Education influences virtually everyone at key points in their lives—and is tied to a range of positive social outcomes, from health to social mobility to civic engagement. In different parts of the world, public systems, nonprofit organizations, and for-profit enterprises coexist in diverse ecosystems of schools and teachers, student supports, curricula, educational tools, and other services.

For-profit education companies’ contribution to educational achievement can often align with their commercial success. So it follows that education is a rich sector for impact investors, comprising 20 percent of the 1,200 potential investments in privately held companies, mostly in private equity, that we’ve analyzed since 2016.[1]

Over the past several years, our Bridgespan team has worked with dozens of education investors, ranging from large private equity firms to smaller mid-market funds to foundations and philanthropists, from all around the world. Based on that experience, we offer three areas to consider for investors in the education sector.

Home in on how education technology tools will improve educational outcomes—and for whom

The COVID-19 pandemic made virtual learning an everyday reality across much of the world. Thus, it dramatically accelerated what had already been a growing demand for education technology (edtech) tools. Reach Capital reports that US education providers in 2020 procured nearly 27 million K-12 devices—enabling remote instruction, online tutoring, instructional videos, and more—nearly twice as many as the previous year. However, while it’s great to see innovation and to know that teachers, parents, and students have more choices, it’s important that capital flows to tools that will truly make a difference.

In order to improve student learning, these innovations need to feature quality, vetted content and to engage meaningfully with students. Aiming for students to just sign up for a membership and click a couple times through educational content is not necessarily going to make a difference in someone’s life. Khan Academy found that the students who use its programming for at least 30 minutes a week are the ones whose math achievement really improves.

Thus, to really understand if an educational tool is making a difference, it’s helpful to gauge how much students need to engage to benefit educationally, and then compare that to how they are actually engaging. “Vanity metrics” such as how many users have ever gone to a website or created an account are often red herrings.

Data that are disaggregated by income, race (particularly in the US), or other indicators of historical marginalization (such as place of origin, language, disability, gender, caste, or tribe) where the organization operates are also important. The digital divide is real, and the accessibility of technology tools is a critical issue; it’s all too common to find that those who need tools the most use them the least, because they lack access. So, too, is it important to consider equity in design issues for the disability community or multi-lingual curricula support. Needs will differ by community and they’re revealed more fully with disaggregated data.

Companies such as Vedantu in India—which recently achieved unicorn status as a billion dollar enterprise—are working to make supplemental education available to lower-income Indians who may not be able to afford or access in-person tutoring, especially those living in smaller cities and towns. With a focus on live tutoring and other online products, Vedantu is India’s fastest growing online education company, and the second-largest in primary and secondary education by revenue and number of students. Investors such as Singapore-based ABC World Asia disaggregated user data with Vedantu to help validate the company’s impact. “Vedantu embodies our investment themes of providing better access to quality education and using digital technology to improve lives and livelihoods,” noted Sugandhi Matta, chief impact officer of ABC World Asia, announcing an investment in the company in September 2021.

The rise of independent nonprofit evaluators such as the nonprofit EdReports (funded by the Bill & Melinda Gates Foundation, the Charles and Lynn Schusterman Family Philanthropies, the William and Flora Hewlett Foundation, and the Walton Family Foundation, among others) has also allowed school districts and other buyers to better assess the impact of different instructional materials on student outcomes. Independent assessments, such as those provided by EdReports, can make innovative startups with quality outcomes more visible to potential customers and investors.

Read the full article about impact investing in the education sector by Stephanie Kater, Kayce Buller, Jack Sullivan, and Ronak Parikh at The Bridgespan Group.