2015 Showing Significant Investment Trends In Education Technology Ventures[/fusion_title][fusion_text]At the completion of the first half of 2015, we began reviewing and digesting the published data on education venture investment activity and the education M&A market. The data for Edtech venture investment continue to show a positive trend with edSurge reporting that $1.1 billion was invested in 107 education deals in the United States in the first half of 2015 (Q1 plus Q2). The data show a continued positive trend in total venture investing in the education technology sector; however, the data show that the number of transactions in the United States trended down in 2014 before picking back up in 2015. The edSurge data also show a trend of fewer transactions but at larger dollar sizes, which can be expected as mature companies show positive traction and require follow on financing. Ensuring these larger investment rounds are justified by large markets and product market acceptance is key to overall value.
Important Considerations:
Larger rounds of investment lead to larger valuations and the need for larger exit valuations.
We are watching the M&A market for correlating signs of larger M&A transactions.
With regards to mergers and acquisitions, the edSurge M&A graphs show the education sector continues to be active with 177 deals totaling $6.1 billion in value in the first half of 2015 compared to 162 deals totaling $4.7 billion in the second half of 2014. The overall trend over the last two years from a high level looks positive, but it is important to remember that one large transaction can impact the data. As an example, LinkedIn.com purchased Linda.com for $1.5 billion during the first half of 2015.
Important Considerations:
Without the LinkedIn transaction, the first half of 2015 would have been more in line with past periods and significantly down from the first half of 2014.
The vast majority of M&A transactions were below $55 million in value.
When a company raises ever increasing rounds of capital at high valuations, there are fewer potential buyers for the company and an increased risk of submarket rate returns. We continue to believe that education technology companies must be capital efficient and position themselves for sub $100 million exits to provide a market return for investors. We continue to see investment opportunities with valuations and capital structures that are priced for perfection and consequently position a company for a challenging exit scenario. Our investment approach is focused on capital efficient companies with capital structures that enable multiple exit possibilities.
Important Considerations:
Edtech IPOs continue to be rare and we believe that this will be the exception rather than the norm for edtech exits.
Companies that raise capital at reasonable valuations and are capital efficient will have multiple options to grow and have successful realizations.
New Markets Venture Partners is an early and growth stage venture capital firm that invests in and helps build disruptive education, information technology and business services companies. We are one of the leading education technology-focused venture firms in the U.S.
Robb Doub joined New Markets Venture Partners in 2003 and is a General Partner. His education technology experience includes PresenceLearning and Regent Education.