Venture capital funding for ed tech at ‘unprecedented’ levels, expected to rise

Big-money investors poured more money into educational technology companies in 2011 than during the heady dot-com days of the late-1990s, according to a national market analysis that credits investor knowledge, in part, for the funding boom.

After a slump in investment capital during the mid and late 2000s, companies focusing on classroom technologies—including social media-centric solutions—are benefiting from a never-before-seen influx of funding from private investors and investment firms.

In a report released this week, “Fall of the Wall: Capital Flows to Education Innovation,” GSV Advisors, which assists education entrepreneurs and tracks investments in educational companies and products, documented a steady rise in investment that peaked last year.

Educational technology innovators received investment capital 127 times in 2011, according to GSV, well above the 106 education companies that were funded in 1999, when investors rushed to technology startups during the dot-com boom that created an economic bubble that popped in 2000.

A “prominent investor” not identified in the extensive CSV Advisors report said a surge of investment money can be expected in any sector perceived as in desperate need of repair.

“I see more and more capital moving to the area and for two primary reasons: Any time large, broken industries exist, significant opportunities for start-ups are created,” the investor said. “Additionally, the millennial generation is learning in different ways, which has been driven by technology.”

Rising from $88.5 million in 2009 to $171.8 million in 2011, investment in ed-tech companies is poised to set another record in 2012: The sector received more than $105 million in the first half of the year.

Investors interviewed for the GSV report said there remain barriers to greater investment in classroom technologies. These investors called for the elimination of labels for colleges and universities, arguing that those labels distract from their central goal: maximizing return on investment.

“Across diverse constituents, we heard an almost desperate call for the elimination of the false barrier that separates for-profits and not-for-profits,” the GSV researchers wrote.

Investors suggested a national advertising campaign designed to create more consumers of classroom technologies: “This would envision a new form of public service announcements with a message to empower the parent, student, and adult learners as consumers.”

More than two dozen investment firms have funded ed-tech companies since 2008, with a few spreading money to many start-ups.

Kapor Capital, for instance, invested in nine ed-tech companies from 2008-12, according to GSV, including Inkling, SendHub, and Piazza, a site first used for a few courses at Stanford University last year as a counter to the top-down approach of universities’ learning management systems (LMS) software, such as Blackboard.