As a merger and acquisition advisor, I attended ASU+GSV this year- the annual EdTech conference in San Diego with 7,000 other people. Here is what I heard:
Investment over the last few years in EdTech was unprecedented because of funding by the government as a result of the COVID pandemic. Revenue and valuations for most edtech companies skyrocketed.
Since 2022, revenue and profitability have fallen. Many companies have been unable to raise additional capital. As a result, valuations have fallen to three to seven times ARR (Annual Recurring Revenue) depending on growth and profitability. According to most investors “this is the new normal”.
Many investors feel there will be a lot of consolidation in the marketplace and that “bigger brands will win”. Smaller companies will have a tougher time growing in this market. This is because there are so many choices that schools face and there will be more scrutiny on what they purchase.
Every buyer of another company must make the same “build vs buy” decision; should they buy that company, or can they build it themselves internally? How quickly do they need to get to the market? Does that company have special intellectual property or channel access that will save time? Since creating synergies with the buyer is not easy, is the company profitable now or how much additional money will they have to put in?
Buyers also want to know how committed the founder still is going forward if their company is bought?
Overall, investors still think it’s a great time to be in EdTech, but “it’s just not 2021”.