The EdTech industry creates an environment where technology assists in the delivery of the proper education.
Covid-19 changed the way people used to learn, work and communicate, thus creating a promising picture for EdTech startups globally. The lockdown measures and mandatory school closures during this period led to an explosive 71.5% growth in the EdTech sector of the UK.
There are over 600 edTech companies in the UK, representing only 5% of the total tech companies in the country. It is high time to step inside the industry, but owners need to think about unique products to stand out from the crowd, ways to raise capital, and making a path to success.
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How to get started with EdTech Fundraising?
The primary attributes of an ed-tech startup are similar to others, a problem related to good scaling, a unique solution and a capable team of executing plans iteratively.
- Understand yourself as an entrepreneur
- Ask what problems you are solving.
- What part of the education market are you targeting?
- How fast will your segment grow?
- What qualitative and quantitative data do you need to estimate the value of problem-solving?
- How is the product of the business approach different?
- How efficient is your team?
- How do you motivate users?
- How viable is the distribution of the go-to-market strategy?
- Research the EdTech sector
- Know the players in the capital-raising landscape
- Build relation
- Develop a brand identity
- Get well with your finances
5 Capital raising strategies for EdTech startups
Rising interest rates and the recent global meltdown in tech sector stocks have created downward pressure on tech business valuations. Over the past decade, the education technology industry has grown exponentially, which made startup owners look for capital raising. Investors are specifically looking for companies that survived the pandemic and forecasts on how the landscape will be in future.
Here are 5 capital raising strategies for edTech startups:
Capital raising via crowdfunding is one of the most popular and effective strategies. Modern technology and digitisation have made it easy for startups to participate in crowdfunding events.
For instance, you have a startup making math games for kids. You can raise a pitch on any public crowdfunding platform where investors interested in your business model will donate funds.
Why is crowdfunding highly recommended? It not only assists owners in raising capital but provides a free marketing platform to talk about business models or ideas.
However, your voice may not reach a broad audience due to massive competition in the market. You need to research unique ideas and get noticed.
If you are launching a new company and looking for how to raise capital, you may try bootstrapping. You can start with personal funds and ask your friends and family to rescue you by loaning you funds. It offers more flexibility, and you can access fair interest rates.
Suppose you borrow money from your friend; you can select a flexible payment plan and ask for lower interest rates to repay your loan amount.
However, such a strategy is suitable for small-scale startups. For larger ones, funds from your personal savings will not be sufficient as they are highly capital-intensive businesses.
3. Angel investors
To raise capital, you can look for the latest trends like attracting Angel investors. They are high-net-worth individuals ready to invest in small startups with creative business ideas. Most Angel funders help startups to get off the ground and offer favourable terms compared to any bank loan or other lenders. They may also invest via crowdfunding platforms or pool resources with others.
These investors not only help you raise capital but provide mentorship. However, it may pose a considerable risk as they offer low investment capital.
4. Bank loans
If you need a considerable amount of capital, look for banks and financial institutions for loans. You need to provide a solid and well-structured business plan that forecasts your profit margin, time frame and other vital areas.
But, banks may not lend you money quickly and are pretty strict with startups. You can seek advice from an accountant on how businesses raise capital from banks and customise your plans accordingly. Whatever the hassles are, a bank can provide significant capital for large-scale startups, which others won’t.
5. Venture capitals
A venture capitalist invests in companies with huge potential but acquires a part of their equity and exits from the investment during an acquisition or an IPO (Initial Public Offering).
Though such a way of the capital raising costs a lot to your company, it offers expertise and proper mentorship. Looking for a venture capital investment is appropriate for businesses beyond their startup phase and generating revenues.
However, they can be risky, as venture capitalists often look to recover their investment within three to five years and are uninterested in companies taking longer to market a product than usual.
Participate in a fundraising contest.
Many fundraising contests are arranged globally for entrepreneurs to raise capital for an EdTech startup. Google, Amazon, Virgin and Microsoft are the few names to consider.
It is similar to crowdfunding, where contestants must devise a detailed and foolproof business plan and speak to the organisers. These competitions are great; even when you lose, potential investors may contact you later if interested in your pitch.
What are the difficulties in raising capital for startups?
Though the edTech market is crowded, there are opportunities for startups in the sector. But, finding an investor can be difficult, as it requires your time, energy, and effort. Providing all these constraints is challenging for startups with many core business activities.
Plus, you need to share all business information with investors, which means no more privacy. Businesses have certain confidential information like financial records of competitive strategies, etc. Sharing them is risky, but when you ask for investments, you are bound to provide them.
It can be challenging to source capital for your EdTech startup. Searching for funders may take months to years, and your investor can sometimes back out before sealing the deal. Therefore, you always need to keep your options open while raising funds. Seek professional help if required, and kickstart your business.