The Covid-19 pandemic may not truly be over, but the boom it spawned in online learning, and tutoring startups sure is. Now, with kids back in classrooms and venture capital funding for edtech down near pre-pandemic levels, entrepreneurs and venture capitalists have turned their attention to virtual reality, short-form video and, first and foremost, artificial intelligence.
“Investors are going gaga over artificial intelligence,” says Tony Wan, head of platform at Reach Capital, a VC firm that invests in dozens of edtech companies. He notes that the education industry has been flirting with AI for half a dozen years, but suddenly, the relationship has turned serious.
“Every edtech business—if it’s not an AI business—needs to have an AI component,” echoes Michael Moe, founder and CEO of GSV Holdings, a VC firm focused on the education and workforce skills sectors.
Much of the recent buzz around artificial intelligence has focused on OpenAI’s latest language model, ChatGPT, and the underlying model that OpenAI used to train the program, GPT-3. Within the education community, there have been fears that GPT-3, or its successor, could disrupt traditional education by helping students write essays or cheat on homework. But Wan believes that AI could help teachers create grading tools, rubrics, and syllabi and that students could legitimately use the technology as a study tool.
Already, Edgi Learning is offering Edgi Bot, an AI that uses GPT-3 to answer students’ homework questions. Edgi Bot, backed by early-stage tech investor Avalanche VC, debuted in May, but the bot improved after OpenAI updated its model in the fall. High school and college students have since moved from using it as a novelty app to relying on it for study help, says Josh Shapiro, co-founder and CEO of Edgi Learning, Edgi Bot’s parent company.
Shapiro believes that tools like Edgi Bot—and the AI that underlies them—are the first step toward an education system that relies on educational content creators that students already seek out, such as science and engineering YouTuber Veritasium, YouTube educator Vsauce or Hank and John Green.
“These people are making amazing educational content, and students are responding to them without any extrinsic motivation to do so,” Shapiro said. “They’re not required to do it; they just choose to watch these creators.”
Avalanche is also eyeing Koalluh, a company that uses AI to write books tailored to kids’ individual interests to encourage reading, according to Katelyn Donnelly, founder and managing director of Avalanche.
“Historically, there has been a lag between the emergence of new technology and its recognition and adoption in education,” Wan says. “But what’s remarkable about ChatGPT is the uptake by people across the community. Not just the developers who are excited about it, but we’re seeing a lot of students lead the way in terms of using it for things like homework or introducing it to their friends and teachers in schools.”
While Reach Capital hasn’t yet funded any companies that are direct responses to ChatGPT, it has recently invested in such startups as Mainstay, an AI-powered chatbot that colleges and companies use to support and retain students and employees, and Derivata, an AI math courseware and assessment platform. Other edtech startups are using AI to turn textbooks into narrated video lectures or provide teachers with feedback on their instructional style.
The dollars in play are much smaller than during the early days of the pandemic, just as they are for fintech and other tech categories. Private investment in edtech surged to $16.1 billion in 2020 and to $20.8 billion in 2021, before falling back to $10.6 billion in 2022, according to data from HolonIQ. Much of the decline last year was due to Chinese investors withdrawing from the market, though funding also decreased from its 2021 peak in the U.S., India and Europe.
Experts expect funding to fall further this year to pre-pandemic levels—$7 billion in 2019 and $8.2 billion in 2018. “As learning has largely returned to in-person classrooms—and with venture investment overall down from 2021’s record highs—2023 will be another year closer to that normal, rather than the overheated investment pace we saw in 2022,’’ Crunchbase predicts.
According to Moe, augmented and virtual reality is another edtech niche that is expected to grow this year. “The metaverse, which goes through boom and bust moments, is looking to be a killer opportunity, both to create learning communities and in corporate learning,” Moe says. Some schools are already offering virtual reality classes, and AR and VR educational platforms—such as Immerse and Prisms of Reality—are cropping up quickly.
Donnelly predicts 2023 will bring more “efficacious entertainment, which is the mix between education and gaming. Game developers and big technology platforms are really getting smarter with building learning design and gaming together.”
Video-based learning was already popular in 2022, but Moe, Donnelly and Wan expect it to grow in 2023. “We have a theme called ‘Hollywood Meets Harvard,’ which is the idea that Hollywood does a really good job of telling stories, creating stars out of actors, and having a high quality, low-cost scale,” Moe says. “That playbook applied to learning is very exciting, and it’s truly the future.”
While AI, VR and video-learning platforms are on the rise, several edtech trends are on their way out. Donnelly observes that shorter, more niche online courses are more likely to succeed, while broad online education options will have to prove themselves amid lots of competition. Moe says the market is saturated with online tutoring companies and a la carte online education. “Going forward, you’re going to start to see real breakout from some and a lot being left behind.”
Online tutoring options had a big moment during the Covid-19 pandemic, but many schools that signed contracts with tutoring companies found that only a fraction of students and families actually used the help, notes Donnelly. Moreover, as federal funding from the Covid-19 pandemic runs out, schools and colleges will be looking for ways to pare down their budgets, potentially putting ineffective tutoring services on the chopping block.
This article was first published on forbes.com.