Edtech: Investing in education technology

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on May 27, 2019 - June 02, 2019.

The promise of edtech has been there for a long time. But I think in the last two years, the sector has been getting attention and it is turning into real opportunities. > Ravishankar

Screenshot of Enuma’s ToDo Math app

Screenshot of EduAdvisor’s course comparison portal

Screenshot of Eruditus’ website

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Technology has changed the way people learn. From massive open online courses (MOOCs) to virtual classrooms such as Blackboard and on-demand video tutors, education technology (edtech) has emerged as a rapidly growing sector, especially in Asia. It has also attracted a lot of investor interest.

“The promise of edtech has been there for a long time. But I think in the last two years, the sector has been getting attention and it is turning into real opportunities,” says GV Ravishankar, managing director of Sequoia Capital in India, who has several investments in edtech firms in Asia.

Edtech refers to technology that is used to develop tools for the education sector. For example, it could be in the form of classroom management software that enables virtual classrooms, interactive apps that educate users on various topics or platforms that connect tutors and students virtually.

The recent boom in Asia is driven by factors such as the growing mobile penetration rate, affordable internet access, willingness by parents to pay for education and a strong demand for supplementary education materials.

One of Sequoia’s investee companies is BYJU’S, an Indian edtech that is attempting to fill the gap left by a lack of good teachers. It offers students a personalised learning journey into subjects such as maths and science via online videos, animations and illustrations in a mobile app.

Sequoia also has an investment in Edusys, which provides professional certification and test preparation courses in online, classroom and hybrid formats. “We are quite bullish on the trend because we are seeing consumers adapt to online learning models quickly. The younger generation is very comfortable learning online. So, from our perspective, we think the market is ripe [for investments],” says Ravishankar.

Jeffrey Paine, managing partner of Golden Gate Ventures (GGV), sees the edtech sector as a relatively new segment. Investors must choose carefully, depending on the country and target market, whose needs may differ widely. GGV is invested in KooBits, a Singapore-based edtech firm that teaches math online.

“China is leading the way with edtech. The US tends to have alternative high schools or universities, whereas India tends to have a bit more video-based learning and a lot of focus on K-12 [kindergarten to 12th grade] maths and science,” says Paine.

“In Southeast Asia, Vietnam is growing fast, from K-12 content and corporate training on how to use Microsoft Excel to online video-based English tutoring. In Malaysia, one example is a company called EduAdvisor, which helps inform people who are going overseas to apply for schools.”

EduAdvisor has received venture capital funding from 500 Startups and the KK Fund, according to Pitchbook, a US-based data provider in the areas of venture capital, private equity and mergers and acquisitions.

According to a 2016 report by UK-based consultancy IBIS Capital, the edtech market is projected to grow at a compound annual growth rate of 17% to US$252 billion in 2020 globally. While the US previously led the pack, Asia is currently experiencing the fastest growth in investments in the sector, going from 46% of the global market to 54%.

This is particularly true for China. According to a 2017 report by Pitchbook, the biggest edtech venture capital deals had been found in Greater China in the past five years. Three of the top five edtech investments since 2012 have also been in the country.

This has led to the birth of several edtech unicorns, including VIPKid and Yuanfudao. The former is an online English learning platform while the latter is a homework assistance app. Users can take a picture of their arithmetic homework, for instance, and the app will use artificial intelligence to check the answers.

India has an edtech unicorn in BYJU’S, which received Chan Zuckerberg Initiative’s first investment outside of the US. Some of the big players in Indonesia and Vietnam are Ruangguru, a marketplace for private tutoring, and Topica Edtech Group, whose offerings include live English tutoring and bachelor’s degree programmes online.

Ravishankar believes that the edtech trend is being driven by the prevalence of computing and smartphones in the hands of end-consumers. “For example, a huge population in India began to have access to really affordable broadband in recent years and this is the first time they are experiencing the internet. That has allowed many companies to reach out to hundreds of millions of people and it enables consumers to experience the power of education through technology,” he says.

The other major factor driving edtech investments in Asia is the high value that parents attach to education. This results in a greater willingness to pay for education in markets such as China, India and Southeast Asia.

“Perhaps this goes back to the market structure some of these countries have. In the US, most people go to public schools, which have delivered reasonably good quality education. That is why people there are not as used to paying for education. But in China and India, people are willing to pay so their children can find jobs. In India, education is seen as a way of getting out of poverty and getting a well-paying job,” says Ravishankar.

This means the kinds of edtech companies serving Asian and Western countries are different. In the US, many edtech firms focus on selling to school districts whereas in Asia, they may target parents.

“We have seen an example in China in the form of VIPKid. It has a very interesting model of teaching English to Chinese students through teachers who are in the US. It leverages the language advantage that English-speaking countries have to teach students in China, where there is a huge demand to learn English. That is possible because high-quality internet access is widely available,” says Ravishankar.

