What do investors look for in an edtech business?

A member of our London investment team shares their guidance for edtech startups looking to scale-up and raise funding this year.

15 May 2024

Globally, the education market is going through a digital transformation. Pre-2023, when the wider technology market was at a real peak, many edtech businesses were achieving impressive growth. This was driven in part by a strong market, as well as increased tech adoption and excitement around AI (artificial intelligence), a shift in traditional working practices, and demand from customers for improved solutions.

While these drivers persist today, a weakening macro environment (and the impact of this on the broader tech market) is now shining a light on the businesses best positioned for long-term success.

Following the pandemic, we saw greater emphasis on how businesses can best use technology to maximise value for their customers and end users. In the case of edtech specifically, we’ve seen two use cases rise to the top learning and development (L&D), and compliance and regulatory (including ESG).

For Tom Gilchrist, an Investor in our London Growth team, the potential lies in the learning-centric side of edtech. He’s interested in products or technologies that go beyond the basic need or regulatory requirements that an organisation may have, and instead add strategic value to the customer.

Tom Gilchrist headshot

Read on to hear what Tom looks for in an edtech business, plus his guidance for edtech startups looking to scale-up and raise funding.

What I look for in an edtech business

There are several criteria we look for in any private, growth business we back. These include being headquartered in the UK or Ireland, plus having an ambitious management team, good historic performance, and the ability to articulate a strong growth plan. But when it comes to edtech businesses, in particular, what is Tom after?

“You need a willingness and energy to challenge the market”

Management team: Edtech remains a relatively nascent market, so I’m looking for individuals that have a strong thesis or point of view, as well as broader experience in the education sector. As in any sector of the growth economy, you need to have a willingness and energy to challenge the market – coupled with a clear articulation of the fundamental value you provide to customers.

Market specialism: I’m keen to talk to businesses that already know where they want to play in the edtech space, and where they land on the digital spectrum. Being super clear on the end market and use case you’re targeting will help you focus your offering and decide on the appropriate use of technology versus people – and help you to get ahead of the competition.

Value proposition: In the current market, L&D budgets are under stress, with heightened pressure from customers demanding greater returns on their investment (ROI). It’s becoming increasingly hard to get L&D projects signed off, so more than ever, you need to be able to tie your product to an organisation’s operational gains and efficiencies. Alternatively, you could target budgets that sit outside of traditional L&D (most effectively seen where sign-off is at the C-suite level).

Embeddedness: One test of the strategic value of an edtech solution is how difficult it is for customers to switch it off. Another way to look at this is: what would they stand to lose in doing so? This is often measured as an ROI or efficiency gain, so edtech businesses that can accurately track these two things tend to have stronger sales messaging and conversion. This is where I see real potential.

Top tips for edtech startups

We asked Tom to share some thoughts for early-stage education businesses that are looking to scale. Tom believes that, whilst true for many growth sectors, there are a few crucial areas for edtech startups to focus on when entering the market. The key takeaway from all three? Understand your customer.

1. Find your niche

We all know the saying: jack of all trades, master of none… Avoid this trap and don’t try to compete with commoditised solutions – aim to offer something different to incumbents.

When choosing where to specialise,  focus on customers’ key pain points. Some good examples I’ve seen include: providing leadership tuition to marketing departments in FMCGs; literacy tools that improve learning outcomes in schools and free up time for teachers; and learning management systems (LMS) designed to drive greater end user engagement and embedded behaviours.

2. Know your key stakeholders

Do your customers’ HR teams hold the L&D budget? Or are these decisions being made at a higher level? Businesses that can demonstrate senior stakeholder buy-in have proven to be more resilient over the last 18 months, so it’s important to understand the extent to which you can sell into C-suite and maximise this, where possible.

Products or services viewed as being ‘strategic’ typically offer stickier relationships with senior stakeholders. An example would be providing services that are viewed as non-discretionary, such as training for key departments or leadership teams, or where subject matter is mission critical, has strong value-add (like cyber, ESG, and next gen tech skills) or is required through regulation.

3. Know your end users

Understanding the needs of learners (and making sure your model fits these) is essential for any edtech business. If you want to become the superior option for customers, you need to be clear on the problem you’re solving for, and then design your offering to meet this.

Ask yourself these kinds of questions: Who are our customers’ end users? How do they learn best? How are their needs likely to evolve? How can we drive long-term engagement? And where are our competitors falling short?

You may also want to introduce a degree of personalisation, like opportunities to white label or integrations that enable customers to tailor your product to their specific use cases and systems.

Growth capital for edtech businesses

For those already established in the edtech market, you may be thinking about next steps in your growth journey. Perhaps you’re building towards an acquisition, expanding overseas, or entering an adjacent end market?

As a long-term, minority equity investor, BGF can provide the funding and expertise required to scale your business, without taking control. To date, we’ve invested over £4bn across the UK and Ireland, including over £100m into education and training businesses. Our portfolio already includes the likes of Apprentify, Alpha and Makers, and as an organisation that puts L&D at the heart of what we do, we have deep knowledge of the sector.

Tom and his team are currently searching for more high-potential businesses like these that are pursuing ambitious growth plans in the education and training space.

Get in touch to find out more.

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