Everything is Awesome - EdTech Thoughts Weekly Update 7/18
Kahoot!, Guild, and some perspectives on today's EdTech market
Hello!
I hope that many of you enjoyed Sunday’s edition of Weekend Reading. As a reminder, Tuesday’s Weekly Update is for paid subscribers only - see below for how to upgrade.
This newsletter covers the PE-acquisition of Kahoot!, a spike in M&A, a malaise descending on the EdTech market, and Guild’s product strategy pivot.
With that, on to the update!
1. Most clicked link from Weekend Reading: Kahoot! is being taken private by Goldman Sachs, General Atlantic, and LEGO
Context: Kahoot! is being taken private for $1.7B in cash. The process seems to be management-friendly, with Kahoot!’s CEO as one of the major investors.
I was hoping to use Q2 earnings season in July/August to start building a narrative around take-private offers, but the good people of Goldman Sachs have conspired against my nice, orderly timeline. Given the disparities between EdTech’s 2021 COVID highs and 2023 lows (thus far) in the public markets, it does not surprise me to see a take-private deal. In fact, I think we will see at least one more deal like this before the end of the year.
It is a little more surprising that the first domino to fall on this trend is Kahoot! My sense was that the company had a fairly stable strategy in place, with decent growth - generally favorable conditions for an upset market. Thus, it wasn’t immediately clear to me why Kahoot! would be the first public education company to be taken private.
To speculate a little bit, Techcrunch notes that Kahoot! had <$100M in cash on hand and was only mildly cashflow positive in Q1’2023 (+$10M). Given the public market’s lack of interest in EdTech, it is possible that the private market offered better access to new capital to invest in organic and inorganic growth.
2. M&A Mania!
Context: For those who are counting (me, I am the only one counting), yesterday’s Weekend Reading included 14 acquisitions. Prior to this week’s update, I had only tracked 70 acquisitions total this year.
I’d like to say this is the beginning of a trend, but my guess is that this spate of acquisitions had more to do with the various parties involved wanting to close before summer vacations start. I do expect that we will end this year with more acquisitions than last year.1
The one reason to take the “over” bet on this admittedly vague (see footnote) prediction is the number of startups who are struggling to raise funding right now. It is possible that some of these startups will get scooped up by larger and/or better-capitalized companies. Unfortunately, those types of deals tend to be hard to execute - the time/resources it takes to complete an acquisition often outweigh the upside of bringing on a small entrepreneurial team and/or taking over contracts.
3. EdTech Malaise
Context: Among the longest-tenured and most observant EdTech people out there, e-Literate’s Michael Feldstein is feeling dour about the market at the halfway point of the year. Reach Capital’s first half report is more neutral, but their data paints a similarly somber picture.
Sometimes, I’m nostalgic for the good old days of 2014-2019 (or so), when Everything was Awesome and startups could raise early rounds without an obvious path to revenue. It felt like there was more appetite to build truly impactful learning products vs. today, when raising a Series A likely means assembling a crack team of Enterprise Sales professionals. (Speaking of Enterprise: there were 15 Workforce investments to complement the 14 acquisitions announced over the holiday break.)
The rebuttal to the pessimism — mine and others’ — is AI. Which is fine! Good things are happening in AI! But even the AI discourse can be depressing, as it feels like the conversation often devolves into whether AI is cheating or not.
I (have to) believe this is just a moment in time: funding is hard to come by and entrepreneurs are still building expertise in a new paradigm where AI is a requirement, not a strategic advantage. But I wouldn’t mind some notes on what is keeping y’all excited about the market going into the second half of the year.
4. Guild expands product portfolio to include student debt repayment services
Context: Guild is partnering with a Series B startup called Candidly to offer its clients access to student loan repayment services, which are relatively newly tax-incentivized.
This is the most interesting, and toughest, year in Guild’s history. The company, effectively cut off from both the public and private fundraising markets (though, probably, with a decent amount of cash in the bank), has been executing a fairly significant product portfolio expansion beyond their bread-and-butter tuition assistance programs.
The process has not been seamless - the company laid off almost 200 employees in May - but makes strategic sense. The company’s messaging has consistently emphasized their focus on the world’s largest companies (which also makes sense, it is where most of their SAM - serviceable addressable market - is). They were always going to run out of new big companies to sell tuition assistance to at some point. The choice became, sell more products to large, existing customers or sell similar products to smaller customers. I believe they made the right one.
Even more interesting about this announcement is that Guild is not actually offering the service themselves, they’ve partnered with a startup called Candidly. I’m curious whether this is a sort of try-before-you-buy-a-company move or a shift towards an almost marketplace-like approach to selling multi-stakeholder benefits packages to large companies.
Hot Takes
Thoughts I have that aren’t fully formed yet, but which I hope to workshop with you!
I don’t have much to add on the recent Supreme Court decisions at present. I feel like the mainstream and industry media did a decent job covering the various angles
I am glad to see free school meals making their way through more state legislatures. I’m not sure I like teacher’s unions leading the charge on community schools; it feels a little like co-opting the premise to make labor gains
Regardless of your position on Moms for Liberty, you should be paying attention. An abbreviated list of the speakers at their recent conference: Donald Trump, Ron DeSantis, Nikki Haley, Vivek Ramaswamy, and Asa Hutchinson
Lies, danged lies, and statistics. Can someone convince me why these polls on “confidence in higher education” matter? Despite this “lack of confidence”, 7 in 10 Americans still want the government to prioritize affordable degrees. What gives? If I were a conspiracy theorist, I might say these results have a lot to do with the way the question is asked and what cut of the responses those reporting on it choose to emphasize.
Question of the Week
Result’s of last week’s question: Fascinating! I think I agree on year-round school?
My M&A data from last year is limited to the 52 that I wrote about in the newsletter, not comprehensive like this year’s dataset. I suspect, and hope to validate by the end of this year, that there were roughly 100 classic EdTech acquisitions in 2022.