Investing in edtech and future of work, interview with Jonathan Denais 🎓
Impact Supporters Issue #25. Thanks for being here. If you have comments or feedback drop me a message.
Disclaimer from August Solliv: The views expressed are solely my own i.e. it’s my Sunday fun work 😉
Key insights:
Interview with Jonathan Denais, Investment Director of Educapital
Education is a key impact topic as education is a key driver for improving people’s and countries’ economic conditions and reduce inequalities
Edtech deals are not typical B2B SaaS - you can have B2C, B2G, or even school models
Jonathan believes that you can make market returns with all business models (even B2G), so long as you’re solving a big enough problem
Educapital’s impact methodology is focused on 1) reach, 2) inclusion, and 3) outcome
The largest trend impacting edtech is AI
AI is moving us closer to making the Holy Grail of education accessible to many: 1-on-1 individualized learning
Greetings, Impact Supporters! 🌍 It’s August Solliv 👋 Here is what we discussed with edtech investor Jonathan (≈7 min reading time):
Why edtech and future of work are impact topics 💡
Unique characteristics of edtech ☝️
Impact methodology 🔍
Edtech in developing vs developed countries 🌎
AI in edtech 🤖
Current status on edtech 🧐
Top edtech trends 🚀
Meet Jonathan Denais 👋
Jonathan is an Investment Director at Educapital, based in Paris. Jonathan is passionate about the intersection of tech, entrepreneurship, and a little bit of finance, which is why he’s been investing in VC for the last 10 years. He has been an Investment Director at Educapital for 1,5 years and was previously the Managing Director of Open CNP, the CVC of the large French insurance company, CNP Assurances. Jonathan has backed approximately 25 companies to date with some big successes like Alan, Lydia, Moneybox, etc. 🌟
Meet Educapital 💼
Educapital is the largest edtech and future of work investor in Europe. The firm was created in 2017 by Litzie Maarek and Marie-Christine Levet. Educapital’s mission is to find, back, and support entrepreneurs in what can be framed as human capital 🧠 - how you teach and help people become their better selves. This is split into investing in edtech and future of work. Educapital manages two funds with a total of €200m in AUM. Educapital is actively investing out of its second fund with €150m in AUM, doing Seed to Series B deals, primarily in Europe.
Why are education and future of work impact topics? 💡
Providing access to education and building a better educational system are part of the UN Sustainable Development Goals (United Nations, undated). Education is key for societal development as it has been proven to be one of the best tools to improve the economic conditions of the population and create public returns at all levels of education (OECD, undated). That’s why education can be considered impact 🌱
For Educapital, education doesn’t stop at A-levels, but people learn all along their lives - whether at home scrolling on Wikipedia, or at the workplace. Companies have a huge task and responsibility to reskill and upskill their workforce to solve the tasks of tomorrow. That’s why Educapital invests in both education and future of work 📚
Moreover, Jonathan highlights that the need for edtech is high. Looking at Pisa tests, an international assessment tool of the educational level of 15-year-olds, the average level of education has been declining over the last years (OECD, 2022), and Covid has accelerated that trend.
What is unique about edtech VC deals? ☝️
According to Jonathan, in edtech, you have to step out of the typical VC mindset 🔄 Firstly, the industry relies on business models that are sometimes different from the typical B2B SaaS model. In edtech, investors look at marketplaces, B2C models, and even schools.
Secondly, the role of the state is a huge factor in decision-making, especially in developed countries 🏛️ Educapital backs companies that operate as B2G and, therefore, work with solutions where the buyers are different from the consumers. An example is EvidenceB which helps high-school students learn math more efficiently through adaptive learning and AI. The users are the students, but the buyers is the school system.
Jonathan argues that you can make VC-style returns in B2G - just look at Moodle and Blackboard for example. Investors just have to make specific decisions and learn how to look at longer sales cycles and larger contracts to understand B2G start-ups.
Impact methodology 🔍
Educapital has a proprietary impact methodology focused on 3 pillars for which they define KPIs for all their investments Their 3 pillars are:
Reach 🌍 - How many people are you impacting?
Inclusion 🤝 - Is the solution inclusive by design, in terms of affordability or accessibility? E.g. making existing services cheaper or targeting people who can otherwise not access a given service
Outcome 💥 - How much do people learn? Do people have the desired impact on their life from the solution?
Impact in developed vs developing countries 🌎
Jonathan says that in developed countries, where the state is big and functions well, an edtech start-up can either sell B2G or directly to the consumer, B2C 🏫 The impact can be just as high in both. However, Educapital wouldn’t invest in a B2C model without affordability, e.g. a private online university with annual tuition fees of €20k/year.
In developing countries, there are much bigger opportunities compared to the size of countries’ economies because the states are currently not solving the education problem well enough. The impact in developing countries is both in terms of access to and quality of education, whereas it is primarily a question of quality of education in developed countries 🌍 However, edtech start-ups in developing countries are facing other obstacles. Regulation can be an obstacle. Jonathan gives the example of China that in 2016 where, from one day to the other, the government decided that all education should be non-profit (British Council, 2016). This greatly reduced the value of edtech players in the country.
AI in edtech 🤖
AI is completely transforming the education industry.
The Holy Grail of education is 1-on-1 individualized learning. Today, this is only accessible to the top 1% richest people in the world but with AI it can become accessible to the masses. Jonathan has already seen this democratization trend start with Massive Open Online Courses (MOOCs) 🌐 But Educapital concludes that content will not be enough. Students need interactions and personalization. AI can provide this with an AI tutor - not quite as good as a human yet, but improving quickly - and is much more affordable than a private tutor.
The other part of AI that Educapital is focusing on is the “augmented worker“ 👷♀️👷♂️ - helping people avoid monotonous and low value-add tasks. This will impact the job market and push toward more skills-based organizations. Our jobs are changing. And the rate of change is accelerating. People need to be upskilled and/or reskilled.
Jonathan is a careful optimist when it comes to AI. He says that whenever new tech arises, some people will always call for a moratorium on the new tech because of the risks related to it. That also happened with AI. However he believes that the opportunities of AI in edtech outweigh the risks and challenges, so he is betting on the opportunities ⚖️ It is key for the world to create better education - and it is even harmful to the world today that people don’t get the level of education that they need.
Jonathan is already seeing start-ups taking these ethical considerations into account. Educapital recently invested in Nolej, a start-up that helps teachers use AI in content creation. Nolej has built an “ethical AI“ to support the teachers and avoid any hallucination risk.
Current status of edtech 🧐
Source: Educapital, 2024
Edtech had a hard year in 2023 (like a lot of the VC industry), but seems to be picking up again in 2024. However it remains above the 2018-2020 levels. It will be interesting to see when it gets back to 2021-2022 standards.
Additional thoughts ❓
Educapital is an impact fund because it’s aligned with its mission on education. 95% of the companies that the fund looks at have impact at their core. Educapital still helps them further their mission and for example, helps the start-ups get research-based clinical evidence that their work actually has a positive impact on people.
Inclusion is at the heart of Educapital. They are diverse investors backing diverse founders. 40% of their portfolio companies have female founders. They make an effort out of finding diverse founders by 1) searching for diverse founders, 2) tracking their efforts, 3) being intentional about fighting biases and 4) organizing communities for diversity (gender and other types of diversity).
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