Raising Funds for Your Edtech Startup Step by Step

If you’re a founder or executive at an edtech startup, the good news is that the edtech funding market is hotter than ever.

According to a report on global edtech funding 2021, in the first half of the year there was $10 billion of investment in edtech startups around the world. In the United States alone, edtech investment reached more than $3.2 billion between January and July 2021. This period also saw major developments from edtech companies. This included IPO filings from Duolingo and Instructure, and the acquisition of the edX online learning platform.

All of this leads to one question: how can your edtech startup get a piece of the action with the right funding hacks? In other words, what is the best way to seek edtech seed funding and pre-seed funding from angel investors and venture capital (VC) firms? Below, we’ll explore the process of raising funds for your edtech startup.

What is edtech?

Edtech (education technology; also spelled EdTech) refers to the development of software applications and technologies to improve and facilitate the learning process. Edtech products span a wide range of fields.  Here are just a few examples:

• Learning management systems for planning and implementing educational courses, with features such as content delivery (e.g. prerecorded videos or PDFs), gradebooks, course announcements, student analytics, etc
• Immersive technology (such as augmented reality and virtual reality) to provide a more hands-on learning experience
• Platforms that “gamify” the learning experience with high-quality content, helping engage students as they explore a particular topic (e.g. programming, science, or other STEM fields)
• MOOC (massive online open course) portals that provide asynchronous distance learning to students around the world
• Digital study aids and tools for reinforcing the learning process (e.g. flashcards, quizzes, virtual tutoring, etc.)

Over the past decade, the edtech startup field has been booming and investor interest has increased. The rise in online education due to the COVID-19 pandemic has been one of the most immediate causes of edtech growth. At the start of the pandemic in Q1 2020, for example, edtech startup funding worldwide soared by 22 percent.

If edtech investment trends continue, however, the edtech industry is poised for sustained growth. For example, the market intelligence firm MarketStudyReport has projected that the global edtech market will expand by 20 percent annually. That could mean an increase from $75 billion in 2019 to $319 billion in 2027. 

Communities such as the EdTech Founders Initiative have sprung up in support of this massive surge in edtech growth. These communities provide everything from networking events to assistance with hiring and fundraising.

What is edtech market?

If all goes well, the recent expansion in the edtech market isn’t over yet. Analysts are predicting even bigger growth on the horizon. According to Research & Markets, the global edtech industry stood at $85 billion in 2021. What’s more, the worldwide edtech market is predicted to reach $218 billion by 2027. That’s a healthy annual growth rate of 17 percent.

At the forefront of the edtech market stand a few dozen unicorn startups. In the world of business, a “unicorn” is a privately owned company that has achieved every founder’s dream: reaching a valuation of more than $1 billion. If you have lofty designs for your own startup, the good news is that there’s no shortage of edtech unicorns.

The MOOC platform Udacity was one of the first edtech startups to reach unicorn status back in 2015. Since then, there have been more than 30 global edtech unicorns. Together they have reached a collective valuation of more than $100 billion.

Other edtech unicorns you may have heard of include the study aid website Course Hero, the virtual homeschooling marketplace Outschool, and the online learning platform MasterClass, which is headquartered in San Francisco and offers courses taught by experts and celebrities. In addition, businesses such as Udemy, Duolingo, and Coursera are former unicorn edtech companies that have since gone public in an IPO.

How do I get funding for edtech?

There’s currently every indication that edtech is an excellent choice for startups looking to strike it big. So how can founders get the edtech startup investing that their business needs to survive?

First, you’ll need to take a look at who’s funding education technology. Do your research to find the angel investors and venture capital firms who specialize in the edtech market. You might also consider reaching out to VCs and angel investors in other industries who are looking to diversify their portfolios, given the tremendous growth in edtech over the past several years.

Due to the unique nature of the edtech market, some startups have been successful in attaching themselves to an institutional investor, such as a university, school, corporation, or other educational system. In exchange for a stake in the company, these institutions can provide brand recognition, a built-in user base, and access to valuable resources that your startup needs to get off the ground.

After doing your research into potential investors and casting a wide net, it’s time to filter your results. In order to narrow down your search, remove investors that match the following criteria: 

• Already funded your competitors
• Specialize in the wrong industry, geographic area, or stage
• Not actively funding companies
• Have a bad reputation in the startup community

Regardless of which investors you decide to approach, your edtech startup must have two essential components to secure investment:

• A unique value proposition: You must be able to succinctly explain what differentiates your startup from its competitors. If you’re building a MOOC platform, for example, why would customers choose you over better-established competitors?
• An unfair advantage: Your business strategy must be difficult enough to copy that it dissuades potential rivals. This “unfair advantage” could be everything from a patented idea to having brilliant engineers or marketing professionals on your payroll.

Once you’ve identified the best investor candidates and refined your own startup pitch, you can begin to fundraise for your edtech startup.