EdTech start-ups share fundamental attributes with start-ups in other sectors: they have identified a problem or an opportunity within the sector they want to address through a differentiated, technological solution. To accomplish this mission, EdTech start-ups have to assemble an effective team that can design and iterate on the product, as well as lead teams and an organisation capable of scaling the business. The early employees need to understand and buy into the vision of the company, even when there is little to buy into!
Some liken the fundraising process to an extended, multi-meeting question-and-answer process, where the entrepreneur and investor quiz each other and build understanding until there is alignment on the vision. Finding common ground is essential, so that both parties are pursuing shared objectives and understand how major directional decisions are made and justified.
While a mass of general information exists on fundraising, Brighteye Ventures – the leading EdTech venture capital firm in Europe – approaches fundraising with two key considerations in mind: the founding team’s ambitions and understanding of the market, and the company’s international expansion opportunities.
Led by Alexander Latsis, Brighteye Ventures has helped several companies to refine their EdTech offerings, build partnerships, and expand their impact across geographies. The main features of EdTech start-ups that Brighteye considers are those that combine the potential of learning, entertainment and creativity to “empower and expand the frontiers of human potential.”
What Is Similar?
A potential investor will want to understand the specific problem being solved by an EdTech start-up. Founders must be clear about the segment of the $7.3 trillion education market being targeted, its growth potential and how the team plans to build and maintain a competitive moat.
When it comes to building, proving and maintaining differentiation, different start-ups will elect to distinguish themselves through different capabilities. Some will choose to leverage technology or the business model, while others will highlight their distribution model or customer segmentation as their defining aspects. Regardless of the distinguishing factor, a start-up’s competitive advantage will stem from having a highly differentiated solution, which will be much harder to imitate. Having said this, companies can simply be first-movers and build up an unassailable lead in a particular vertical – this can present an investable proposition too.
As outlined above, investors will want to know about the team driving the solution. Investors will want to see a group eager to learn and persist during the execution phase. The ability of the core team to find and retain talent is also vital.
What Is Different?
From an EdTech perspective, certain things will differ from the standard fundraising process that potential investors will be keen to understand.
- Moving the Needle: Educational solutions are designed to positively impact people’s lives, but the outcomes can also take time to manifest and can be difficult and expensive to measure. As such, it will be essential to demonstrate that the solution works. According to Brighteye Ventures, entrepreneurs can make this easier by defining measurable learning goals and evaluations (through key partnerships) from the outset. Start-ups should also consider how third parties can ascertain the value they provide.
- Are Users Motivated? For the reason outlined in the previous point, an EdTech start-up will want to motivate users towards sustained use of the solution. Some tried-and-tested strategies include guaranteeing employment upon graduation; providing shorter, boot camp-like courses that are time-bound, dense and productive; and leveraging learnings from consumer gaming, internet and neuropsychology that help users achieve rapid progress that can be maintained longer-term.
- Go-to-Market Strategy: Investors will want to understand an EdTech start-up’s distribution strategy, especially since educational institutions tend to have highly regulated and convoluted procurement processes. While the increased penetration of broadband technology and device availability in schools has helped broaden access and understanding of Edtech’s potential applications, a start-up must demonstrate a good handle on the unit economics of its approach to scaling.
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Alexander Spiro Latsis, Nobrow Ltd. founder, has more than a decade of experience as an entrepreneur in media and technology businesses. He has been the Managing Partner of Brighteye Advisors since 2017, working closely with Brighteye’s other Partner, Ben Wirz.
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