Edtech funding dips closer to pre-pandemic levels after skyrocketing in 2021

Artificial intelligence, however, served as a significant buffer to this drop in funding as edtech providers continue to integrate the technology for "copilot" tools, autograders and more.

The pandemic created a surge of education technology tools available for K12 schools. As students were forced into remote instruction, companies were quick to adapt to provide educators with the ability to keep students on track—as best as possible—with the curriculum. The introduction of artificial intelligence, too, resulted in its adoption by several companies, like Khan Academy, that are using the technology as a personal study aid for students. However, K12 education has since returned to normal, and so too has edtech funding.

That’s according to a February analysis from Reach Capital, an edtech investor. After skyrocketing to more than $8 billion in 2021, the amount of investment capital raised by U.S. edtech companies totaled $2.8 billion in 2023, which closely reflects pre-pandemic levels ($2.2 billion in 2020). The analysis considers investments across all levels of education, including early childhood, K12, higher education and lifelong learning and workforce development.

“Falling investment totals mirror broader macroeconomic headwinds and are certainly not unique to the edtech sector,” the analysis reads. “Healthcare, a sector with market dynamics and characteristics similar to education, saw funding retreat to 2019.”

Edtech funding first saw its decline in the latter half of 2022 as a result of rising inflation, geopolitical crises, inflation and several other factors that put an end to the “copious amounts” of capital being earned. Only one edtech company, Amplify, made a deal exceeding $100 million. In 2021, there were 21.

Many of the largest deals that took place in 2023 were achieved by companies that are helping schools find a solution to the challenges brought forth by the pandemic as well as support for educators in this new age of AI. Some of these companies include Aimplify (digital curriculum for K12), Swing (connects schools with substitute teachers), Coursedog (higher ed), Uwill (student mental health) and several others.

Artificial intelligence, of course, was a major contributor to 2023’s investment figures. Key influencers like OpenAI, Anthropic, StabilityAI and others raised nearly $50 billion.

“‘Copilots’ for classroom teachers, along with language-learning tutors, course-authorizing platforms and autograders are among the most popular AI tools we’ve seen in our pipeline,” the analysis reads.

“Artificial intelligence may be the future. Closer to the present, school systems are strained by very real human challenges, the magnitude of which is reflected in the deals we saw—and backed—in 2023.”

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A large number of K12 edtech investments are also aimed at supporting schools in building human capital to serve students’ needs. Teacher shortages and chronic absenteeism, for example, are among some of the biggest challenges that schools are looking to edtech to help mitigate.

Swing, for instance, helps connect school districts with substitute teachers as administrators continue their recruitment and retention efforts. Coursemojo allows schools to leverage remote instructors in the classroom.

Additionally, Reach Capital notes an increase in edtech tools that serve neurodivergent students. Platforms like Marker and Sharpen diagnose and support students with learning disorders.

“Federal and state funding contribute to a $80 billion market for special education services, but accessing these require diagnoses and interventions that for too long have been costly and timely,” the analysis declares.

Finally, the report highlights two financial capital trends that Reach Capital is monitoring as it relates to human capital movements in edtech funding:

  1. The expansions of Education Savings Accounts (ESAs): 13 states currently offer some form of ESAs. Homeschooling is on the rise, too. Such forms of alternative schools also attract teachers who need more flexible schedules.
  2. The ESSER spending deadline: “The fateful day is drawing near,” the analysis reads. By September, the remaining ESSER III funds must be committed. As a result, many school leaders will be cutting tools and services that are “nice to have” but aren’t essential. “Every K12 entrepreneur should pay heed.”
Micah Ward
Micah Wardhttps://districtadministration.com
Micah Ward is a District Administration staff writer. He recently earned his master’s degree in Journalism at the University of Alabama. He spent his time during graduate school working on his master’s thesis. He’s also a self-taught guitarist who loves playing folk-style music.

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