity firms and education companies
Infographic on the Different Types of Edtech Buyers: media and technology companies, Private equity firms and education companies
Sources: Berkery Noyes and SJF Notes: Media and technology company acquisitions based on data from global data from 2010—H1 2015; Private equity M&A deal data, and Pearson, Houghton Mifflin Harcourt, and McGraw-Hill is based on total global K-12 transactions.

But the industry structure is evolving, too. Building up that “middle tier” of companies—ones with revenue north of $100 million—will likely spur acquisitions. Several education companies—including the “Big Three” publishers—have restructured their portfolios in recent years and have been active in the M&A space. And private equity firms continue to eye education companies, with an eye toward assembling more comprehensive “platform” plays. As the tech giants compete more directly with each other in education, the balance of building versus buying edtech products is also likely to change, boosting acquisitions in the sector.


Companies can scale without needing salespeople who go door-to-door.

Amit Patel, principal at Owl Ventures

Finally changes in the world where schools operate—including many of the trends discussed in the first chapter of this series—are lowering the costs and increasing the relevance of edtech. Owl Ventures’ Patel calls them catalytic factors: more powerful broadband infrastructure in schools, widespread use of low-cost devices, along with schools actively seeking ways to personalize learning and those closest to students such as teachers and principals, having great voice in choosing the tools they want to use. “Companies can scale without needing salespeople who go door-to-door,” Patel adds. And together those factors are changing the game. He adds: “We’re seeing companies go from zero to 60 in a shorter period of time.”


One Company's Journey to Skyrocketing User Growth

“The stakes are too high to not get edtech right”

Social + Capital Partnership

Q&A with Social + Capital’s Brigette Lau

“We are moving towards a world where it’s not just about the bottom line”

Kapor Capital

Q&A with Kapor Capital’s Brian Dixon

Catalyzing startups to be diverse and inclusive from day one

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Is Venture Capital right for me?

That’s a serious question for many K-12 edtech entrepreneurs.

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