Matt’s Top 3 SPAC Targets – EdTech

Matt’s Top 3 SPAC Targets – EdTech

SPACInsider contributor Matt Cianci this week compiled his three favorite potential SPAC targets in education technology. We look at why they are compelling and why each could be a fit for a blank-check merger.


Even before the pandemic shook up the education sector, venture capital has been pouring into edtech seeking avenues to disrupt the business of learning that has been overdue for change. Through the past decade, Chinese edtech companies raised $26.8 billion, with US firms raising $13 billion, Indian companies raising $4 billion, and European ventures raking in $2.6 billion, according to HolonIQ.

Global VC funding in edtech didn’t top $1 billion annually until 2013. But, in 2020, it took in $16.1 billion, and, in a sign of the sector maturing, over half of all edtech funding rounds last year went into unicorns, according to the HolonIQ report. In the US, this funding topped $2.2 billion in 2020 as frantic demand from schools and universities suddenly locking down gave the opportunity for many startups to scale rapidly.

As the dust of the pandemic settles, the winners are now collecting their spoils. The two US edtech companies that raised the largest rounds in 2020 both just went public in March. Roblox (NYSE:RBLX) pulled off a direct listing at a $41.9 billion valuation last month and Coursera (NYSE:COUR) IPO’ed on March 30 at $33 only to see its stock rise 75.7%, opening this Thursday at $58.

This share performance on its own provides a strong argument to edtech firms may be priced more appropriately by a SPAC than a traditional IPO in this market.

The technological disruption is only expected to increase as educational organizations begin to settle into yet another “new normal.” This goes for businesses more broadly as well that will now be working to train more employees remotely and offer competitive advancement and betterment packages to candidates that will be working from home.

Degreed

This latter market happens to be the focus of Degreed’s freemium business model.

Degreed is free for individuals who can choose a role they are looking to work towards and develop the skills necessary for qualifying. It charges enterprise clients for a more in-depth upskilling platform for their own workforces, which allows workers to show interest in higher or different roles within the organization and demonstrate they have completed trainings on the specific skills needed.

This premium model similarly operates as a workforce management system automatically matching employees to projects or mentorships that their skills indicate they are best for. This suite can also create an internal gig marketplace for employees to pick up extra pay for open tasks when they find time between the projects on their own plate.

Overall, companies use Degreed to increase retention as the system generally finds ways to keep employees plugged into internal advancement opportunities and goals. It has also come in handy for organizations undergoing post-M&A integrations to get two different staffs up to speed with one another’s processes.

Degreed has some first-hand experience on those processes as acquisitions have played a large part in its own growth as a company. It has acquired at least three peers, including Pathgather in 2018, which expanded its client base to 40% of the Fortune 500 at the time.

It has also raised about $207 million in outside capital since its 2013 seed round, but has not brought in outside dough since its $47.6 million Series C extension last June.

Newsela

While news publishers have been hunting for new revenue streams in the internet age, educators have simultaneously been looking for ways to combat the broad disinformation the internet can foster. Schools also frequently lack educational materials on recent events due to long textbook procurement schedules.

Newsela aims to scratch everyone’s back in this situation by providing classrooms with content from major news sources that it rewrites for various grades’ reading levels. As of February, Newsela had spread its platform to 37 million student users and 2.5 million teachers and was being used in some capacity in 90% of all US schools.

The company also has key backing from the Zuckerberg family, with Mark Zuckerberg personally investing in the company’s Series B and the Chan Zuckerberg Initiative participating in its $100 million Series D in February.

Newsela has raised $172.2 million overall and if it is going to make a big move with a SPAC, now may be the time to do it following smashing growth in 2020. The company’s annual recurring revenue grew 81% in 2020 with new bookings going up 115%, giving it the opportunity to comp to some of the fastest-growing SaaS companies out there.

With those numbers and connections, Newsela could potentially be on the radar of the wide range of tech SPACs. But, four SPACs have singled out edtech as their area of focus – EDTX, DNZ, ADEX, and ADEX – with trust sizes ranging from $116.7 million in the case of EdTechX II (NASDAQ:EDTX) to $287.5 million with D and Z Media (NYSE:DNZ).

Labster

Labster was named one of Newseek’s 50 businesses that stood out during the pandemic by providing 130 virtual laboratory simulations to 2 million remote students.

The set-up of these simulated labs was likely familiar to students as they work from a first-person angle allowing users to interact with equipment as if playing a video game. Although students will soon be returning to schools with physical labs, this video game-like approach is likely to have staying power as it is cheaper than maintaining schools labs, potentially more appealing to students and has a far lower chance catching anyone’s hair on fire.

This gamified approach also opens up opportunities to schools with limited abilities to provide science labs or to accurately demonstrate tests that might be too difficult or dangerous to manage in a physical setting.

Labster also hasn’t limited itself to the US school system and is already providing labs in more than 70 countries. The Denmark-based company has raised $103.5 million in outside funding to date and its $60 million Series C attracted investment from David Helgason, founder of Unity Technologies (NYSE:U), the engine for a huge swath of modern games.

There is a wide range of school functions that could potentially be gamified by Labster and released along a similar development process as video games. But, the education space has the advantage of coming with large recurring contracts rather than forcing developers to plunge major marketing budgets into capturing the gaming community’s attention.

While its high school service model charges $5,000 per school to sign in, it has higher ed offerings ranging from $2 to $99 per student and has also gotten into the professional training space. The same game platform that lets high school students play out chemical reactions can also be custom fit to teaching professional safety protocols or sales interactions.