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Edtech valuations aren’t skyrocketing, but investors see more exit opportunities

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Less than a year after we put out an initial temperature check survey, it’s clear that specialist investors are even more bullish on edtech. Bears are hard to find right now: the sector, once undercapitalized, has brought in $10 billion in venture capital funding globally in 2020.

As investors told us last week, the biggest consumer opportunity in 2021 and beyond is lifelong learning (and portfolio companies have the profits to prove it).

But despite edtech’s noise, the second installment of our edtech survey shows that VCs think startups haven’t enjoyed parallel gains from a valuation perspective. The sentiment suggests that despite an apparent revitalization, edtech isn’t at the same level of “value” in investor eyes like sectors such as e-commerce, consumer and fintech.

As Mercedes Bent of Lightspeed Venture Partners said, “edtech didn’t tend to have heady valuations before the pandemic, and through 2020 I’m seeing edtech companies raise at valuations that are reasonable for Silicon Valley; still nothing like what we see in fintech.”

Now, valuations aren’t everything — but they aren’t nothing, either. Where edtech lacks in impressive valuations, investors see it gaining in exit opportunities. Many investors think that the exit environment is set to dramatically change in the next few years.

We’ve already seen Nerdy and Skillsoft, two edtech companies, go public via SPACs in the past few months. Private equity ownership is an interesting dynamic to be aware of here, especially as Vista recently scooped up PluralSight for $3.5 billion.

Here are the investors we spoke to, along with their areas of interest and expertise:

  • Deborah Quazzo, managing partner, GSV Ventures (an education fund backing ClassDojo, Degreed, Clever)
  • Ashley Bittner, founding partner, Firework Ventures (a future-of-work fund with portfolio companies LearnIn and TransfrVR)
  • Jomayra Herrera, principal, Cowboy Ventures (a generalist fund with portfolio companies Hone and Guild Education)
  • John Danner, managing partner, Dunce Capital (an edtech and future-of-work fund with portfolio companies Lambda School and Outschool)
  • Mercedes Bent and Bradley Twohig, partners, Lightspeed Venture Partners (a multistage generalist fund with investments including Forage, Clever and Outschool)
  • Ian Chiu, managing director, Owl Ventures (a large edtech-focused fund backing highly valued companies including BYJU’s, Newsela and Masterclass) 
  • Jan Lynn-Matern, founder and partner, Emerge Education (a leading edtech seed fund in Europe with portfolio companies like Aula, Unibuddy and BibliU) 
  • Benoit Wirz, partner, Brighteye Ventures (an active edtech-focused venture capital fund in Europe that backs YouSchool, Lightneer, and Aula)
  • Charles Birnbaum, partner, Bessemer Venture Partners (a generalist fund with portfolio companies including Guild Education and Brightwheel)
  • Daniel Pianko, co-founder and managing director, University Ventures (a higher-ed and future-of-work fund that is backing Imbellus and Admithub)
  • Rebecca Kaden, managing partner, Union Square Ventures (a generalist fund with portfolio companies including TopHat, Quizlet, Duolingo)
  • Andreata Muforo, partner, TLCom Capital (a generalist fund backing uLesson)

Deborah Quazzo, managing partner, GSV

How has edtech’s boom impacted your deal-making? Has the new interest from generalist investors made valuations too bubbly, or is the market growth helping everyone?

We met on Zoom with over 800 founding teams in COVID all over the world. We invested in 14 new companies and are just finishing rounds in two more. Valuation pressures are across tech sectors. I’d argue that education still lags average tech. The question for edtech is whether there is potential for a $100 billion company in the sector — will TAMs support it.

Edtech has traditionally had few exits. When do you expect to see that change? Are you optimistic about the boom in funding lately? On the other hand, what consolidation do you expect to see?

Exit volume is rising already with a wide range of strategic and financial buyers of edtech companies — something that didn’t exist before. You will see numerous high-value exits in the first half of 2021. It’s the public market “exits” that have really lagged and that I hope turns around in 2021 and 2022. There are numerous global companies that could go public and the addition of SPAC IPOs creates another positive dynamic.

Ashley Bittner, founding partner, Firework Ventures

How has edtech’s boom impacted your deal-making? Has the new interest from generalist investors made valuations too bubbly, or is the market growth helping everyone?

The boom has not directly impacted my deal-making. We tend to work with CEOs looking for category expertise and track record in the space. I do worry about overexuberance creating disappointing returns that sour interest in the sector. There are important TAM, business model, pedagogical and regulatory factors to consider in valuation.

Edtech has traditionally had few exits. When do you expect to see that change? Are you optimistic about the boom in funding lately? On the other hand, what consolidation do you expect to see? 

