Are ed-tech startups a bubble that’s ready to burst?

Ed-tech startups raised more than $500 million in funding in the first quarter of 2014 alone, but some investors are worried about a bubble

edtech-startups-bubbleWhen Matthew Pittinksy and the other founders of Blackboard attempted to find funding for the then-fledgling learning management system in the late 1990s, they were met with a wall of disinterest.

“‘We don’t invest in education,'” Pittinsky remembers investors saying. “‘We don’t do healthcare, and we don’t do education.'”

At the time, if a company wasn’t a large textbook company or a for-profit college, it was barely worth a glance to investors. Education was a large market, but one that was notoriously slow-moving and where the players were well-defined and largely resistant to sweeping technological changes.

“We were thinking, ‘how do you have as a rule that you don’t invest in education technology?’ Pittinksy says now. “But that was really the case. Across the country, it was very rare for a fund to make an education investment. There was no precedent for it.”

That began to change when, finally, a handful of investors took gambles on startups like Blackboard, a company that eventually sold for $1.6 billion in 2011. Suddenly there was precedent, but even those early investors couldn’t have predicted just how large the ed-tech startup market would become.

In 2002, according to the National Venture Capital Association, $146 million was being invested in ed-tech. By 2011, that number was $429 million. A year later: $1.1 billion.

2014, according to Tech Crunch, is well on its way to being another record year for ed-tech. More than $500 million has been raised in just the first year alone. Sometimes, it can feel a little like an episode of Oprah’s Favorite Things, with investors shouting “You get seed funding! And you get seed funding!”

So why, exactly, are we suddenly in such an ed-tech boom?

(Next page: How the recession created an opening for ed-tech)

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