How to Attract Investors and Obtain Seed Funding for an EdTech Startup

CEO and founder of IntellectoKids, a company that creates educational IT solutions for children. This company is building an ecosystem that includes mobile learning apps, online lessons, video courses, and animated films. In 2019, IntellectoKids raised $1 million from Genesis Investments, and in 2020, $3 million from Allrise Capital and other investors. In 2021, the project entered into a partnership with Oxford University Press. April 2020 marked a turning point for the education sector, when more than 190 educational institutions worldwide were closed due to the pandemic, and many others were forced to switch to distance learning. This circumstance sparked a digital revolution in the education industry. Online learning tools began to be actively implemented in kindergartens, schools, and universities, allowing educational institutions to adapt to the new conditions. These changes have driven a significant increase in investment in this sector: in the first half of 2021, EdTech companies completed 568 funding rounds and raised $10 billion.

Mikhail Kotlov, CEO and founder of IntellectoKids, shared his experience raising funding for an EdTech project. However, the strategies used to secure investment in educational initiatives are largely similar to those used in other industries. In this regard, we turned to Elena Mazhuga, investor and PR director of the venture fund Flyer One Ventures, for her commentary on each stage of the process of attracting significant investment.

Which EdTech initiatives are attracting the most attention from investors?
How and where can I find an investor?
To date, several Russian investment funds have already invested in the EdTech sector. These investors include funds that are actively seeking growth and development opportunities in this promising field. Investing in EdTech is becoming increasingly relevant as the educational technology market continues to expand and attract the attention of both venture capitalists and large public and private companies. Organizing a successful pitch requires careful preparation and a strategic approach. First, you need to clearly define the purpose of your presentation and understand the audience you are pitching to. Make sure you understand the key interests and needs of your audience so you can tailor your message to them. The next step is to create an engaging presentation that will grab attention. Use vivid examples and visuals to illustrate your ideas. Structure your presentation so that it is logical and coherent: begin with a compelling introduction, then move on to the main points, and conclude with a compelling conclusion.
Practice is another important aspect. Rehearse your presentation several times to feel confident. This will also help you identify potential weaknesses and improve your delivery. Don't forget about time: try to stick to the allotted time to leave room for questions and discussion.
Finally, be prepared to interact with the audience. Actively listen to their questions and comments, responding to them with interest and respect. This will not only demonstrate your competence but also create an atmosphere of trust and rapport.
Why does it make sense to involve a lawyer when completing a deal with an investment fund?

Top educational initiatives attracting the attention of investors

In the summer of 2021, Age of Learning, a company that develops educational games and apps for children, raised $300 million in investments. Initially, its products were aimed at preschoolers, but over time, it expanded its range, starting to develop projects for teenagers. This change made the startup more attractive to investors. Venture capital funds often favor initiatives that ensure consistent customer retention—as children grow, they "move" from one product to another, necessitating tailoring offerings to different age groups and their needs.

Topics related to 21st-century professions continue to be at the peak of popularity. These areas include programming, blogging, and game design. In November 2021, ENTITY Academy, a platform offering courses in digital marketing and data science, raised $100 million from investors.

There is significant interest in businesses that offer a vision of a successful future for children, including career prospects or the opportunity to attend prestigious universities like Harvard after graduation. For example, Qwant, a Kazakh online software development school, offers a year-long intensive program based on Silicon Valley methods. This startup became the youngest member of the HolonIQ Top 100 list in 2021.

Recommendations for Choosing an Investment Fund for an EdTech Startup

The basic principles of attracting investors remain the same regardless of the industry. Whether you are developing a project in educational technology or another field, these rules will apply.

Start looking for funding early. It is best to do this well before a real need for funds arises, as this process can take some time. You can also explore the possibility of attracting investors at the idea formation stage.
Develop your contacts over time. During conversations with strangers, share information about your project - this can attract interest. Moreover, some acquaintances can open doors to other, more valuable connections. Investor relations is a long-term game in which a shared story is formed, and there is a high probability that one day it will bear fruit.

Photo: Africanstar / Shutterstock

Elena Mazhuga, PR Director and investor at the venture capital fund Flyer One Ventures, shares this point of view: "At the initial stage, when you only have an idea, you can most often attract funding from business angels or friends. However, you should start looking for venture capital at least at the minimum viable product (MVP) stage."