I think that will change shortly … I suspect many of the notable exits will come in future of work/human capital, consumer and in international markets for early education and K-12.

Jomayra Herrera, principal, Cowboy Ventures

How has edtech’s boom impacted your deal-making? Has the new interest from generalist investors made valuations too bubbly, or is the market growth helping everyone?
Edtech has a history of going in booms (when investors find new excitement for the sector) and busts (when investors realize the difficulties in scaling companies in the space). We happen to be going through a boom right now, which I think is an overall good thing for market innovation. While valuations across all sectors are expensive right now, I think more capital going toward innovating a sector that has an impact on everyone’s life will result in a net positive. We have a history of investing in the sector and will continue to do so as we see new, category-defining companies arise.

Edtech has traditionally had few exits. When do you expect to see that change? Are you optimistic about the boom in funding lately? On the other hand, what consolidation do you expect to see?
Edtech has had plenty of exits, but they are usually smaller and typically to PE firms or companies that have large distribution channels. There are very few large IPOs. I think we will start to see larger exits for three primary reasons: (I) accelerated consumer adoption of online and hybrid learning will increase market sizes, (II) as educators and institutions get more comfortable with leveraging technology in their practice we may see shorter sales cycle and more budget available, (III) many larger exits tend to be platforms as opposed to content providers (e.g., Canvas, 2U, Instructure) and with a higher standard for infrastructure there is a space for new competitors.
I expect even more consolidation in the bootcamp space. We’re already seeing it with Flatiron, Thinkful, General Assembly, Bloc and many others having already been acquired.

John Danner, managing partner, Dunce Capital

Lyron Foster is a Hawaii based African American Musician, Author, Actor, Blogger, Filmmaker, Philanthropist and Multinational Serial Tech Entrepreneur.

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Last-mile delivery robotics company Refraction AI raises $4.2M

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Ann Arbor-based Refraction AI announced today that it has raised a $4.2 million seed round. The startup, which debuted on the TechCrunch Sessions: Mobility stage back in 2019, was founded by a pair of University of Michigan professors (Matthew Johnson-Roberson — now CTO — and Ram Vasudevan) seeking to solve a number of issues posed by many delivery robots.

With an initial prototype built on a bicycle foundation, the company’s REV-1 robot is designed to operate in bike lanes and roads, rather than the standard sidewalk ‘bot. The different approach allows the robot to travel at higher speeds (topping out at 15 miles per hour) and removes some of the messy pedestrian-dodging issues that come with sidewalk use (while introducing some new ones on that narrow sliver of asphalt shared by cyclists).

Refraction is currently testing a small fleet in its native Ann Arbor. The seed round, led by Pillar VC, will be used for R&D, expanding the company’s reach and recruiting more customers, with a focus on grocery store and restaurant deliveries. Other investors include, eLab Ventures, Osage Venture Partners, Trucks Venture Capital, Alumni Ventures Group, Chad Laurans and Invest Michigan.

Another key differentiator is the use of cameras, versus LIDAR. The decision comes with some technological trade-offs, but benefits include a lower price point and the ability for the company to more quickly scale its fleet. The technology is also not easily districted by weather conditions encountered in the upper midwest, though it has limitations, too. As the company puts it, if you’re not comfortable walking out in it, the robot probably won’t be, either.

“Our platform uses technology that exists today in an innovative way, to get people the things they need, when they need them, where they live,” CEO Luke Schneider said in a release tied to the news. “And we’re doing so in a way that reduces business’ costs, makes roads less congested, and eliminates carbon emissions.”

With this new funding, the company plans to expand operations beyond its native Ann Arbor, though no additional test markets have been announced.

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New clinical trial data from Locus Biosciences shows promise in CRISPR-Cas3 technology

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Antibiotic resistance is one of the biggest potential threats to global health today. But Locus Biosciences is hoping that their crPhage technology might provide a new solution.

Based in North Carolina’s Research Triangle, the startup recently announced promising phase 1b clinical trial results for their use of CRISPR-Cas3-enhanced bacteriophages as a treatment for urinary tract infections caused by escherichia coli. Led in part by former Patheon executive and current Locus CEO Paul Garofolo, the startup launched in 2015 with the goal of using a less popular application of CRISPR technology to address growing antimicrobial resistance.

CRISPR-Cas3 technology has notably different mechanisms from its more well-known CRISPR-Cas9 counterpart. Where the Cas9 enzyme has the ability to cleanly cut through a piece of DNA like a pair of scissors, Garofolo describes Cas3 more like a Pac-Man, shredding the DNA as it moves along a strand.

“You wouldn’t be able to use it for most of the editing platforms people were after,” he said, noting that meant there wouldn’t be as much competition around Cas3. “So I knew it would be protected for some time, and that we could keep it quiet.”

