ETCH Funding + M&A Update 11/10/23

The EarlyBird gets college paid for?

Nov 10, 2023

Hello!

I hope you enjoyed Sunday’s edition of Weekend Reading.

The Funding + M&A Update is a weekly newsletter for paid subscribers that provides analysis of recent financial transactions in the education space and short essays on trends I am seeing. If you are not a paid subscriber, see below for how to upgrade.

Today’s Funding + M&A Update covers the funding rounds of Noon, EarlyBird, Klassroom, Spotted Zebra, Shakers, and SkillsTrust and the acquisition of EmpowerU by Fullbloom.

With that, on to the update!

Funding / M&A

K12

Noon raises $41M / Saudi Arabia, Tutoring / Wa’ed Ventures, Raed Ventures, STV, SVC, Riyadh Valley Company, Endeavor, Sanabil 500, Qyem Development Holding, Nahlat Alarab Holding: Riyadh-based Noon started life as a test prep company, built a tutoring marketplace, and now calls itself a “social learning” company. I am normally skeptical of such broad-based company definitions but, in this case, “social learning” seems like a good fit. One way to think about Noon is as an evolution in how the platform’s users get the information they seek - first it was through content the company produced, then it was through vetted subject matter experts, and now it is crowdsourced from peers and near-peers.

Prior to the escalation of conflict between Hamas and Israel last month, I had flagged the Middle East as a market to follow more closely going into 2024. I don’t pretend to know what the future holds for the geopolitics of the region, but had been pondering the following question: will the Middle Eastern EdTech market end up being served by big EdTech companies from outside the region, or will the region choose/build/support homegrown tools?

The internet is a global phenomenon, but every major geography ends up making a choice - either explicitly or implicitly - in how their tech ecosystems develop. To grossly overgeneralize, in Europe, there is a lot of crossover in applications with the US. In China, there is almost no overlap in apps. In India, there is some overlap, but it often feels like the localized solutions perform better (see Amazon vs. Flipkart and the vibrant growth of the Indian EdTech ecosystem, Byju’s notwithstanding).

It feels too early to predict how this scenario will develop in the Middle East (or, for that matter, Southeast Asia or Africa), particularly in education. I know language translation works on a technical level. I know Coursera is doing work across the region, and companies like Classera (who shares multiple investors with Noon) are building companies in the US that are focused specifically on the Middle East. I am curious to watch this continue to evolve.

EarlyBird raises $4.5M / US, Tax Planning (including 529s) / IDEO Ventures, 776 Ventures, Fiat Ventures, RareBreed Ventures, ResilienceVC, Sweater Ventures, Alumni Ventures, Goodwater Capital, Wintrust Bank, Parallel: Chicago-based EarlyBird is a fintech platform built around the Uniform Gifts to Minors Act (UMGA), which lets parents, family, and friends gift money to minors. This tax benefit is commonly used to establish college funds for kids.

EarlyBird is more fintech than EdTech, and the UMGA has been around since 1972. But, I include it in this week’s funding rounds because, to me, it fits in a broader narrative of the increasing complexity of raising a child.

I would argue that this complexity is net positive. There are an order of magnitude more opportunities for more types of children in more parts of the world than ever before. Increasingly, at least in the US, it looks like parents will be given even more autonomy, and financial resources, to support their children exploring the best opportunities for them.

But that complexity and autonomy also translates into a massive cognitive load. Should parents be saving $20-30K/year via EarlyBird/UMGA to provide a nest egg/college fund for their kids as they hit adulthood or spending $2-3K/month on the best childcare programs they can find? How much is a $30K/child/year nomad experience abroad worth relative to those options?

Again, these are good problems to have if you can afford them! And apps like EarlyBird at least help make resource allocation decisions more explicit for parents. The complexity of the task is jaw-dropping (admittedly, this position might be influenced by own <14 weeks of parenthood).

Klassroom raises $450K / India, Test Prep / Ah! Ventures, Meteor Ventures: Mumbai-based Klassroom helps learners in India study, both online and in-person, for a number of India’s government-administered examinations. The company claims to have served over 60,000 learners since their inception in 2016.

