Education Technology & eLearning Tristan Snyder, Partner Ben Howe, CEO Jon Guido, Partner / COO Mike Parker, Partner Sean Tucker, Vice President Massive $157B Market Expanding Globally . At $157B in size and expected to reach $420B by 2025 (15%+ CAGR), Education Technology is a massive market that continues to expand on a 2025 global scale . In first world countries such as the US with high cost delivery models, EdTech’s potential to unlock huge budgetary savings for governments and households alike is a powerful driver of continued adoption USD 420 . In developing countries seeking to close the gap in language and IT proficiency with the rest of the world, the focus is more on access › eLearning has huge potential to educate these rapidly growing populations in lieu of a highly developed school infrastructure . Lastly in the corporate sector, where professional training has long been viewed as a discretionary item subject to booms and busts in economic US EdTech Deals by Quarter cycles, eLearning is gaining significant traction as a “must have” for many employers in a historically tight labor market . Innovations in the EdTech space at large include: Travel Tech Ecosystem › Microlearning - a top trend as more evidence builds that breaking down and spacing out learning content into smaller bite pieces can lead to higher rates of engagement and retention › Interactive Video-Based Training - with over 55% of the world’s population connected to the Internet through smart mobile devices and 5G looming, this is an area of explosive growth with highly visibility › AI, AR/VR, Adaptive Learning, and Gamification – these new technologies and methods are converging to deliver more personalized and exciting new training experiences for eLearners . Armed with these new innovations, investment in EdTech has gone viral and global in the last few years with each major region vying for control of the digital economy of the future › In non-US markets, funding for EdTech start-ups has surged, reaching a new record of over $5B in 2018 › Not to be outdone, US deal flow has exploded in 2018 at $8B in M&A value in 2018 with a heavy mix of PE-led deals Source: Wall Street Research, Docebo, Grandview Research 2 Market Segment Overview Three primary categories, and a handful of market titans: Content: provide the tools to author the material, aggregate and develop content from disparate sources, and publish Management: facilitate, organize, analyze and administer educational coursework and material for students and teachers Distribution: make educational content more accessible and engaging through online, gaming, and immersive learning techniques 3 Academic EdTech Landscape Education Giants Content Providers Management Systems Distribution Indicates public companies or subsidiaries DISCLAIMER: This is only a representative list and may not include all relevant companies. If your company is not on the list and would like to be added for future publications, please email [email protected] and we would be happy to consider. 4 Corporate EdTech / eLearning Landscape E-Learning Giants Content Providers Management Systems Distribution Indicates public companies or subsidiaries DISCLAIMER: This is only a representative list and may not include all relevant companies. If your company is not on the list and would like to be added for future publications, please email [email protected] and we would be happy to consider. 5 Academic EdTech Market: A Massive Wallet, Significantly Underpenetrated . In 2018, the US alone spent a total of $1.4 trillion on education – representing 7% of total GDP › All but 8% of that wallet is controlled by non-profit institutions funded by public tax payer dollars or private tuitions / endowments › As a result, the pace of technology adoption has been painfully slow. It is estimated that universities and schools spend less than 5% of their annual budget on IT. This compares to a range of 5-10% for Corporate America. The US public school system in particular is a patchwork of highly regulated funding mechanisms at the local, state and federal levels. Virtually every purchasing decision – from the number of computers in a classroom to the content in a textbook – is rules based . The K-12 sector represents the largest segment of the US Educational Spend by Sector academic market, closely followed by Higher Ed. Pre-K is a US$ in Billions distant third $800 › Whereas for-profits have taken over the Early Childhood / 700 Pre-K segment, the public / non-profit model dominates the $696 rest of the academic market 600 › If anything, after surging during the recession, for-profit schools have lost ground in the last few years, not the least 500 $480 of which has been a strong economy as well as tighter 400 restrictions on