A paltry 1.4% – that’s the amount EdTech startups managed to secure of the continent’s 2023 Venture Capital (VC) funding. This sharp drop from a funding peak in 2021 has left founders with a harsh reality: smaller deal sizes and a dearth of exits. This issue became a central focus at a panel discussion during the Mastercard Foundation’s EdTech Conference in Abuja.
The funding gap follows a broader trend in the venture capital world. Investors burned by inflated valuations in the past are writing fewer checks, and mega-deals in the EdTech space are no longer getting done. Data from Disrupt Africa confirms this shift—not a single EdTech company has secured a $100 million or more venture round in 2023, a contrast to such deals witnessed on the continent in 2021 .
“Securing exits for EdTech startups is practically non-existent,” said Isaac Nyolongo, Co-Founder and CEO of Zeraki, a Kenyan EdTech startup. “If you raise money from angel networks, it will be at a lower valuation, and lower than what people get in more mature sectors.”
Despite boasting of over 200 startups, Africa’s EdTech sector is still nascent. Funding, a key driver of growth, remains a significant roadblock. Deal sizes are typically small, and only one exit has been recorded—the acquisition of Egyptian edtech Orcas by Baim, a middle-eastern EdTech startup for an undisclosed amount. With VC funding drying up, EdTech startups now rely on grants.
Challenges limiting EdTech funding in Africa can be linked to the lack of infrastructure. Others include low internet speeds, high cost of data and low smartphone penetration, according to this 2023 UNESCO report.
“Broadband, mobile penetration and power are the major challenges to increasing Edtech funding,” said Tochukwu Ezeukwu, Regional Director, African Venture Philanthropy Alliance (AVPA) . “In Nigeria, the universal access to power is 53%, compared to Ghana’s 72%, illustrating the stark competitive disadvantage some countries face.”
Another challenge is low deal sizes compared to their FinTech peers, who often attract more investments, Ezeukwu said. All panellists agreed that EdTech requires “patient capital” and investors must be willing to prioritise long-term impact over immediate returns.
The Mastercard Foundation is tackling the funding problem by providing access to equity free funding for growth stage startups, primarily in Africa. Through equity free funding, 144 EdTech startups have been supported to date as part of the solution to raising venture capital.
“Sustainable business models are crucial,” said Ruth Wairimu, an Investment Manager at Acumen Fund, an impact investor. “B2B models offer superior scalability compared to B2C, especially considering limited disposable income across much of Africa.”
The consensus is that it’s still early days for Africa’s EdTech sector. “Foundations, family offices, and grants will likely play a vital role in bridging the funding gap,” concluded Wairimu. While EdTech holds immense potential to transform education in Africa, a significant uptick in funding is necessary to unlock its full potential.
Get the best African tech newsletters in your inbox
>>> Read full article>>>
Copyright for syndicated content belongs to the linked Source : TechCabal – https://techcabal.com/2024/07/09/edtech-startups-funding/