Games and Learning

VC investments in education firms increased 55% between 2013 and 2014.

As a market, American schools seem a bit like a mirage. There, in the distance, sits a $1.5 trillion market, but it always seems out of reach to a creative game maker who wants to make learning more engaging and effective. But one new report from a highly respected consulting firm says that may be changing.

“Primary and secondary schools are adopting digital curricula at unprecedented rates, yet teachers report they have trouble finding digital products that meet their needs,” report authors Jake Bryant and Jimmy Sarakatsannis wrote. “We surveyed teachers and found that 60 percent lack the digital instructional resources they need.”

The report was published by McKinsey & Company, an American management consulting firm. McKinsey has been pushing several growing opportunities in education, including textbook rental businesses and personalized learning.

The analysts noted that with the increased opportunities in formal education, both k-12 and higher education, the investment flowing to companies in the area is increasing rapidly. The report notes that the number of annual private-equity deals has more than doubled, from 30 in 2007–10 to about 70 in 2012–14. They also note that venture capital firms have entered the space like never before, investing $1.87 billion in 2014, up 55 percent from 2013.

“These deals have mostly been dedicated to the traditional investment theses—school operators, large publishers, tutoring and test-preparation services in traditional education settings—as well as corporate training. In the future, investors will likely pursue more fine-grained opportunities as the paths to growth and scale in the space become more diverse,” the report finds.

And it is not just in the States, a recent story in the Business Standard highlighted how venture capital firms are lining up to back education startups in India and elsewhere. One vc firm executive director was quoted as saying, “Education is one of the largest markets in the country and one of the least penetrated by technology in absolute terms. The potential disruption and far-reaching impact that education can have on India’s overall development has only been seen in small doses till date. As venture investors, we look at segments of education for potential investments that can be better served and leveraged via technology.”

McKinsey has identified specific areas of investment that should become more active in the coming year, including digital resources for k-12 and digital innovation in corporate training.

A separate piece from the firm outlined the potential impact of greater personalized learning in school, with one analyst noting a personalized learning project at Arizona State University that had increased the percentage of students passing remedial math from 62 to 75 percent and helped lower drop-out rates by 7 percent. “If we could use tech-enabled, personalized learning to achieve similar results for the entire student population, we could produce more than $300 billion in increased lifetime earnings of our youth every year, according to a recent estimate by the McKinsey Global Institute,” wrote Jimmy Sarakatsannis in a separate piece earlier this year.

This interest from the investment side comes as the U.S. Department of Education also has identified the development of digital resources for the classroom as a top priority.

Director of Education Technology Richard Culatta told us recently, “I do think there is a huge need for games that are actually built to specifically address needs in the education space. Frankly, there are a lot of opportunities that we don’t have enough people working to find a solution for.”

With both the investment community and the federal government looking for more developers to address the needs and opportunities in formal American education that mirage market may be closer than it has been in quite some time. But only time will tell how close.