Fundraising Tips for EdTech Companies: Advice from our Portfolio
Since the start of the pandemic, the EdTech market has seen a dramatic increase in investment. So we asked three of our portfolio company founders for their reflections and advice when fundraising as an EdTech company.
The EdTech market has seen a dramatic increase in investment since the start of the pandemic; with funding up 2x on 2018 at $16B in 2020. We asked three of our portfolio company founders: Neal Shenoy, Co-Founder & CEO of HOMER; Ben Caulfield, Co-Founder & CEO of Eedi; and Ulrik Christensen, Executive Chairman & CEO of Area9 Lyceum for their reflections and advice when fundraising as an EdTech company.
What are some key qualities you believe investors are currently looking for in EdTech companies?
Neal: In addition to the fundamentals, such as large market opportunity, product market fit, traction, and a strong team, EdTech investors are looking to assess how the pandemic has affected companies and what the landscape for that company will look like going forward.
Ben: Scalability, a strong team, and revenue. Much of the money invested in K12 has been in tuition-focused businesses, which have seen significant growth during the pandemic as schools closed doors and parents looked for alternatives. Many of the investors involved in these rounds will be hoping that the additional funding will continue that growth and cement a dominant market position that is somewhat protectable.
Has the use of confirmatory research/efficacy studies been a helpful tool in capturing investor mindshare? Any other useful tools?
Neal: Absolutely; social impact and education investors that are interested in efficacy have benefited from both the availability of third-party summative research, internal efficacy studies, and references from other notable ed tech investors who have done product diligence.
What are some of the qualities you look for in investors beyond financial capabilities?
Ulrik: It’s important that they value the impact of what’s being delivered and have the curiosity and patience to understand the business.
Neal: I look for investors that appreciate the opportunities and challenges unique to the EdTech market, those who are willing to invest the time to understand the business and its evolution, and ideally if they can help to accelerate the company through capital introductions, distribution, or recruiting. But, most importantly, it is important to us that investors share our ethos.
Ben: At the stage of journey we are at, Seed >> Series A, we have sought patient capital and an understanding of the industry. As we scale, recruitment, business development, and market access increases in importance.
While the market has seen a dramatic increase in EdTech investment since COVID, what opportunities and/or hurdles do you see for companies actively fundraising in the space?
Ben: The pandemic created a surge in the market through increased usage by parents/schools, increased funding from Governments to counter lost-learning and increased investment. In terms of opportunities, this is a once-in-a-lifetime moment to scale and secure investment, but it’s likely to be for the short term.
What advice would you give an EdTech startup that is currently fundraising?
Neal: I would encourage them to spend the time to connect with investors that truly appreciate EdTech investments and to broaden their search to multiple types of investors including venture capital, strategics, family offices, private investors, and syndication platforms to increase their chances of success.
Ulrik: Make sure that you make products that delivers real value to real customers who are willing to pay real money for them.
Do you have any additional comments about EdTech fundraising, or any reflections on choosing the right investment partner?
Neal: We sincerely believe that LEGO Ventures has been an exceptional partner in large part due to a shared ethos around the importance of play, a humility regarding the rapidly evolving ed tech landscape, a willingness to support management and the business, and willingness to champion us to new investors.
Ulrik: LEGO Ventures totally met the criteria listed earlier – a rare bird these days.
You can find out more about our investment thesis in ‘Supercharging Education’ here.
Data source: HolonIQ