Building The Future Of Education: Raising Funding For EdTech Startups

Raising funding for edtech startups could be easier than most other sectors. Edtech combines two of the most dynamic and rapidly growing fields–education and technology. As knowledge expands, so does technology, software, and applications to make it available to learners.

If you’re developing an edtech product, your focus should be identifying the problem and building an MVP, Minimum Viable Product. Once you can demonstrate that you have what it takes to become the next big thing, attracting investors is more streamlined.

The most interesting factor is that several government grants and loans are available to founders who conceptualize disruptive edtech ideas. Here’s a quick look at what you need to know. Let’s start with the basics of what exactly is edtech and the scope of this sector.

Understanding the EdTech Space

Edtech is a vertical that is still in its nascent stage and refers to teaching techniques driven by a blend of hardware and software. Whether learning in classrooms under the supervision of trained teachers or self-study by students, edtech aims to enhance learning.

The end goal is to create a customized approach for students to understand and retain their courses’ curriculum more effectively. Edtech includes practical tools and applications that allow students to learn at a pace according to their comfort and capabilities.

Using educational technology eases the burden on educators and adds a more personalized feel to the coursework. On an individual level, edtech can infuse interactive features, Q&As, quizzes, and flashcards to simplify materials for learning.

Within the classroom, teachers can use whiteboards, interactive projection screens, and online learning via Massive Online Open Online Courses (MOOCs). Edtech has brought valuable innovations into the education sphere so that learning is no longer restricted to on-site classes.

Students from any corner of the world can access recorded lectures, regardless of their time zones or competency levels. Understandably, edtech started to scale rapidly during the COVID, and consumers continue to depend on applications and tools for better learning. For example:

• Learning management applications to design and make available coursework in forms like PDFs and recorded videos delivered by expert teachers. You’ll also consider tools for delivering materials and gradebooks to assess grades and deliver feedback.
• Platforms that offer high-grade content for better student engagement with topics like STEM, science, and programming. Adding an element of fun makes learning easier.
• Using techniques like augmented reality and virtual reality to make learning interactive and hands-on.

Future Prospects of the Edtech Sector

Entrepreneurs looking to learn more about raising funding for edtech startups should know that this sector has incredible prospects. Statistics indicate that it is expected to grow at a CAGR of 14.3% from 2024 to 2034. Translated into figures, it shows a growth of $108B in 2024 to $411B in 2034.

Experts point to the rapidly increasing demand for online learning applications, AI-driven apps, and gamification that are spurring growth. Several government initiatives are underway to support new and disruptive startups that can change how knowledge is made more accessible.

The industry is experiencing major shifts in how learning is obtained, compiled, and readied for students. As digitization is taking over education and students rely more on virtual classes to learn, the potential for growth also increases. And these growth prospects are attracting investor attention.

The COVID pandemic triggered immense growth, and funding in edtech startups spiked by 22% in Q1 of 2020. This trend continues, and in the next three years, by 2027, the edtech market worldwide will hit the $319B mark.

Founders developing an MVP to address a problem should accelerate R&A at this time and build a market presence. Your startup could join the ranks of the 36 global edtech unicorns that have a total valuation of over $100B in 2022. Companies like Coursera, Duolingo, and Udemy have gone public.

Raising Funding for Edtech Startups – Your First Steps

If you want to raise funding for your edtech startup, the first step is identifying a problem and ideating solutions. You’ll do the necessary research to understand the specific gap you want to fill and then build an MVP. Test in on actual customers to gauge their feedback and make tweaks accordingly.

When scouting around for ideas, look to two specific categories of potential consumers. Firstly, you’ll approach educators, teachers, and educational organizations to understand their needs. Search for the challenges they’re facing when creating the coursework and imparting it to the students.

Alternatively, you can approach learners to understand their hurdles when accessing the programs they’re particularly interested in. You’ll also identify parents as the target market. They should be convinced of the merits of your product/solution so they can purchase it for their kids.

Most important is the implementation and execution. The MVP you create should come with practical ways to integrate it with the existing learning institutions and platforms. Pay careful attention to the costs because supplemental learning will have to be payable while school learning is free.

Remember to compile all the relevant data because you will need it when putting together a pitch deck for investors. The data will demonstrate that your MVP has what it takes to spike your buyers’ interest.

Once you cover these steps, you will be ready with some of the most critical slides of the deck.

These will include the problem, solution, targeted customer base, data to indicate traction, estimated pricing, and MVP. With these slides in place, you can put together the business plan, the cover, and the ask.

Don’t overlook the competition and any ideas that could already be floating around the market. You’ll have to talk about what makes you unique.

List of Potential Investors to Approach

Now that the pitch deck is ready, you can start compiling the list of potential investors to approach. Remember that your pitch is not cut and dried but dynamic and flexible. This means that you’ll tweak and customize it depending on the type of investors you’re approaching.

Narrow down your list of by researching the kind of sectors they actively support. You’ll go through the companies they are currently backing to understand what they’re looking for. Also, check the geographical location where they operate and whether they support startups in specific stages.

Since your startup is in its early stages, you’ll approach government organizations, foundations, and, perhaps, family offices. Several philanthropic entities and angel investors may be interested in backing an entrepreneur trying to make a difference in education. Here’s how to start.