Garofolo and his team wanted to use CRISPR-Cas3 not to edit harmful bacteria found in the body, but to destroy it. To do this, they took the DNA-shredding mechanism of Cas3 and used it to enhance bacteriophages—viruses that can attack and kill different species of bacteria. Together, co-founder and Chief Scientific Officer Dave Ousterout—who has a Ph.D. in biomedical engineering from Duke—thinks this technology offers an extremely direct and targeted way of killing bacteria.

“We armed the phages with this Cas3 system that attacks E. coli, and that sort of dual mechanism of action is what comes together, essentially, as a really potent way to remove just E. coli,” he said in an interview.

That specificity is something that antibiotics lack. Rather than targeting only harmful bacteria in the body, antibiotics typically wipe out all bacteria they come across. “Every time we take antibiotics, we’re not thinking about all the other parts of us that are impacted by the bacteria that do good things,” said Garofolo. But the precision of Locus Biosciences’ crPhage technology means that only the targeted bacteria would be wiped out, leaving those necessary to the body’s normal function intact.

Beyond offering this more specific approach to treatment of pathogens, or any bacteria-based disease, Garofolo and his team also suspect that their approach will also be extremely safe. Though deadly to bacteria, bacteriophages are typically harmless to humans. The safety of CRISPR in humans is well-established, too.

“That’s our secret sauce,” said Garofolo. “We can build drugs that are more powerful than the antibiotics they’re trying to replace, and they use phage, which is probably one of the world’s safest ways to deliver something into the human body.”

While this new technology could certainly help treat pathogens and infectious diseases, Garofolo hopes that indications in immunology, oncology, and neurology might benefit from it too. “We’re starting to figure out that some bacteria might promote cancer, or inflammation in your gut,” he said. If researchers can identify the bacteria at the root cause of those conditions, Garofolo and Ousterout think the crPhage technology might prove to be an effective treatment.

“If we’re right about that, it’s not just about infections or antimicrobial resistance, but helping people overcome cancer or delay the onset of dementia,” Garofolo said. “It’s changing the way we think about how bacteria really help us live.”


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Amazon expands its food delivery service across Bangalore

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Amazon said on Monday it has expanded its food delivery service, called Amazon Food, across 62 zip codes in Bangalore, in what is the first public update since entering the new category in India last May.

The American e-commerce group said Amazon Food now reaches key localities in Bangalore such as Whitefield, HSR, Sarjapur, Koramangala, Indiranagar, MG Road, Jayanagar, JP Nagar, Frazer Town, Malleshwaram, Rajajinagar, and Vijayanaga.

At the time of the launch in May last year, Amazon Food was available in just four zip codes in Bangalore.

Even as Amazon Food remains limited to one key market in India, the company is aggressively trying to undercut the competition — heavily funded startups Zomato and Swiggy — in the city.

Food delivery is free to Prime members, while others have to pay a fee of 19 Indian rupees (26 cents) — cheaper than fees levied by Swiggy and Zomato.

The company, which has committed to investing $6.5 billion in its India operations, said it has amassed 2,5000 restaurants and cloud kitchens in Bangalore — also referred as Bengaluru. Amazon Food customers can enjoy “offers” from these restaurants as well as cashbacks from Amazon, the company said.

It, however, did not share why it has been uncharacteristically so slow with the expansion of Amazon Food in the country.

(Well, I mean, there is a global pandemic — but Amazon also makes a number of what its employees say “one-way door” and “two-way door” bets. Two-way door bets are those that the company has not fully committed to and is just attempting to test the waters before making a concrete decision. Think of Amazon Prime as a one-way door bet. So it’s not clear from day 1 how committed Amazon is to any new service.)

“With the expansion of Amazon Food in Bengaluru, we continue in our endeavor to offer unmatched convenience and value while being a part of their everyday lives. Amazon Food brings some of the city’s top restaurants including national outlets and as well as local favorites which are popular and follow strict delivery and safety protocols,” said Sameer Khetarpal, Director of Category Management at Amazon India, in a statement.

Ant Financial-backed Zomato and Prosus Ventures-backed Swiggy have established duopoly in the food delivery market in India, with analysts at Bank of America estimating their combined market share to be over 90%. (Uber exited the Indian food delivery market early last year after selling its local food business to Zomato.)

The expansion of Amazon Food also comes at a time when Zomato, which according to analysts leads the market, is preparing to file for an IPO.

India’s food delivery market is especially tough to crack because of local conditions. Unlike in the developed markets such as the U.S., where the value of each delivery item is about $33, in India, a similar item carries the price tag of $4, according to research firms. Both Zomato and Swiggy have significantly improved their unit economics in the past year.

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