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There is an Owl standing behind more than 30 education technology companies around the world.
Six-year-old Owl Ventures has recently closed two new funds totaling $585 million, making it the largest fund focusing solely on edtech.
Some of Owl Ventures portfolio companies have witnessed exponential growth in 2020, and Byju's, one of Owl's investments, has become a decacorn with a valuation exceeding $10 billion.
Amid the COVID-19 pandemic crisis, edtech continues to boom. This Owl is spreading its wings. Now it will fly to a higher place, looking at the global education technology market.
Owl Ventures recently announced its new funds of $585 million, among which $415 million will be used as Owl Ventures Ⅳ to invest in edtech startups' Series A round and beyond. The rest $170 million will be used as its first Opportunity Fund to help existing portfolio companies grow. Owl so far has $1.2 billion in assets under management.
“We will continue to invest in the best education technology companies. Our strategy has stayed the same throughout the years,” said Ian Chiu, Owl Ventures' Managing Director.
Owl Ventures' focus remains on the entire edtech life cycle, from early childhood and K-12 to postsecondary education and also career development. “We focus on finding the best companies, no matter what stage or country they are in,” he said.
With more money into the checkbook, the San Francisco-based firm is capable of writing a bigger check. “We are writing $5 million to $50 million.” Traditionally, the firm wrote checks that were between $5 million to $35 million.
Owl Ventures' four funds and an Opportunity Fund
Until now, the firm has raised four funds and an Opportunity Fund, and each fund is larger than the previous one. It started to raise these two funds since the end of April and closed them in a mere five months, which is a testament to Owl's ability to select programs with great potential and increased interest from its existing investors edtech.
The Owl is growing stronger to make more international investments with the $585 million. It started to expand its global presence as it announced the third fund in 2019. China, India, and Denmark are the three markets it has already stepped into.
Recently, Owl led a $40 million Series C round in Lele Ketang, a K-12 online learning platform in China. In September, Byju's raised the latest round of $500 million financing participated by Owl. In August, Labster, a virtual lab platform in Denmark, raised $9 million from investors, including Owl.
“Prior to the third fund, we were U.S.-focused, and that's because we were still a small fund to prove to the market that we have the ability to start to invest globally,” Chiu noted.
A rising number of investors from other categories have crowded into edtech in recent years, but Owl focused solely on the category from the very beginning of 2014.
Owl Ventures' logo
“It's fairly simple in the sense that owl is known to be a symbol for wisdom in many cultures,” Chiu explained why they chose an owl to represent the firm.
Education has historically been a field that is difficult to achieve high returns in the short term. Why did the Owl Fund choose to bet on the education technology industry? Chiu highlighted the changes in infrastructure unlocking the market.
“An edtech entrepreneur launching a company 10 or 15 years ago went into it with a strong passion for the category but was unlikely to achieve a very big success,” Chiu said. “A big reason historically for that is because there were structural impediments to scale a business in education. In the U.S., for example, many of the schools, even as recently as 10 years ago, didn't even have internet access.”
“Without digital infrastructure, it's very hard to build strong and scaled education technology companies,” Chiu said. “Six years ago, one of the big changes that we saw in the market was that many of these infrastructure challenges began to be solved, and key elements for a flourishing edtech ecosystem were put in place.”
We witnessed the birth of Owl Ventures against such a backdrop. Bill Gates also had the same vision with it, and he thought education would be revolutionized over the next couple of decades. He was the first investor in Owl in the U.S.
Other investors, such as college and university endowments, foundations, strategic education institutions, sovereign wealth funds, and family offices from across the U.S., Asia, Europe, Middle East, and South America, also help Owl inject more capital in edtech companies.
Owl has so far invested more than 30 edtech companies, and about half of them are at Series A or B round, and some are at the later stage.
33 portfolio companies listed on Owl Ventures' website
As shown in the chart above, India's edtech decacorn Byju's, online learning unicorn Quizlet, and corporate learning platform Degreed, as well as China's Sanjieke and LeLe Ketang are all among its portfolio companies.
Besides, at least six companies have already been acquired. Chegg bought Thinkful in an $80 million deal. WhiteHat Jr., an 18-month-old online coding platform for kids in India, was acquired by Byju's, another company in Owl's portfolio, for $300 million.
Before putting money in its bag, a company need to go through a strict evaluation process by Owl. Chiu mentioned Owl's investment criteria: strong product-market fit, proven quantifiable learning outcomes, and a robust and sustainable business model.
“Owl seeks to partner with visionary entrepreneurs who are tackling large problems in education and training to build transformative category-leading companies,” he said.
Chiu also stressed the role of infrastructure when talking about the edtech market in China. China is a very large market, no matter in K-12, vocational, or professional training segment and others. “However, from a digital perspective, the market is still at a very early stage.”
Ian Chiu, Owl Ventures' Managing Director
There's still a considerable discrepancy in the quality of educational resources and access to education in China between major cities and lower-tier cities. But at the same time, the infrastructure in China is very good with 98% internet penetration, enabling education technology offerings to reach these markets. Moreover, China is rapidly developing and innovating, and China's middle class is also growing, leading to increased spending on education.
In addition to China, global capital is also flowing into India. Leading edtech companies in the country, Byju's, Unacademy, and Vedantu, just to name a few, have raised large amounts of money this year.
“India and China actually share many similarities such as the large market size, strong cultural emphasis on education, and high percentage of household spend on education particularly through direct to consumer models,” Chiu said. “That said, India is probably five years behind China in terms of the development of the edtech ecosystem and overall infrastructure.”
Along with the increasing digital penetration, China's after-school market will see tailwinds. Career development and lifelong learning not only in the U.S., but also in India and China have great potential to grow. Lower-tier cities in both China and India are also very attractive.
The education market is at approximately $6 trillion, and it is experiencing a significant surge in digital penetration. “Currently, edtech is still at its early stage. We're only six years old with $1.2 billion under management,” Chiu said. “But if you put edtech against other sectors, many funds in more mature categories like healthcare or software may be $15 billion or $20 billion in size.”
"Before COVID-19, digital adoption was already on the rise due to the improvements in infrastructure around the world." he mentioned. "COVID-19 has only further accelerated the digital penetration in education and has probably pulled the market three to five years ahead in terms of adoption, engagement, and familiarity with edtech solutions."
Owl will also continue to cover crossover categories, such as the intersection of education and recruiting, communication, or healthcare. Hazel Health, which provides telemedicine services to children in public schools, raised $33.5 million co-led by Owl Ventures and Bain Capital Ventures in September.
Chiu told TechCrunch that he is optimistic about the exit environment over the next five years. "As these companies start to eclipse or get over $100 million in terms of revenue, many of them are going to be in prime position to go public," he said. "There's a handful of companies in our portfolio who fall into that bucket."
At present, two companies in Owl's portfolio joined the unicorn club, and at least six companies exited in mergers or acquisitions.