FullBloom acquires EmpowerU / US, Student Support Services: Philadelphia-based FullBloom provides special education, behavioral health, and professional development programs to 1100+ US school districts representing more than 100,000 students. The FullBloom team is joined by Minneapolis-based EmpowerU, which offers mental health curriculum and counseling to K12 districts and universities.

This acquisition is a pretty classic private equity bolt-on, but the history of FullBloom is sort of wild. The company was founded in 1976 and remained independently owned until 1995, when it joined the Sylvan Learning empire. When Sylvan’s owners pivoted to higher education in 2003 - building what became Laureate Education - private equity firm Apollo took over the learning center business and FullBloom’s school services business (then named Catapult).

And then, in 2007, Sylvan’s pre-Apollo owners bought Catapult back! But their plans seem to have been foiled by the 2008 financial crisis, so the company traded to another group of PE firms.

These firms held on to the company for almost 10 years, adding no fewer than 5 other companies (sources get tricky to validate that far back) to the product portfolio before selling the company to yet another PE firm, the Vistria Group. Vistria quickly added at least 3 | more | companies to the parent company, rebranded and added Arne Duncan to the board, then sold the company once more, this time to private equity firm American Securities. In keeping with our theme, American Securities has, including EmpowerU, added 3 | more companies to the parent conglomerate just this year.

5 PE owners and 11 acquisitions over 20 years is actually not that crazy if you figure the average PE holding period is ~5 years. But it is funny to 1) see it written out and 2) think that all of it took place without touching the public markets. What a roller coaster!

Instructure acquires Parchment for ~$800M / US, LMS (Credentialing): I covered this acquisition ahead of schedule last week because it was such a big deal. You can see the write-up here.

Workforce

Spotted Zebra raises £7.7M / UK, Skills-based Hiring / Nauta Capital, Act Venture Capital, Playfair, Entrepreneur First: London-based Spotted Zebra helps companies adopt skills-based hiring programs.

Spotted Zebra’s round, which follows the $1.8M the team raised just 6 months ago, is a great counterpoint to the point I tried to make above that European countries often use US tools. We’ve seen a number of skills-based hiring and upskilling solutions emerge in North America over the past few years, including (but not limited to) FutureFit, Territorium, and Workera.

However, the skills-based hiring market, and all of these companies within it, is relatively early-stage. It is hard to know whether the market need is distinct based on cultural differences or it is just taking time to develop. Nevertheless, I will keep an eye on it!

Shakers raises €6M / Spain, Team Collaboration / Adevinta Ventures, Brighteye Ventures, Athos Capital, Wayra: Madrid-based Shakers is a platform that connects corporations with freelance workers.

The company looks to differentiate itself from incumbent platforms like UpWork and Catalant by designing their own tool for specific use cases (like mobile app development, cloud migrations, generative AI, data analysis, and/or cyber security) rather than the general knowledge work.

This strategy requires more upfront hand-holding on both the client and freelancer side, but I can see how it might be compelling in the longer term. It allows Shakers to prioritize supporting the most profitable freelancer use cases, gives the freelancers and corporations involved more incentive to stay on-platform, and gives Shaker’s freelancer-recruiting team a much more specific target demographic to seek out.

SkillsTrust raises €1M / Ireland, Hiring Simulations / Rethink Education, Emerge: Dublin-based SkillsTrust is a simulations platform designed to help companies hire based on skills.

I will admit that I am a sucker for simulations, both in general and for hiring specifically. They are, of course, much harder to scale than skills-focused data platforms like Spotted Zebra, but the positive trade-off is they provide a more real time and detailed dataset of candidate skills for clients to evaluate in hiring decisions.

SkillsTrust raised this funding round on the hypothesis that they will be able to dramatically lower the cost of producing high-quality hiring simulations using AI. It is far too soon to tell whether that hypothesis is correct or not, but, either way, makes the company one worth watching.

Venture Funds

Norrsken22 raises $205M / Africa-focused, Growth Stage: Norrsken is an early-ish stage investor (Series A - C) focused on investing in African companies. They do not appear to have a formal headquarters, with investing partners based in Kenya, South Africa, Sweden, and the US and operations teams in Nigeria, South Africa, Kenya, and Ghana.

Norrsken is not an EdTech specialist, but does call out EdTech (alongside Fintech, Medtech, and Marketplaces) as one of the core themes they would like to invest in.