70% of the deal activity in Ed Tech is seed/angel deals. How investors treat them will be the determinant of whether there is a bubble or not, but right now, there isn't one.

Ed tech saw $1.1B of financing in 2012 from VCs, angels, corporations and private equity investors continuing its strength in both deal activity and funding.  While the $1.1B is certainly eye-opening, it is worth noting that 1/3 of the funding went to just 10 companies (see list below) displaying a familiar and expected trend – a handful of companies getting big funding while the number of deals is driven primarily by early stage activity at the seed, angel and Series A stages.

The Ed Tech Bubble?

Sentiment around ed tech remains very positive and it continues to be one of the handful of themes that investors see major opportunity in (akin to big data). So there is every reason to believe the financing strength will continue.  Of course, the fact that 70% of the deals in ed tech are at the seed/angel and Series A stages as illustrated below means that the sector is not immune from the Series A Crunch / Seed Investment Hysteria that exists today.

While there are some like Frank Catalano who offer arguments that there is an Ed Tech bubble and others like Audrey Watters who convincingly argue that asking about an Ed Tech bubble is the wrong question (btw, read Hack Education – it’s a great source of info), the reality is that it’s just way too early to call a bubble.  Ed Tech is merely following the trend seen in any nascent, hot industry. This means there are lots of companies being founded and funded and some will be great and many more will be crap.  The good news is that most of these are at the Seed / Angel stage which is where the deal frothiness is and which is what people point to when speculating about a bubble (“OMG, a company that helps you learn to code while your going to the bathroom. There must be a bubble!”).  But the reality is that these companies are raising pocket change in the grand scheme of things. And if these Ed Tech companies are unable to raise Series A, B, etc funding, that is a sign of a market that is actually working.  But since 70% of the deals are still in that early angel/seed phase, it’s too early to know if investors have lost their grip on reality and will provide funding to anyone or whether they will exercise some discipline.

ed tech venture capital deals

Ed Tech’s Top 10 Deals of 2012

Of course, not all the funding is at the early stages as our list of top 10 ed tech deals in 2012 highlights.  Included in this list are Lumos Labs, a neuroscience research and development company that creates brain exercises for cognitive enhancement and Kaltura, provider of an Open Source Online Video Platform.

1. Desire2Learn | $80m

2. Open English | $43m

3. Lumos Labs | $31.5m

4. Echo360 | $31m

5. 2U | $26m

6. Chegg | $25m

7. Kaltura | $25m

8. Edmodo | $25m

9. The Minerva Project | $25m

10. Orbis Education | $24.33m


 

Data Integrity Note: Ed tech companies being recapitalized by investors, raising debt rounds or which received financing as part of a partnership are excluded from the list above.