Government Grants, Funds, and Foundations

The U.S. Department of Education Funds has a selection of programs designed to provide funding for edtech startups. For instance:

• Discretionary Grant Funding Opportunities
• CARES Act Funding to support Remote Learning
• Department Funds to Support Connectivity (Has a total of 12 funds)
• Funds under Titles I through IV of the ESEA, as amended by the ESSA, and the Individuals with Disabilities Education Act (IDEA)
• USDA Distance Learning and Telemedicine Grants
• FCC E-Rate Program

 

Also, check out the Foundation directory for information you can use about the different programs available to aspiring founders.

Programs in the edtech space include the Kellogs Foundation, Siegel Family Endowment, Jacobs Foundation, Gates Foundation, and Spencer Foundation.

Since you’re developing edtech solutions and applications, consider approaching a university or reputable institution with your ideas. They might be interested in collaborating with an upcoming startup by buying a stake and getting first access to products.

This strategy will ensure you get a ready customer base to test your products. You’ll improve on them with the feedback you get from users in real-time while using the organization’s resources. The brand recognition you get because of the partnership with a renowned institution is an added positive.

Before applying for a particular grant or program, make sure to read up on their requirements and approval criteria. Select the right programs and design your pitch accordingly.

Even as you’re researching grants and foundations, you should start looking for other sources of capital. Not sure how to do that? Check out this video I have created in which I explain how to build a target list of investors for your startup.

Raising the Seed Round

As your expert fundraising professional will advise you, the best time to raise capital is before you need it. Even as you’re applying for government and university grants and foundation programs, you’ll reach out to friends, family, colleagues, and other informal sources for money.

Also, leverage your personal savings and credit card and get a line of credit to build the MVP. Once you obtain the grant, you can move on to hiring expert teams to develop the product further. Since this is a tech-driven application, you’ll want to work on fine-tuning it before it reaches customers.

Before you’re ready to market the product and invest in advertising, that’s the time to start raising funding for edtech startups. Approaching incubators and accelerators is also a great move since many programs are geared toward supporting technological advancements.

Look for options where you have a high chance of success. For instance:

• Y Combinator
• Berkeley SkyDeck
• Forum Ventures
• ASU Venture Devils
• Expert Dojo
• BoomStartup
• Imagine K12

 

Partnering with these organizations has multiple advantages. By the time you pass through the program, your startup will be ready to take off. You will have some amount of funding, an MVP, and, most importantly, access to a broad network of investors.

The connections you build during your stint with the accelerator or incubator will ensure success in future funding rounds. If you hope to enter into collaborations to scale the company, you’ll likely meet them during the program.

Angel Investors for Raising Funding for Edtech Startups

Approaching angel investors for early-stage startup funding for edtech companies is another smart move. Angels are high-net-worth individuals who are veteran founders and executives interested in supporting upcoming entrepreneurs. They are always on the lookout for interesting projects to back.

Other than capital, you can rely on them for industry-specific expertise and access to their network of investors and angels. Their guidance can prove invaluable for getting your startup off the ground.

Here’s a quick look at some of the top angel investors that support education technology.

• Deborah Quazzo
• Jason Calacanis
• Walter Winchell
• John Katzman
• Kevin Hartz
• Jason Palmer

 

Keep in mind that storytelling is everything in fundraising. In this regard, for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor on Facebook, with a $500K check that turned into more than $1 billion in cash.

Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.

Venture Capitalists

As your company continues to scale, you’re going to need further capital to expand operations. You’ll also need expert guidance to ensure that the company structure is capable of sustaining rapid growth. Venture capital could be the way to get you there.

You may also need assistance with hiring talent, purchasing equipment, and upgrading the company’s premises. VCs typically require a board seat along with equity as part of their investment structure. This means that they will have a say in the company’s day-to-day operations.

Startups benefit from their guidance since the VCs are primarily interested in rich profits when they are ready to exit. Or when the company goes to IPO. Here’s a quick look at the top VCs in the edtech space you can approach.

• Owl Ventures
• Reach Capital
• NewSchools Venture Fund
• GSV Ventures
• Kapor Capital
• Bonsal Capital

Private Equity Firms

Private equity firms typically invest in mature companies, and their objective is to earn high returns before exiting. Their holding period ranges from 10 to 12 years, and they are a good source of capital for later-stage startups.

You may have to spend time researching for private equity firms that specialize in the edtech space. That’s because they typically support startups in particular sectors. Since PE firms aim to earn maximum returns, they assist with cost-cutting and restructuring techniques.

You can rely on their representatives to fill positions if there are any gaps in your startup’s skill sets. Here’s a quick overview of the top private equity firms you can approach:

• Alpine Investors
• Kaizenvest
• Zubr Capital
• Gaja Capital
• General Catalysts
• 3B Ventures

The Takeaway!

Entrepreneurs looking to build a new company in the edtech sector will find ample opportunities. The combination of education and technology is in high demand if you can come up with innovative products. Capital is also readily available if you can demonstrate a marketable great MVP.

Even if you’re not ready with an MVP, applying to accelerators and incubators can get you there. When you’re ready to scale the company, you’ll approach investors who can assist you with capital and expertise. So, get ready to dive in with the disruptive ideas you have.

You may find our free library of business templates interesting as well. There, you will find every single template you will need when building and scaling your business completely for free. See it here.