 

Opportunities in edtech

Edtech companies with the most potential for growth tend to be those that serve consumers directly or provide content that supplements the school curriculum. “That is because there are so many students in that age group and younger people are more comfortable with technology,” says Ravishankar.

This is especially true for subjects such as English and maths, the mastery of which can boost the chances of a child getting a good job in the future. There are many popular edtech companies in the region targeting those who want to learn English such as the Topica Edtech Group in Vietnam and Globish Academia in Thailand.

“In Singapore and Malaysia, students learn from courses provided by edtech companies just like they would by going for offline tuition classes. You have to take your SPM, so you need to go for tuition classes where they teach you how to pass your exam,” says Paine.

“The services provided by these companies may be homework-driven. It could be that I am stuck doing my homework and I need a social network to teach me how to solve problems. It could be a live video tutoring session or online curriculum.”

GGV invested in KooBits because of its track record over the years. The latter is now used by students in countries such as the Philippines and Indonesia. The reputation of the Singaporean maths curriculum — which has been ranked the best in the world by some international agencies — has increased the attractiveness of the company in the eyes of its potential customers.

There are also opportunities in the working adults segment, a group that could comprise more serious learners with a greater willingness to pay for these services. Sequoia invested in India-based Eruditus, which partners Ivy League Schools in the US and top universities in the UK to offer online courses for professionals.

“It [Eruditus] puts some of its undergraduate education programmes online. This is for professionals who want to learn things such as data science or the new generation of technology tools that are impacting management today,” says Ravishankar.

While this idea is not new — it was popularised through MOOCs run by those like Coursera and Khan Academy — a new set of players, such as Eruditus, have changed the game for this sub-segment of providers, says Ravishankar. Users learn online together in a virtual class, listening to the same teacher in the same time period. They have projects, group work and online discussion sessions.

“It is an online application of the offline student environment. I think they have created models that allow for substantially higher completion rates compared with MOOCs because this creates familiarity among the cohort. These companies came up in the last few years and we are pretty optimistic about what that means for edtech and higher education,” says Ravishankar.

Edtech companies in Asia face a few common challenges. One of them is gaining the trust of users. Second, the cost of acquiring customers can be quite high because of the online competition for users.

The business-to-consumer market is where the future of edtech is, in Ravishankar’s view. That is because business-to-business edtech companies face challenges in selling their solutions. “That model has been traditionally hard to scale because you have school networks that are highly disorganised. Selling to them and collecting money from them have been tough,” he says.

 

 

Impact investing in edtech companies

There is an impact investing story in education technology (edtech). There are edtech companies that address specific social issues or problems, such as student loans or lack of access to quality education among certain populations.

For instance, P Ming Wong, co-founder of Giinseng, an impact investing membership-based community in Hong Kong, was personally invested in one called Playto (HK) Ltd. The company has created gaming technology solutions aimed at helping children with attention-deficit/hyperactivity disorder (ADHD).

“It was an opportunity to invest in a company that is helping children who have difficulty concentrating overcome that issue, so they can become better learners. It was doing this in an innovative manner,” says Wong.

“At the time, the usual treatment for children with these issues was either a visit to a doctor who puts you through a tedious process of learning, where you have to stare at different charts, or take medication that has side effects.”  

As an impact investor, Wong likes the technology angle in the education sector because it can bring scale to solutions. “Khan Academy was successful because for the first time, it made learning available through the use of videos. The teaching itself is not innovative, but the ability to watch a video over and over again on a free platform made it easily accessible. The technology platform allows it to be used by millions globally,” he says.

Wong’s interest lies in edtech companies that are addressing a particular underserved segment. “In most cases, it is to overcome the shortage of well-qualified teachers, particularly in developing countries and rural areas,” he says.

Wong cites US-based Enuma Inc as an example of an edtech company he finds interesting. It was founded by a couple whose son was born with special needs. They began designing games and applications that could help all children — including those with special needs or who lack access to education — to learn independently.

“A lot of companies come up with different ways to teach English and maths on the internet and via mobile devices. But Enuma was the first to develop it under an open source situation, where it makes the code freely available to anyone who wants it. All people need to do is modify it for local consumption,” says Wong.

Enuma also participated in the Global Learning XPrize competition, where it had to conduct a pilot and demonstrate its effectiveness. This increased investors’ trust in the company.

Wong believes that for edtech to really improve the lives of many, the founders must work with the public sector, whether through schools or civil society, to understand the crux of the problem faced by the underserved community. “They must be willing to invest the time and energy to design solutions for the underserved communities — that is the Holy Grail. There are many school teachers and non-profit organisations out there trying to solve the education problem. So, seek to collaborate,” he says.