student loans › Enrollment in for-profit universities and educational 300 institutions is typically inversely correlated to unemployment 200 . The Public / Non-Profit payer is motivated by two bottom lines: 100 business and social. EdTech vendors must demonstrate high $14 $61 efficacy and impact at both levels 0 $23 $27 . At the macro level, EdTech spending is driven by the funding Childcare K-12 Higher Ed backdrop, i.e. what remains after budgets are set and taxes For-Profit Non-Profit (Public/Independent) and tuitions are collected Source: BMO Capital Markets; The Economist 6 K-12 Segment: A Tough Decade Quickly Coming to a Close . On average, 47% of K-12 school revenues in the US comes from State funds and 45% comes from Local funds › Whereas Local funding has fully recovered from pre-recession levels, helped by rising home values and associated taxes, 29 States provided less overall funding per student as recently as 2015 › This is changing quickly, however. In the fiscal year ending June 2018, State revenues grew by 6.3% nationwide compared to an average annual increase of 2.3% over the prior seven years › Midway through the 2019 fiscal year, 34 States say they are meeting or exceeding revenue forecasts with special approbations for K-12 education increasing by 26% versus 2018 › This breakout to the upside in both State and Local finances augurs well for K-12 budgets going forward, accelerating a rebound in funding that has been in progress since 2013 K-12 Funding Fell Sharply After Recession Hit Public Educational Funding by Source Change in funding per pupil compared to 2008, inflation adjusted Federal Revenue $480 State 8% Revenue Local Revenue 47% 45% $61 $23 $27 Public Education Funding by Source Source: Tax Policy Center, CBPP.Org, National Association of State Budget Officers 7 Higher Ed: Have Costs Finally Been Contained? . After outstripping the consumer price index by a factor of two for 50 years, prices charged by higher education institutions to consumers are finally showing some signs of cooling . Since 2011, annual inflation in college tuition prices as measured by the US Bureau of Labor Statistics has downshifted from a 4-6% range to a 2-2.5% range, roughly in line with CPI . This coincided with a 10% decline in college enrollments, which peaked at 20.6M in 2011 and stands 2M lower today . In this more competitive environment, education providers have been more willing, and in some cases forced, to explore online courseware to reduce delivery costs and price points. This is especially true as pricing power fades and providers are unable to pass on their costs in full as was customary in years past › In 2017, “producer costs” as measured by the Commonfund Higher Education Price Index rose 3.7% vs. a 2.5% rise in headline tuition rates and college fees, thereby crimping margins for providers › Should this squeeze continue, it’s likely to further accelerate the move to disruptive technologies in order to better control costs and improve outcomes “Producer” Costs Continue to Climb as Enrollment Declines Bureau of Labor Price Change in College Tuition and Fees % % Change from 2011 Cost Fall Enrollment Source: Commonfund, EdSurge; NCES, Bureau of Labor Statistics 8 The Global EdTech Market: $157B and Growing Global Ed Tech Market Size . The global EdTech market is forecast to surpass (US$ in Billions) 423 $420B by 2025 from $157B presently, a CAGR of 367 15%+ 319 277 › EdTech represents less than 5% of total global 240 education expenditures 208 181 › The bulk of EdTech spending is concentrated in 157 the US, but China and India represent the fastest growing markets as their education systems continue to modernize . Management and Distribution are the fastest 2018 2019 2020 2021 2022 2023 2024 2025 growing segments in the EdTech Market Ed Tech Growth Rates by Region › Within the Management segment, LMS and 20% Learning Analytics markets are expected to grow 24.7% and 25.9% to 2020, respectively 16% › Within the Distribution segment, Education Gaming and MOOC markets are expected to 12% grow 66.2% and 36.0% to 2020, respectively 8% › Educational Content providers are seeing slower growth rates due to the shift towards in-house 4% content development and proliferation of open and free resources 0% Asia Africa Latin Middle Western North Eastern America East Europe America Europe Source: Ambient Insights; EdTechXGlobal; Grand View Research 9 Variety of End Markets and Business Models Most Popular Ed Tech Business Models 60% . The industry is still searching for innovative and sustainable business models 45% › The most common business model, selling to institutions such as schools and districts, is characterized by large contract sizes but also 30% revenue risk when they go full term › “Freemium”