How AI-Based Tools Might Impact EdTech M&A Opportunities

A lesson plan assistant. A research project. A tutor that knows a student’s strengths and weaknesses, as well as their learning styles. These are just a few of the extensive ways EdTech companies are bringing AI-based tools to K-12 schools, and beyond. EdTech founders have a unique opportunity in the development and increased interest in AI, and also a risk of falling behind competitors if they don’t advance with this necessity of the future.

Study aids, which were historically Q&A note taking tools and tutors, are becoming obsolete with AI filling that gap, such as happened with Chegg. Custom learning pathways in the classroom have given teachers the ability to customize lesson plans for each student at an unprecedented level. Homework help is dying, and EdTech companies still utilizing the older concepts might only survive as a free commodity.

Here’s what to know about AI-based tools, and their potential role in Mergers and Acquisitions for EdTech founders.

The types of tools and their roles

Each typical end user, including students, teachers, administrators, support staff, and technology teams, will see benefits and obstacles related to integrating AI-based tools. Conversational AI will emulate parts of the student/teacher relationship, and some students might have access to tools providing 24/7 Q&A-based AI support.

Teachers themselves can look to these tools to create and employ more innovative teaching methods, and are sometimes being positioned as a key feature on institutes’ internal portals providing all their necessary information. They sometimes act as a teacher’s assistant, accompanying learning materials, such as creating additional resources in personalized learning in the moment, such as enrichment activities, or targeted texts on specific lexile levels for increased access to materials for struggling readers.

The top AI use cases for teachers include research (44%), generating lesson plans (38%), summarizing or synthesizing information (38%), and creating classroom materials like tests and assignments (37%). A majority (51%) believe these technologies will positively influence the future of education for teachers, while 21% think they will have a neutral impact. Almost half (49%) have already noticed a positive effect on their workload from these technologies, whereas 34% report no impact on their workload.

Administrators are interested in opportunities involving alerts and reminders, student engagement (such as clubs and competitions), private tutoring, campus tours, and lead generation and conversation.

Current trends in purchasing and adoption

EdTech founders should consider leveraging and productizing AI capabilities as it’s helping to make educators more efficient and advancing their solutions. Selling into districts without AI integration could quickly position you as an outsider looking in on modern trends. The challenge is finding ways to productize it, to move past simply using it as a buzzword. Buyers are asking more critically, "What does that actually do?" Just mentioning AI in conjunction with your tool or service isn’t enough now—you have to prove efficacy and the value it’s creating.

Purchasers are looking to products at the forefront of customized learning with AI, especially with a chance to increase equitable education. EdTech founders also have a responsibility to prove the ethics, safety, and authenticity of AI-based products, in a world where plagiarism, uncited sources, and questionable information has become the norm.

Matthew Tower’s ETCH 2023 Review points to AI positively enabling new tools in the tutoring and language learning markets, but was a "non-essential R&D project" everywhere else. Those able to use tutoring bots, such as DuoLingo’s, to identify students who are losing focus before they do so, may have an advantage. Help bring real value to purchasers, and support them through the adoption process in the vast new world of AI that might be confusing to them.

How to use the AI surge to your advantage

AI has been around for decades—it’s just been harder to get answers out of it until now. It may be time to use that newfound accessibility and interest to your advantage as an EdTech founder considering future M&As. Nearly four out of ten students believe AI will revolutionize teaching by creating individualized learning techniques. And though they aren’t the purchasers themselves, the purchasers often look to teacher and student expectations to determine need. So if you aren’t already appreciating how AI interacts with your platform as an EdTech founder, you may face future risk and challenges.

Automatic customized learning pathways used to be a differentiator, and now it’s a given. Though few can predict the extent to which AI tools will infiltrate EdTech solutions, and therefore school districts, EdTech founders could face the potential threat of not being able to scale as quickly as others. This can impact potential M&A opportunities as well.

Founders can ask themselves a simple, yet complicated question: "How does AI change my business model?" Having a concrete answer to this could position you to be taken seriously by buyers and investors. But that doesn’t necessarily mean creating your own AI solution. Instead, it means leveraging the open source tools that are already available, like AWS or Azure, in order to integrate the functionality into your product yourself or be able to help buyers and investors see how this technology is ready to be integrated and help increase the value of your technology.

As all eyes look to the future of AI, and its potential impact on EdTech solutions, companies valuing the unprecedented opportunity ahead could outperform those slow to adopt their business models.

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

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