Investments in Ed-Tech Companies Tumble. How This Could Affect Schools

Venture capital investments into U.S.-based ed-tech companies dropped by nearly 50 percent in 2022, signaling that K-12 educators might be picking from a smaller number of products for their classrooms in the years ahead, according to a recent report.

Investors poured $4.2 billion into U.S.-based ed-tech companies in 2022, a sharp decline from the $8.3 billion invested in 2021, according to a report from HolonIQ, a market intelligence firm focused on the education industry.

The slowdown shows that “the party’s over and it’s back to fundamentals and outcomes,” according to the report.

Patrick Brothers, co-CEO and co-founder of HolonIQ, told EdWeek Market Brief that the 2022 funding level is “a much healthier level and environment to support sustainable innovation in learning, teaching and up-skilling.”

Here are four key questions for educators that address how this market trend could affect them:

1. Will schools continue to be inundated with marketing pitches from ed-tech companies?

When schools were forced to turn to remote learning at the beginning of the coronavirus pandemic, educators were bombarded with sales pitches from ed-tech companies about why schools should use their products.

Even though the market is cooling down and there might be fewer products in the market in the years ahead, educators probably won’t get much of a break from sales pitches, one market expert said.

“There are still more products to consider than buyers have hours in the day, so I can’t predict a material drop in sales pitches,” said Trace Urdan, managing director for Tyton Partners, an investment banking and strategy consulting firm.

But not everyone sees it that way. Jason Palmer, a general partner for New Markets Venture Partners, an education-focused venture capital firm, believes there will be a decline in sales pitches.

Schools should use this time to “focus on quality and efficacy so that only ed-tech solutions with the strongest research and evidence base get renewed or expanded,” Palmer said.

2. Will the products that stay on the market be better, more complete solutions?

Yes, Urdan said, “the products that remain viable in the market are increasingly going to be the ones with real traction and value.”

Only the products with strong evidence-based solutions will stay on the market, Palmer agreed.

And because of an increase in mergers and acquisitions in 2022, it’s also likely that the products that remain on the market “will present as more complete solutions as well,” Urdan said. Consolidation will likely improve the quality of the technology tools available to educators, he added.

3. How will this change the use of technology in schools?

The cooling down of the education technology market is not likely to mean that the use or adoption of technology in schools will slow down, Urdan said.

And as they continue to use more technology, schools will hopefully have better products to choose. The remaining ed-tech companies, Palmer said, will focus on: what works, based on the evidence; what’s easy to implement with clear usage and implementation fidelity guidelines; and proving return on investments to districts by pointing to measurable improvements in student outcomes.

4. Will there still be more innovation?

A market boom like the one that happened in 2021 can sometimes lead to the emergence of products that seemed to have zero input from teachers or students, Urdan said. But with the market slowdown, educators and other stakeholders can expect to see innovations that come as the result of “adapting features based on feedback from actual users,” he said.

Palmer agreed there will continue to be innovations, especially as K-12 districts spend the rest of their COVID relief funds through the end of 2024. But he underscored that the ed-tech tools will narrow and “only the highest quality products will thrive and survive.”