The venture capital fund you plan to approach for funding must, first and foremost, meet two main criteria:

The fund is focused exclusively on the EdTech sector or already has educational projects in its investment portfolio. In this situation, the investor will be better able to understand your business model. They are familiar with the market characteristics and industry specifics, allowing them to offer you useful benchmarks or recommendations.
It is important for the fund to consider the stage of development of your project. Some of them are focused on investing in the initial stages, while others prefer to invest in more mature stages.

Elena Mazhuga emphasizes that in order to successfully attract investment, it is advisable to turn to funds that have already had experience investing in the EdTech sector.

“The presence of at least one EdTech startup in the fund’s portfolio serves as clear evidence of its interest in this area.”

Overview of funds investing in EdTech initiatives

The Digital Disrupt venture fund has invested in the Tetrika platform, which offers online classes with tutors, as well as in the Tilly educational platform for preschool children.

The MTS venture fund has invested in the Academy of Changes project, which offers educational opportunities for women.

The venture fund Leta Capital has invested in an online English language school called Novakid, as well as in an English learning app for children called Buddy.

The Sistema SmartTech fund has invested in the online platform Profilum, which offers career guidance services.

There are many myths regarding the first steps in investing. One of these misconceptions is the belief that you should focus only on attracting investors from your own country. Of course, it can be difficult for Russian entrepreneurs to obtain funding from foreign funds. However, it is not impossible. Even if you fail to attract the attention of foreign investors at the beginning, you can later show them a more mature and successful version of the project.

"Keep in mind: the chances of receiving financial assistance are usually small."

Mikhail Kotlov

The more funds you attract to your project, the higher the likelihood of success. Your first presentations will likely not lead to the desired results. To get the most out of this experience, remember the questions you are asked and try to answer them in subsequent presentations.

Effective Preparation for a Meeting with a Potential Investor

Elena Mazhuga notes that getting started in the EdTech sector is easier than, for example, in biotechnology, space exploration, or even the gaming industry.

"The sector is quite unique, and many doubt its prospects, despite significant investment rounds and other industry achievements. Therefore, startups in this field will be required to demonstrate dynamism, even in the earliest stages of development," she notes.

Imagine that you have reached an important stage – the moment when you need to present your idea to a potential investor. It is important to cover the following aspects:

What is the size of the market and how is it growing?
What opportunities does the idea and product open up over the next 5-10 years?
What is the core problem of the target audience, and what solutions can you offer?
What are the key differences between your product and the competition, and what are its unique characteristics?

It is also necessary to show positive unit economics at the current stage and confirm that the founder is able to maintain this level even after the business expands.

“Unit economics can be challenging, especially in B2C educational projects. Therefore, when interacting with investors, it is important to demonstrate that you have the knowledge and skills to attract users without worsening key operating indicators,” recommends Elena Mazhuga.

Photo: Altrendo Images / Shutterstock

A detailed analysis of the unit economics approach can be found on the Skillbox Media platform. Check out the material at the link provided.

Here are some key guidelines for a successful pitch:

An effective pitch should be concise and typically only last 5-10 minutes.
Focus on numbers and their evolution – demonstrate how and by what factors you intend to scale the project over the next 3-5 years.
Focus on key figures and metrics, including market size and unit economics.
Demonstrate your familiarity with your prospect’s needs, for example, by illustrating lessons learned during the custom development process.

Key aspects to consider when signing an agreement

You’ve attracted an investor, and at first glance it may seem like all the difficulties are behind you. However, this is not entirely true.

Consult a lawyer who will not only prepare the necessary documents but will also actively participate in the negotiations. Unfortunately, experienced investors sometimes insist on terms that may be disadvantageous to the founder. For example, they may impose restrictions that prevent you from making certain decisions without prior approval from the fund.

It is important to pay attention to the distribution of shares in the company. It is crucial that the interests of the founder, CEO, and investors are balanced. From the very beginning of the financing process, it is necessary to determine what share should be retained by you after the completion of subsequent investment rounds.

Determine whether the investor is willing to continue working with you in the future when the need for additional funding arises. If you approach a new investor with the statement, “We already have an existing fund that supports us,” this will naturally raise questions about why your current investors are not making new investments. For those involved in fundraising, this moment serves as a crucial indicator of business success.

There's hardly a better way to expand your network than through media coverage of a round. It truly is a great news opportunity.