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

Ed-tech innovators received investment capital 127 times in 2011.

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.

Novak Biddle Venture Partners invested in eight education innovators in the same four-year span. 2Tor, maker of a unique online classroom setup used by the University of North Carolina’s business program, Fidelis College, and Starfish Retention Solutions were among the companies that received funding from Novak Biddle.

Colleges and universities haven’t had the same success in spending on classroom technologies during the ed-tech investment boom.

Thirteen states are set to drop higher-education funding by double digits in 2012, the federal stimulus has run out, and student enrollment continues its uptick, forcing colleges and universities to find financially creative ways to fund pricey educational technology such as campus lecture-capture systems.

In Tegrity’s “Funding Lecture Capture in Higher Education,” researchers say ed-tech funding isn’t as easy to find as states slash college funding, but there are still reliable methods for keeping lecture capture systems on campus.

“Higher-education leaders just need to be prepared and do their homework to determine which solutions fit best,” said LeiLani Cauthen, vice president of the Center for Digital Education. “Given the recent budget constraints that higher-education institutions are experiencing as a result of the loss of federal funding, it is clear that administrators must search for alternative ways to secure the funds needed to maintain their institution’s [educational] technology leadership.”

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