The Edtech Startup Funnel and what does it mean for the ecosystem development
What an amazing journey it’s been so far, to witness and be part of the evolution of the Helsinki edtech ecosystem, from an idea in 2015 into a fully developed range of services, organizations, and communities! During this long process, I've been repeatedly asked two questions:
What’s the origin of edtech startups?
In the ecosystem, what’s the most important factor or element that supports them?
For answers, we can turn to the Edtech Startup Funnel:
Let us explore first how education startups appear. In my experience, the main sources of edtech ideas and future founders are:
Students: e.g. university project-based courses where student groups need to come up with a business idea.
Educators: teachers, professors, and facilitators who have encountered a challenge at work and came up with a solution.
Learners: individuals who have encountered a challenge while learning (process, content, tool etc.) and came up with a solution.
Entrepreneurs: entrepreneurs and business people who see a good opportunity in the sector, or want to create impact.
Technology: those with a tech background who see an opportunity to implement a new or existing technology in the education sector.
Industry shift: those who see a product do well in a certain industry, and want to expand it into the education sector (ie: an entertainment game morphing into an education game, a healthtech solution adding educational elements, etc).
To capture edtech ideas in the early stages, fostering connections with the sources (universities, education institutions, a wider tech and startup community) is key!
One the left side of the funnel we observe four stages of a startup development:
Idea stage: company not registered yet.
Early stage: company registered, pre-revenue.
Series A Stage: already have some paying customers and evidence of scalability.
Growth Stage: generating stable revenue, a strong team, growth-focused.
On the right side of the funnel I list some of the ecosystem elements needed to support the startups through the stages of their journey.
Let us consider next some aspects relevant to the development of an edtech ecosystem.
According to various sources, from 70% to 90% of startups fail. In the funnel I estimate that from a hundred edtech ideas, about half would actually register a company and proceed to the early stage. This means that the rest of the ideas are either tested and proven to be irrelevant, or unable to find a founder or a team—often because the person with the idea isn't willing to become an entrepreneur and commit to developing it further.
Notice my recommendation to begin incubation activities long before the company is registered. Too often I've seen founders coming up with an idea and immediately attempting to start a business without any validation, research, team, or even a simple competitor analysis. After making some mistakes and not finding the customers, the founders either close up shop or go bankrupt, with an understandable amount of stress and burnout. I strongly advise training, mentoring and MVP testing from the earliest days of the ideation.
Out of those fifty early-stage companies, about thirty will secure partial validation and paying customers. Then, only half of those will be able to generate a stable revenue and focus on growth, provided they manage to build a strong team and gain access to good support networks. Five of them might exit at some point, or continue growing out of a small into medium and large size companies, which would be considered a success story.
Let us focus now! For those five success stories to thrive in the ecosystem, two elements are a must:
A HUNDRED ideas and,
The support network that can nurture them to success.
The main components of such a support network appear on the right side of the funnel. So let’s imagine now that we don’t provide the incubation activities and start off with fifty ideas only instead of a hundred. All the numbers down the funnel will consequently go down, and we’ll end up with only one or two success stories, if any. Or imagine no acceleration activities in place—capital, for example. Early-stage startups will be even more likely to fail, which will also reduce the probability of overall success.
It is essential to understand that only one ecosystem element does not guarantee good economic and social returns. To become a successful education innovation hub, the ecosystem needs to be diverse. It needs to encompass every stage of a company's development, all the players, and all the range of ideas.
Anna Dementyeva has worked in the education sector for the past fifteen years as a teacher and developer of entrepreneurship education. In the last three years as xEdu's Program Manager, she has supported more than seventy edtech startups, and interacted with hundreds of them. She’s been an active participant in the development of the local edtech ecosystem in Finland’s Metropolitan region.
xEdu is an EdTech Accelerator and an EdTech ecosystem developer. If you are interested in developing education in your own city or country, just drop us a line at info@xedu.co!
