European Ed-Tech Market Slows, Though Opportunities Remain
European ed-tech funding slowed in the second half of the most recent year, due in part to public spending cuts and shaky economic conditions in some countries, as well as to the spillover effect from Russia’s invasion of Ukraine.
Those challenges will lead into a slow start for deals and funding for ed-tech companies for the first half of 2023, industry analysts predict.
But the picture is not bleak. Compared to other regions of the world, which have seen a sharp slowdown in VC investment, markets in Europe are showing more resilience.
Those findings are included in a recent report published by Brighteye Ventures, a major ed-tech venture capital firm in Europe. The group’s data showed that European funding activity fell by 28 percent in 2022.
That falloff is not as dramatic as in some markets, such as the United States, which saw a 62 percent drop in funding last year. China and India saw significant declines as well, with decreases of 89 percent and 45 percent, respectively.
The possible reason for European ed tech’s resilience compared to other regions is three-fold, said Rhys Spence, head of research for Brighteye Ventures, and author of the report.
One factor may be that the perceived resilience “actually reflects the delayed impact of macro conditions,” of the European ed-tech funding market, “rather than immunity to said conditions,” Spence wrote in an email to EdWeek Market Brief.
The delayed impact of a funding slowdown in Europe is reflected in the declining round sizes in the second half of 2022 and a lack of deals worth more than $100 million thus far in 2023, he said.
Slower Ramp-Up, More Gradual Fall?
According to the report, the average size of funding rounds in Europe in the first half of last year was $15 million. By the latter half of 2022, it had fallen to $4.6 million. The number of deals did not drop off, though: Deals were still being made, just at lower valuations.
Spence said the relative stability of European ed-tech funding could also be based on the fact that during an acceleration in 2021 and the first half of 2022, ed-tech deals on the continent tended to have “lower, arguably more realistic valuations in the early stages than companies in comparable markets.”
European companies also tend to raise smaller rounds, partially because they’re often raising to fund specific international expansions within the continent, he said.
There are also a wide array of markets in Europe with varying dynamics and levels of exposure to macro headwinds. That gives companies operating in the region more of a foothold against current conditions.
Markets in Switzerland and Italy saw increases in activity, with Italy being the only European market to see increased funding and deal volume, according to the Brighteye Ventures report.
At the same time, larger markets, like Germany and the UK, saw small declines — although these two regions still maintain the top spots for the most ed-tech funding, with $583 million and 81 deals for the UK, and $363 million and 34 deals for Germany.
With all of this in mind, it can be expected that what it will take to bring back increases “in round sizes and valuations observed in the European ed tech will be less severe than … in other markets,” Spence said.
Going forward, Brighteye Ventures predicts that appetite for ed-tech investment will remain strong, even though the size of recent fundraising rounds has dipped.
While total European VC funding in the second half of 2022 was just $2.6 billion, compared to $6.5 billion in the first half, the number of deals actually increased from 432 to 566 — reflecting solid investment in early-stage funding rounds, the analysis says.
That offers hope for ed-tech companies who might be looking to expand into Europe for the first time. Companies should be taking this time to develop efficient ways to test new-market hypotheses without large amounts of venture capital backing first, especially as funding is harder to come by in the current climate, Spence said.
“Patience and thoughtfulness is even more important than during previous expansions, particularly if you’re primarily a B2C business,” he said, “given the belt-tightening playing out in the face of rampant inflation.”
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