VCs say AI in the classroom and tech meant to help students who’ve fallen behind will be among the top edtech trends in 2023

For educational-technology startups looking for venture-capital funding, the coronavirus pandemic ushered in a boom. Schools and universities raced to adopt remote learning and tools to help them adjust to it. 

In fact, annual venture-capital funding to edtech startups has more than tripled since 2019, according to PitchBook data. In 2019, funding in the space was $5.4 billion. That increased nearly threefold in 2020, to $14.1 billion, and then reached a record total in 2021 with $16.8 billion, PitchBook found. PitchBook estimates that edtech funding in 2022 stood at $8.4 billion as of December 15, as schools reopening led to less need for virtual teaching tools.

This uncertainty could lead to more-generalist firms shying away from the sector, Adriel Bercow, the founding partner of K50 Ventures, said. “Edtech specifically can face challenges due to the costs of scaling and finding product market fit or lack of appetite from downstream investors,” he said.

Still, many investors remain optimistic about edtech in the long term, even if short-term prospects are tougher, they told Insider. Edtech startups across all sectors tend to be countercyclical compared with the economy at large, according to Amit Patel, a managing director at Owl Ventures. Continuing education and higher education boom when the job market is less reliable, he said.

And with an increasing number of students falling behind across education levels, schools and governments will be in the market for innovative solutions that can produce tangible results.

“The problems being addressed by global learning and skilling tech founders are larger and more urgent than ever as we see in declining academic results, absenteeism, and issues of engagement,” the GSV managing partner Deborah Quazzo said.

Insider spoke with several top edtech venture capitalists to learn why, despite the anticipated downturn, they remain optimistic that the mass edtech adoption in schools and workplaces is here to stay. Here are the top four edtech trends to watch in 2023, according to top edtech investors. 

Investors target startups trying to help students catch up academically and emotionally

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Parents and teachers are only beginning to understand the consequences of pandemic-era remote learning for K-12 students. Investors are looking to startups that can enhance in-classroom learning deficits and mental-health-related behavioral issues. 

Reading- and math-proficiency scores for fourth to eighth graders are declining, according to results from the most recent National Assessment of Educational Progress in October. Combine these losses with increasing teacher turnover and a growing awareness of the emotional toll the pandemic has taken on students. and the situation becomes dire, Ian Chiu of Owl Ventures said.

“Schools and districts are looking for solutions that can make up this learning loss, whether through teaching augmentations or student support,” Shauntel Garvey, a cofounder of the education-focused VC fund Reach Capital, told Insider.

One startup attempting to tackle this is Clayful, which lets students ages 8 to 18 text with behavioral-support counselors, Garvey said. These counselors can help provide emotional support to students.

Online-only learning programs will fall out of fashion in favor of hybrid and enhanced in-person learning

Programs that offered online learning and virtual tutoring were a lifeline during COVID-19 outbreaks and lockdowns. But VCs told Insider they expected schooling to revert back toward in-person instruction whenever possible, even if there is some holdover from parents who pulled out of traditional schooling.

“There will be a lot of headwinds for the completely digital schooling methodology,” Vinny Pujji, a managing partner at Left Lane Capital, said. “It will be shrinking from the peak levels of 2020 to 2021.”

While some companies fully embraced online and virtual schooling as a business strategy, VCs say it’s now essential that they build in some type of human interaction, like in-person small-group meetings or synchronous live video elements.

“People just crave community,” Reach Capital’s Shauntel Garvey said. “Solutions where there’s no cohort or community are not as desirable.”

More M&A, under strict scrutiny, will take place as the edtech market consolidates

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As interest rates rise and the hot startup market cools, VCs expect to see fewer new edtech companies springing to life in 2023 and more startups consolidating through mergers and acquisitions.

“A lot of companies that didn’t raise this year are going to have to raise in the back half of 2023, and by then many of them will have been 18 to 20 months since their last fundraise,” Ian Chiu of Owl Ventures said.

In terms of who will be doing the buying, the few public edtech companies, like the online-course library Coursera and the gamified language-learning app Duolingo, will be in a prime position to swoop up their rivals, Katelyn Donnelly, the founder and managing director of Avalanche VC, said. 

Additionally, investors will generally demand higher scrutiny on a company’s potential for growth.

“For edtech companies that want to raise a growth round, they better be able to demonstrate strong product market fit and be dramatically exceeding their plan,” Niko Bonatsos, a managing director at General Catalyst, said.

Virtual reality and artificial intelligence will enter classrooms around the world

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The pandemic ushered in a rapid adoption of new technology tools across K-12 schools and universities. For instance, a crop of virtual-reality startups sought to enhance math and science learning through gamified lesson plans.

Donnelly of Avalanche VC predicts that startups like these will see even more widespread adoption next year as school districts look for new ways to engage students in tricky subjects.

She said these tools would be more integrated into the classroom rather than what she called the “hastily put-together YouTube videos” that characterized much pandemic-era virtual learning.

Several VCs including Quazzo of GSV also bet heavily that generative AI, or artificial intelligence that can create content, would become increasingly prevalent in schools and universities in the form of tutoring tools or teaching aids. Some startups already attracting investor attention in the space include TeachFX, which offers AI-generated teaching feedback, and Prof Jim, which turns traditional textbook content into multimedia learning experiences.

And with increased federal funding from pandemic relief still flowing into schools, VCs predict school districts will be willing to try out this new tech because they’ll finally have the budget to do so.