The education technology business is chock-full of fledgling companies whose innovative ideas have not yet proved effective — or profitable. But that is not slowing investors, who are pouring money into ventures as diverse as free classroom-management apps for teachers and foreign language lessons for adult learners.
Venture and equity financing for ed tech companies soared to nearly $1.87 billion last year, up 55 percent from the year before, according to a new report from CB Insights, a venture capital database. The figures are the highest since CB Insights began covering the industry in 2009.
Notable financing deals include Pluralsight, a company that provides online training to technology professionals, which raised $135 million; Remind, a free messaging service for teachers to communicate with students and parents, which raised $40 million from venture capital firms including Kleiner Perkins Caufield & Byers; and Edmodo, an online social network customized for classroom use that is free to individual teachers, which raised $30 million.
“Education is one of the last industries to be touched by Internet technology, and we’re seeing a lot of catch-up going on,” said Betsy Corcoran, the chief executive of EdSurge, an industry news service and research company. “We’re starting to see more classical investors — the Kleiner Perkinses, the Andreessen Horowitzes, the Sequoias — pay more attention to the marketplace than before.”
While rising sharply, the values of ed tech financing deals are chump change compared with the money flowing into consumer software. Uber, the ride-hailing app, for instance, raised $2.7 billion last year.
The smaller sums going into ed tech illustrate the challenges facing start-ups as they try to persuade public school systems to adopt their novel products. Companies often must navigate local school districts with limited budgets and slow procurement processes. To bypass the bureaucracy, many start-ups are marketing free learning apps and websites directly to teachers in the hopes that their schools might eventually buy enhanced services.
Still, it is too early to tell whether that direct-to-consumer “freemium” strategy, as it is often called, will pan out for education software.
“There are still a lot of questions around some companies’ business models in the sector,” said Matthew Wong, a research analyst at CB Insights. “One of the questions, because the product is free, is: ‘How are you going to monetize those users?’ ”
One example is Remind, a popular messaging app that teachers use to send homework reminders to students and share classroom news with parents. Sports team coaches also use the system to send weather updates and schedule changes to their athletes.
Word of mouth has propelled Remind from an unknown brand to a nationwide phenomenon. Started in 2009 by two brothers in Chicago, the service now has 23 million users, up from 18 million five months ago, the company said, and the service has been used to send more than a billion messages.
“Today, you can order a pizza, or a ride with Uber or Lyft, in an instant,” said Brett Kopf, 27, a co-founder and chief executive of Remind. “But if a student is struggling at school, oftentimes the parents don’t know. We want to make that communication more real-time.”
Where some other ed tech start-ups have been slow to capitalize on the ubiquity of mobile phones, Remind has grown quickly partly because its system enables teachers to send messages through multiple channels — via the company’s website or mobile app, by text or by voice message.
Read more: Silicon Valley Turns Its Eye to Education