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Expanding EdTech Audiences for M&A Opportunities

  • How moving into upstream or downstream audience segments can improve EdTech attractiveness for M&A
  • The benefits of expanding audiences on TAM, sales cycles, and churn

EdTech companies typically serve either the K-12, higher-ed, or corporate training market, but rarely all three. Each of those markets carries inherent barriers and limitations. There are long sales cycles aligned with the typical school year. There is "churn," or natural retention, that comes with the industry, as students graduate and new students replace them. Finally, there are audience size considerations in each market, which can cause EdTech companies to feel they can’t expand their Total Addressable Market (TAM) in the future.

Oftentimes, companies with potentially applicable EdTech software haven't fully explored upstream or downstream opportunities, such as K-12 tech founders moving into higher ed or higher ed companies moving into corporate training where the landscape is rife with opportunities for easily transferable EdTech products and services.

Whether an EdTech founder is already working on expanding into another applicable audience or has only realized the possibility, EdTech companies can greatly improve their mergers and acquisitions (M&A) opportunities by properly undertaking and marketing their audience expansion possibilities.

TAM Expansion

Instead of repeatedly trying to expand an EdTech company’s current market, where there are limitations like budgets or educators’ willingness to adopt technology, EdTech companies can look to corporate training opportunities. There, employers will always need many types of regular training that EdTech companies might already be well-poised to provide, such as onboarding, upskilling, sexual harassment, or product training.

In addition, corporate training programs don’t have the limitations of the Annual Contract Value (ACV) of K-12 or higher ed, nor other restricting factors such as the number of schools or districts available to engage with. In a segment where everyone needs regular training in various areas, leaders might see fewer barriers and more opportunities, especially to position their EdTech companies for future M&As.

Easier Sales Cycles

EdTech founders have the unfortunate necessity of working with long, drawn-out sales cycles in K-12 and sometimes higher ed, with budget changes from year to year as well as many levels of approval. However, corporations have a more predictable, ongoing need for training, which can ease these issues.

With shorter, more reliable sales cycles and budgets (in most cases), moving into corporate training might be a strategy to consider if overlong or complicated sales cycles are preventing growth. Quicker sales cycles could help increase revenue, and therefore opportunity for future M&A consideration that EdTech companies might not have had before.

Less Churn

An unfortunate truth in education is that the objective is usually for students to graduate and move on. This creates challenges for EdTech companies as students turnover and others fill their spots. That new onboarding process often costs them and drives the need to find solutions to the ongoing issue of churn.

In higher ed, specifically, downward trends in enrollment have EdTech purchasers questioning the worth of the widely adopted pay-by-student models — how many students are gaining value from the solution? For example, with EasyBib, even though most students are in college for four years, the company has to spend money each time students turn over, causing substantial churn issues.

While corporate clients do have issues with reduction in headcount and mass layoffs, they don’t have the same pricing per person system. So, those reductions aren’t as impactful on EdTech companies who have expanded to those companies. In addition, as a general rule, employers stay longer at a company than students who are moving to the next grade do, creating less inherent churn.

More reliable budgets and fewer limiting factors

K-12 is the hardest segment to sell into — budgets are tight, teachers have technology hesitations, and districts are inundated with too many vendor requests and obligations. So, educational technology isn’t always top of mind. Then budgets change unexpectedly, and EdTech companies are often the first elective product or solution to get cut.

EdTech founders might find fewer limiting factors in corporate training as much of their technology is transferable. L&D forecasts all point to a very relatable transformation in corporate training — integrating AI, and optimizing transformational technology. Some EdTech leaders are similarly already integrating AI capabilities into their products, and are therefore primed to position themselves as a vital resource to corporate settings.

In addition, EdTech companies in softer skill building areas have additional opportunities in corporate training settings. In fact, a 2023 Deloitte report concludes, "Businesses recognise the importance of building soft skills in their employees in order to harness the broader benefits. We estimate that businesses spend $4 billion every year on training, and another $7 billion each year on recruiting the right staff."

The feasibility of expansion into a corporate training market depends on how well the current product or solution and its functionality align with the types of training needed, including onboarding, employee, facilitating, compliance, elective, and mandatory training. Founders should consider which aspects of their current product could transfer to these new offerings with minimal adjustment or pricey changes to the products.

EdTech M&A expansion strategy

EdTech companies have a solution and a core market, and it could be profitable for founders to consider how their products would be received more broadly in another audience. Expanding into a new segment, either from K-12 to Higher Ed, or Higher Ed to corporate training is no small feat, but EdTech companies can start considering it to help make themselves look as attractive as possible for future growth and M&A opportunities.

If founders are looking for an M&A opportunity, but are not in a position to begin the expansion into another segment, part of making a bid for a broader audience can be creating a narrative about how your EdTech solution fits into the landscape of corporate training, and sharing that possibility in additional segments. In this way, corporate training buyers can easily see how the solution applies to them.

These steps might have founders looking back on their segment’s current limitations as a thing of the past and something to strategically work around, not overcome. Corporate training could be an opportunity that EdTech companies might consider now, with an eye toward selling during a time of growth.

This material and the opinions contained herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity.

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Modified on Mar 01, 2024