It’s been a tumultuous six months for the global startup ecosystem. It is both exciting and alarming to see conversational generative AI progress with the breadth of applications being understood more and more.
We are of the view that we are nearing the end of the hype cycle, and startups, even those without a generative AI plan beforehand, are starting to see immediate uses rather than moonshots and the related disruption they can cause, including in schools and the workplace.
Exploring immediate use helps us make micro-adjustments over time ensuring disruption is minimized once long-term projects start to materialize. This theme has been well explored by others, so let’s move on to other developments in Semester 1 2023.
We experienced the downfall of Silicon Valley Bank, which caused significant discomfort but had meaningful and limited long-term scars on the ecosystem, particularly in Europe, given the actions of partners and governments. In the UK, this respite is provided by HSBC, which stepped in to ensure stability for thousands of startups across the country, but minimal disruption was felt in the European Union, given the bank’s limited presence in the market.
Turning now to global edtech, the market continues to stutter, exemplified by Chegg’s fluctuating valuation, starting not with an unexpectedly negative result but simply by acknowledging the risks generative AI poses to businesses.
Let’s take a closer look at what’s happening in the European edtech ecosystem. Here are our top five takeaways. My Tutor Resources became the first MENA-based edtech startup to raise $100 million, which bodes well for the region’s ecosystem, which previously relied more on US and UK based startups for edtech activity than local firms. The remaining large deals of $80 million – $100 million tend to be companies raising later stages of funding, such as Degreed and Begin. One European deal made the top 10: $55 million Series B Hack the Box (a Brighteye portfolio company).
Using this segue to Europe, the announced $1.7 billion privatization of Norway/UK-based Kahoot by the Goldman Sachs-led group represents a bright start to H2 2023, with an attractive cash offer representing over 10x revenue. The deal highlights a trend we anticipated in our annual report in January – increased M&A activity as companies start opting for the exit route rather than turning rounds and risk becoming zombies.
However, overall, we expect a modest pick-up in European activity in H2 2023. H1 2023 saw an increase in funding from the previous period in H2 2022 and many of the companies that raised big rounds in early to mid-2021 will return to the table to raise more funds.
However, this should not be seen as a sign of health in the ecosystem — more telling is:
The base these companies raise (to seize opportunities or to stay afloat). Did this company raise more or less funds than the previous round.
Let’s take a closer look at what’s happening in the European ecosystem. Here are our top five takeaways:
A third of global edtech deals are done in Europe
It’s positive to see the European edtech market holding out stronger than other major markets in North America and Asia in terms of deal activity, but fund-based activity and number of deals fell overall.
Edtech Europe has a smaller share of the pie:
Semester 1 2023 saw more funding and higher average deal size than Semester 2 2022
Despite the smaller pie, the European ecosystem had a better H1 2023 than H2 2022, with more funding and a higher average deal size than the previous period. In H2 2022, the European edtech sector earned $0.4 billion, but this increased slightly to $0.5 billion in H1 2023, although there were few major deals.