Its been eight years since EdTech venture investment crossed the $1 billion threshold in 2011, the first such Billion Dollar Year since 2001 1)Venture flows into the industry averaged in the tens of millions until 2007 when a bump into the half billion dollar range was recorded for four successive years. I have long noted this spike coincided with the eight richly valued nine-figure exits in K-12 edtech occurring between the end of 2010 and start of 2012. 2)I have also observed that a) none of these exits really fit the typical Silicon Valley venture model and b) we have not seen a nine figure K-12 start-up exit since, excluding 20 year old companies like Discovery Education, Frontline, Power School, Renaissance, etc..
Receiving less attention, 2011 also recorded a number of richly valued, nine figure exits in corporate learning technology, a sector that seven years later, continues to boast healthy monetization and exits. And yet, corporate learning continues to receive less than 20% of the venture investment funneled into K-12 and Higher Education edtech.
Corporate Learning and HCM Poised to Scale
Few pockets of the broader education and training markets feature such well funded customers as corporate learning technology, with eLearning content representing a $12 billion market and corporate LMS platforms another $3 billion. The overall market is projected to grow to $30 billion by 2020 according to research firm Technavio. One could expand this addressable market even further by pointing to adjacent categories of Workforce Management and Human Capital Management (see below).
This is not just a large market, but a liquid one with fungible budgets and transparent sales processes, driving efficient scaling and productive uses of investor capital.
Indeed, in my history of EdTech Unicorns, I found that fully 8 of the 50 edtech companies to achieve at least $500mm of exit value were corporate learning business models. Since I published this research in 2014, this market has seen two more true unicorns with $1bn valuations in Lynda and PluralSight (though the later represents a paper valuation as a private company) as part of a dozen nine figure exits, all at 2.5-5x revenue (with Relias and Lynda even yielding 7-10x revenue).
From this record of success, one would expect more venture investment, but in fact, only a few corporate learning start-ups stand out for having raised significant venture capital, with Degreed, Axonify and EdCast all having raised $15-30+ million rounds last year. Instead, it seems Silicon Valley only looks to corporate as a pivot point of last resort for its flailing edtech start-ups (see NovoEd, Inkling).
And yet, this is one sector within the broader education and training market to actually draw the acquisition interest of Silicon Valley’s giants, as ERP vendors have consolidated HCM and talent platforms, after those targets had previously acquired into corporate learning; notably:
- SAP acquired SuccessFactors in 2011 for $3.4 billion (17x current year revenue, 10x forward revenue) after Success Factors’ $290 million acquisition of elearning play Plateau (4x revenue).
- Oracle acquired Taleo in 2012 for $1.9 billion (6.5x revenue) after Taleo’s $125 million acquisition of Learn.com in 2010 (5x revenue)
- Microsoft acquired LinkedIn for $26 billion in 2016 (10x revenue) after their $1.5 billion acquisition of Lynda.com in 2015 (10x revenue)
Another strategic, the publicly traded Instructure, has started to expand along this path from its original Canvas LMS sold into Higher Education and then K-12 to its Bridge corporate LMS and its recent acquisition of Practice. Corporate learning platforms are also integrating backwards into education to incorporate skills credentialing into their content libraries and delivery platforms, as seen in PluralSight / Smarterer, Cornerstone On-Demand / Evolv and Healthstream / Morissey.
The Eduployment Tech Gap
While strategics see the fit across HCM > corporate learning > education, venture capital has not. Indeed, I think one of the past limitations on funding is that edtech venture funds like Owl, Rethink, New Markets, and Reach had previously concluded corporate learning fell outside their funds’ educational outcomes focused mandates. This does not answer why the broader Silicon Valley venture community has also avoided this sector — though last week saw a landmark deal for Skilljar and another big round for Degreed.
It may be that these markets are just so inherently monetizeable, corporate learning entrepreneurs can avoid venture dilution by bootstrapping (see sales training focused start-ups LearnCore and Rehearsal) or avoid having to go back to raise new rounds (as seen with early corporate start-ups like CorpU and StormWind).
Perhaps more capital can be attracted to this rich sector by better understanding this all as one continuous market, extending the line of workforce preparedness across the employable skills gap from college career centers to recruitment to corporate learning and Human Capital Management.
Within this broader “Eduployment Technology” market, we can cite other relative start-up successes like Burning Glass, General Assembly, Glassdoor, Handshake, The Muse and WayUp which might in turn attract more venture capital into such a large and attractive market. One such fund is already doing this in GSV Acceleration / GSV Capital. Over the last two years, they have expanded their annual ASU GSV Summit (fast approaching this coming April 16th) to include companies from the workforce, training, recruiting and HCM markets, further rebranding their daily news blast as “TalentEd” (a lot easier on the ear than my portmanteau “eduploment”). Its telling that GSV is an investor in Degreed (and has been joined in the last two rounds of funding by Owl and Rethink).
With this perspective, one might also draw out investment themes that cut across both academic and corporate learning, spanning employee recruitment, training and retention. Some of the themes and start-ups that I have been watching include:
–Social, Peer-based: Degreed, EdCast, PathGather, Wisr
–Adaptive and Microlearning: Axonify, TrueOffice, Grovo, QStream
–Mobile: Handshake, AllenComm, Gnowbe, WayUp
–Skills Credentialing: Degreed, Credly, Smarterer (PluralSight)
–Function-focused Video-based: Learncore, Lessonly, Rehearsal, HireVue
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|1.||↑||Venture flows into the industry averaged in the tens of millions until 2007 when a bump into the half billion dollar range was recorded for four successive years|
|2.||↑||I have also observed that a) none of these exits really fit the typical Silicon Valley venture model and b) we have not seen a nine figure K-12 start-up exit since, excluding 20 year old companies like Discovery Education, Frontline, Power School, Renaissance, etc.|