Publicly traded education technology companies are rare. Soon, there will be one fewer after tech training provider Pluralsight gets taken private later this year. That leaves 2U, Chegg and Stride (formerly known as K12 Inc.) as the remaining trio of prominent edtech companies on the U.S. public market.
But this contraction may not last long, thanks in part to one of the industry’s earliest and most ebullient investors, who is steering a financial vehicle that’s taken public markets by storm.
Earlier this month, Class Acceleration Corp. (CLAS.U), a special purpose acquisition company headed by CEO Michael Moe, raised $225 million in its IPO. Those funds will be used to purchase a privately held education company, which will then become public as a result of the transaction.
Moe is best known as the co-founder of GSV, a constellation of investment, advisory, banking and educational services that’s backed some of the biggest names in the tech industry, including Facebook. He’s long been bullish about the online education market, having authored the first of many theses about this industry in 1996.
Better known by their acronym, special purpose acquisition companies have been taking public markets by storm. In 2020, 248 SPACs raised more than $83 billion—more than four times the companies, and six times the funding, over the previous year. They’ve also attracted a level of mania that borders on hype. Ciara and Shaq have a SPAC. So do politicians, including Paul Ryan. There’s even one named after The Queen’s Gambit, the popular Netflix series about a female chess prodigy.
That’s plenty of capital and celebrity firepower for what is, essentially, nothing at first. SPACs don’t have any assets to begin with. Instead, they raise money from the public to acquire one. For private companies, SPACs offer a shortcut for going public, without the extensive public scrutiny and investor roadshows typically required in the traditional IPO process.
And for investors, they’re betting not on a company, but rather on the SPAC’s executive team to buy the right one.
Moe has picked some winners in education. He was an early investor in Chegg, which went public in 2013 and whose stock more than doubled in 2020. He’s also backed Coursera and Course Hero, two privately held edtech companies that are each valued at more than $1 billion.
“When you look at the overall education industry, it looks like an iceberg,” says Moe in an interview. “At the top of the iceberg, above the water, are the public companies, and that’s pretty limited. But you look below the surface, there’s an enormous pool of private companies.” Couple that with all the investment capital pouring into the edtech industry, he adds, and it makes this an opportune time for industry-focused SPACs like his.
“During COVID, edtech has gone from being on the periphery in the financial markets to becoming something very core,” says Trace Urdan, a managing director at Tyton Partners, a strategy consulting firm and investment bank who focuses on the education industry. “It’s now an asset class that many public market investors want exposure to.”
Traditional IPOs still happen. But they are expensive and time-intensive, and the bar and expectations for a successful listing has dramatically increased, adds Urdan. Whereas companies once sought to raise about $250 million at a market cap under $500 million, their peers today are regularly raising at 10 times that target and valuation. (See: Airbnb, DoorDash and Snowflake)
Edtech companies are hot—but not that hot. And even though there are unicorns—Coursera, Course Hero, Duolingo and Udemy among them—they may not command those levels of dollars from public-market investors.
“What’s evolved for a successful tech IPO is for the stock to trade up 25 percent more on the first day,” notes Moe.
Per typical SPAC rules, Class Acceleration Corp. will have 24 months to make its purchase (or else it must dissolve). “We have our version of the NFL draft we’ve already done,” says Moe. “We know who we’re most interested in.”
Without naming names, Moe offered several themes he’s looking for. Among them: “artificial intelligence and how that integrates into learning to offer a personalized learning experience;” “Hollywood meets Harvard, the idea of creating learner engagement through entertainment and storytelling;” and lifelong learning or, in his words, the idea that “you’re going to be learning from the time you’re born to the time you retire.”
Moe only offered that “the enterprise value of the businesses we’ll be looking at will be north of $800 million.” And the team could tap additional capital, he said, through a financial mechanism known as a PIPE, to finance a bigger deal.
Other executives on Class Acceleration Corp. include Joy Chen, the U.S. chief investment officer at TAL Education Group, a publicly traded Chinese education company; Lev Gonick, chief information officer at Arizona State University; and James Runcie, former chief operating officer at the U.S. Department of Education’s federal financial aid office.
Institutional investment firms including Goldman Sachs have warned that the surge in SPACs show signs of a bubble. Moe doesn’t disagree. “There’s no question that it will not be sustained. It will not continue to go on for the next three years like it’s gone on for the last six months.”
Ever the Silicon Valley optimist, Moe believes that all bubbles, whether they’re dotcom internet startups in the late 90’s or cryptocurrency, are signs of big changes to come. “What history has shown is things get overheated for a reason, and that’s because people get excited about change and what the future looks like.”
A Smattering of Edtech SPACs
Class Acceleration is not the only edtech SPAC on the market. HolonIQ, a market research firm, found at least four others focused on the education industry.
Adit EdTech Acquisition Corp., which is affiliated with Adit Ventures (which just invested in its first edtech company), raised $276 million in its January IPO. The team is targeting “businesses in the education, training and education technology industries,” with a focus on a North American-based operation, according to its S-1 filing.
An Adit official declined to comment for this story.
Results have been mixed so far for the handful of education companies that have been acquired by a SPAC. Skillsoft, a corporate learning company, was merged with IT skills provider Global Knowledge Training and taken public by Churchill Capital last October. Its stock was trading at around $10.50 on Tuesday, a little above its opening price.
Another, Meten International, a Chinese provider of English-language training services, was acquired last April by Europe-based EdtechX Holdings, the first edtech-focused SPAC. Since the deal, though, the price of its stock has dipped 80 percent.
That result hasn’t dimmed investors’ enthusiasm, however. In fact, EdtechX Holdings launched a second education SPAC in December, which attests to the continued interest among public investors for the edtech industry.
“In the next 24 months, you’re going to see more public companies in the digital learning space,” Moe predicts. “It’s going to shock people.”