What does the future hold for 'ed-tech'?

As world leaders gathered in Davos, Switzerland this January to discuss the impact and profound changes underpinning the Fourth Industrial Revolution, I’d like to take a moment to look at how innovation can transform the face of an industry.

In the KPMG Q4’15 Venture Capital Report, developed in collaboration with CB Insights, one industry stood out from the crowd. While Venture Capital (VC) investment declined across many industries during the quarter, Education-Technology (Ed-tech) showed a dramatic upward curve. In fact, VC investment in Ed-tech companies during Q4 reached over US$1 billion for the first time ever – a growth of over 300 percent compared to the previous quarter.

This increase was remarkable – not only for its timing, but for the number of $100 million-plus deals occurring in the industry at a time when other industries were hit hard by VC investors growing more cautious. At the same time, it goes to show that when an industry is in the midst of significant transformation – investors take note.

Now, Ed-tech’s rise did not come completely out of left field. We’ve been talking about the potential posed by Ed-tech for a number of quarters, if not more. In many countries, there’s a real need to update and modernize educational systems – whether primary school, high school, higher education or continuing education. There’s also a fierce demand from parents, students and teachers to have access to more innovative technologies to support learning.

Given the potential market for Ed-tech, many investors have been focused more on where to invest their capital – rather than on whether to invest it. Ed-tech comes in all shapes and sizes – from technologies underpinning universities that offer MOOCs (Massive Open Online Courses) to interactive learning apps, language apps, testing programs and technologies designed to increase classroom effectiveness.

There are hundreds of companies right now looking to transform education the way Uber has transformed transportation. In fact, according to our Q4 Venture Pulse Report, 234 Ed-tech companies raised over $2.5 billion through VC funding rounds in 2015 – each offering a unique value proposition for transforming education in some way. While many of these deals were funded in North America, significant deals occurred in all regions, including Asia and Europe. During Q4, the top 3 VC deals included HotChalk ($230 million – Corporate Minority), TutorGroup ($200 million – Series C) and Udacity ($105 million – Series D).

Although industry evolution on the scale suggested by the World Economic Forum doesn’t come without risks. In Ed-tech, the reality is that some companies have found it difficult to monetize their offerings. As governments begin to regulate some technologies, additional challenges may arise. For example, some states in the US are considering strengthening privacy laws. This could hinder the ability of some Ed-tech app developers to make a profit.

Looking ahead, it seems as if Ed-tech is only in the early stages of industry-wide evolution. But that’s what makes it so interesting to investors – the potential. It will certainly be interesting to see how all aspects of the industry evolve over the next few years. The founders that come up with an optimal product or strategy that meets the needs of all stakeholders, including teachers, administrators and students, will be the most attractive to investors.

Note: Data has been sourced through the Venture Pulse Report (Q4’15). A global analysis of venture funding by KPMG International and CB insights (data provided by CB Insights).