K-12 Investing: A Three-Dimensional Approach

Investors continue to put money to work behind efforts to fix K-12 education both inside and outside of schools. There are three principal drivers behind this activity: 1) fixing what COVID-19 mitigation policies broke; 2) improving COVID-19-revealed weaknesses inside public schools; 3) creating solutions to work around the public K-12 school system. All three avenues are likely to be productive avenues going forward regardless of larger macro-economic trends.

Fixing What’s Broken

COVID-19 mitigation has impacted schools and students in two significant ways. First, it created gaps in educational attainment that require acceleration strategies to help students catch up to grade-level proficiencies. Secondly, the social isolation caused by the pandemic has created a mental health crisis among large numbers of school-aged children that is roiling many public-school systems. Last month saw two meaningful deals aimed at these gaps.

• School-based tele-health provider Hazel Health raised $51 million in a Series C round that will support the companies continued rapid growth in schools. The company now serves 3,000 schools in 14 states. It attributes much of its growth to a post-COVID-19 mental health crisis among school-aged children.
• Littera Education, which provides tutoring solutions to public K-12 schools, acquired a business to help expand the depth and reach of its platform. Littera acquired Tutor Matching Service which pairs students and tutors in secondary and post-secondary education and its Go Board virtual tutoring platform product.

School Improvement

Leveraging technology to improve both student-facing and administrative systems has been a stable long-term theme in ed-tech investing. But the weaknesses revealed in both areas by COVID-19, as well as an ample remaining ESSER (COVID-19) funding, in addition to the presence of recession-proof ESSA funding has reenergized investing in this area of the market.

• Kirkbi A/S, the family-owned Danish company that holds a controlling interest in Lego announced the purchase of educational animation company BrainPOP for $875 million, launching it into the school instruction business where it intends to introduce the “Lego idea of learning through play” into the formal education market.
• Last month Google quietly acquired BrightBytes, a leading provider of data analytics tools for school improvement. BrightBytes securely integrates a variety of school data sources to provide useful visualizations and real-time data for school leaders to make more effective decisions. While Google has a dominant presence in schools through its Classroom and Chromebook products, the BrightBytes deal suggests the company may have a sincere desire to drive more vertically relevant functionality and revenue through the K-12 enterprise segment.

Working Around the Schools

COVID-19 sparked a new level of parent investment in education outside of the public K-12 system that seems to represent an enduring new dimension of the education landscape. Multiple companies have stepped in to take advantage of this expression by parents to both supplement, and in some cases, supplant the instruction their children are receiving in school. Tyton Partners has documented this trend extensively in our School Disrupted series and Choose to Learn reports. In past weeks, we’ve noted the heightened level of private school formation and consolidation, but last month saw two deals in the related extra-curricular instruction market.

• Vanta, a provider of free e-sports leagues and coaching services for K-12 schools raised seed financing. Vanta has a growing number of deals with school districts across the country and recently launched an individual e-sports athlete coaching service.
• Emler Swim School announced both the closing of an investment by Morgan Stanley Capital Partners as well as the acquisition of Little Flippers Swim Schools. Emler is a leading provider of swimming instruction in the U.S. with more than 38 locations in seven states.

The mandate to rectify damage done by COVID-19, the continued urgency to address issues of equity in public education, and the new energy behind the market for parental spending in education seems likely to keep K-12 investing at a heightened level through 2023.