Shifting Paradigms in EdTech Purchasing Patterns
- Why schools and districts are tightening EdTech purchasing criteria based on product adoption and usage
- What the new purchasing criteria means for EdTech founders
For obvious reasons, amid the COVID-19 pandemic, the EdTech sector has experienced rapid and unprecedented technology adoption driven largely by necessity. This rapid adoption of software has drawn attention to software usage at the most grassroots level: by teachers and students.
Because teachers adopted the software products that best met their needs, the EdTech space is seeing a new purchasing paradigm emerge in which adoption and usage at the user level plays an important role in determining which products will be purchased and renewed at the school and district level.
As such, companies who historically relied on pre-existing relationships with technology officers or district administrators to sell their products will need to take a closer look at how and why their products are used if they want to maintain strong retention in subsequent renewal periods. While these trends are most acute in K through 12 technology solutions, similar dynamics are also at play in software targeting post-secondary education as well.
The Changing Paradigm in EdTech Purchasing
Historically, the EdTech sales process has been characterized by top-down purchase decisions. The beneficiaries of this model have historically been companies with the strongest sales and marketing teams, pre-existing relationships with buyers, and enough products to create low-cost bundles.
This model, however, has created inefficiencies in that software purchases aren’t tied to the best product, which creates adoption issues when licenses aren’t fully utilized. In an era of tightening education budgets, the inefficiencies are an even greater point of concern.
The pandemic, of course, created a need to rapidly adopt software that could support remote learning (despite being called "in-classroom" tools). The exigent circumstances and resulting technology purchases created a patchwork of EdTech software that administrators will eventually need to evaluate as part of ongoing purchasing patterns.
Because education budgets are already notoriously limited, districts and schools are likely to introduce new criteria for deciding which products to purchase and renew. Specifically, they’re likely going to consider adoption and usage by end users (i.e. teachers and students) as important criteria for determining which solutions to buy going forward.
The Effect of the Changing Paradigm on EdTech Companies
The shifting paradigm has opened a new window of opportunity for product-oriented companies. Because more focus is on adoption and usage, the process for exposing the best product has become more efficient. So while historically usage by teachers and students played less of a role in purchasing decisions, product-oriented companies may now be in a good position to articulate their value proposition to administrators because they have teachers to advocate for their products and data to support their reliance on certain tools.
A counterargument to this thesis is that the tools that were rapidly adopted during the pandemic may lose relevance if remote learning again becomes the exception, not the rule. Still, if or when that happens, teachers will likely continue to use the tools that remain relevant as they’ve taken the time to incorporate them into their teaching methods. In turn, the tools that teachers keep will probably be the tools they’ll use for the foreseeable future, which translates into high retention and recurring revenue for these EdTech companies.
The Effect of the Paradigm Shift on M&A
Already, the COVID tailwind has served to catalyze M&A in the segment, as evidenced in the acquisitions of Pear Deck and SoftDocs.
Indeed, EdTech companies who have seen rapid growth from technology adoption are in a favorable position for an M&A or capital raise transaction. However, despite the general enthusiasm surrounding EdTech, there is some skepticism around meteoric growth from prospective buyers. Many wonder, "Will it last?"
Another complication, particularly among potential corporate buyers, is that they are most familiar with the traditional top-down sales model and have benefited from the prevailing purchasing patterns prior to the pandemic. So beyond just potential integration challenges, corporate buyers may not perceive usage-led customer acquisition as favorable.
At the same time, these new trends in the market may ultimately prove to be convincing, which could force the hands of corporate buyers to embrace the shift and use M&A as a tool to reposition themselves in front of the new powerbrokers in EdTech—the end users.
Working with an Investment Bank to Position Usage-Led Growth
One company who was able to successfully position usage-led growth as positive for an outsized acquisition was Pear Deck.
After 300% growth in 3 months, the Pear Deck founders received inbound interest from strategic buyers looking to discuss a transaction. In order to stay focused on their business, the Pear Deck team decided to hire an investment bank to manage the process for them.
Anthony Showalter, co-founder of Pear Deck, shared his experience working with Vista Point Advisors as his advising investment bank:
"An important aspect of Vista Point’s support was in positioning our rapid growth to interested acquirers. From the beginning, Vista Point warned us that buyers might look at our rapid growth as anomalous and ephemeral."
"Having anticipated this concern, Vista Point was able to build out the credibility of our revenue, showing buyers that the circumstances of our rapid growth were not just a one-time blip, but a catalyst unlocking future growth. As a result of Vista Point’s foresight and positioning, concerns over our rapid growth were a non-issue."
By working with an investment bank, founders are better positioned to argue the thesis that administrators are going to start taking into account teacher adoption and usage when making purchasing decisions. Positioning this story and framing the associated metrics are necessary for a successful sale to the right strategic EdTech partner.
If you’re an EdTech founder interested in pursuing a transaction, visit our team page and reach out to a member of Vista Point Advisors. To learn more about the process of working with an investment bank, take a look at our content library talking through the M&A process for founders.