Startups in Education Set Record, Raising $500 Million in First Quarter

Associate Editor

It’s already been a banner year for ed-tech startups, and we’ve only closed the first quarter.

Ninety-nine startups in education have raised more than $500 million, a record in the past five years, according to TechCrunch, citing statistics from its CrunchBase database of technology companies, people, and investors.

That compares to 20 companies raising more than $64 million during the same period five years ago. However, it’s not the greatest number of companies to be funded in a given quarter. Over the past five years, that happened in the second quarter of 2013, when 120 companies raised a total of $319 million.

For another view of how the ed-tech market is shaping up, check out this map of the U.S. showing the concentration of startup activity. Click on any dot to see which company raised money, how much was raised, and when.

“There’s a dramatic shift in how investors are thinking about this industry,” said Fahad Hassan, whose Washington, D.C.-based company Always Prepped received $650 million in seed funding in November 2012. Hassan, who was named one of 30 people under the age of 30 to watch in education by Forbes this year, made this comment to a roomful of ed-tech entrepreneurs and would-be ed-tech entrepeneurs gathered at 1776 last weekend. (1776 is a Washington, D.C.-based hub for startups tackling major challenges in education, energy, health care, government, and other industries.)

He said that this period of funding is starkly different from 1995 to 2007, when very little venture funding flowed into the marketplace. “It’s finally shifted, and we’ve seen tremendous investment over the last four or five years,” he said.

It’s one thing to get startup funding. It’s quite another matter to get the follow-up funding needed to help a startup continue to grow. That issue was raised in a report by CB Insights, recently covered in “Follow-Up on Ed. Investments Lacking, Analysis Suggests.” by my colleague Sean Cavanagh.

The hot ed-tech market has prompted many to raise the question: Is a “bubble” brewing similar to the one that burst in Internet startups more than a decade ago? Matt Greenfield, the managing director of Rethink Education, a venture fund focused exclusively on early- and growth-stage education technology startups, argues that there isn’t—at least for “businesses that actually make sense.” For instance, Greenfield wrote that there are 42 digital textbook platforms, a number that is likely unsustainable.

Do you think most ed-tech companies that you encounter “make sense” in terms of their place in the marketplace? Please, let us know.

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