In edtech, history matters: Reach Capital just closed its largest fund to date

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Reach Capital, one of the first venture companies to focus exclusively on edtech, closed its latest investment vehicle during an unprecedented boom in technology. The San Francisco-based venture firm saw an increase in digital infrastructure, distance learning and society’s increasingly fickle attention as an opportunity – and unsurprisingly, that same tailwind then helped Reach raise its largest fund to date. Close.

Fast forward two years, we are now in a different world, socially, politically and technologically. Aside from the fact that no one is talking about Zoom schools or learning pods anymore, edtech startups raised $10.6 billion last year, down 49% from the year before. So, has edtech’s venture pitch changed?

“I think the fact that edtech might not be in the news as much anymore is a good thing,” said Esteban Sosnik, partner at Reach Capital. He’s echoing the common adage of other investors these days, saying there’s never been a better time to start a business. Specifically in education, he adds, less capital means less competition: if you manage to build something, the chance of success is ten times greater.’

Less capital for some is a win for others: Reach announced today that it has raised its largest fund to date, a $215 million investment vehicle to support early stage startups in the United States and abroad, with a specific eye on Latin America. It also closed a $4 million sidecar fund called Reach Founders Fund, which pools capital from 40 portfolio companies. As mentioned, the new capital was raised against a very different background than the previous fund; but the team says history makes a difference.

“There were a lot of transient, tourism investors coming into the space over the last two, three years, so it seemed like a real value proposition and work in us to have a fund that was an established investor long before the pandemic. favor,” said Wayee Chu, co-founder of Reach Capital. Chu said LPs also resonated with the company’s “educated bank” of investors, who bring together more than 20 years of public school experience.

Not much changes for Reach Capital’s strategy between funds (Chu says edtech valuations are starting to fall to March 2020 levels). But what’s old doesn’t mean they’re going to ignore what’s new: exuberance around artificial intelligence.

Reach Capital has made about five investments in AI companies since the company’s inception, but given the massive growth in the space and recent technology advancements with ChatGPT, the company is eagerly looking forward to net new startups to support. Chu tells gotechbusiness.com that they are currently in due diligence with four AI startups. “We see a lot of technology looking for a solution,” said Chu, who says they prefer “founders who start with the actual pain point and solution and then decide which technology will solve that — we see a lot of fun new technology, but it still seems to insert something that isn’t a deep enough pain point.

Reach’s Sosnik, meanwhile, would like to remind founders that AI is not new. The investor urges founders to focus on collaboration with researchers, unique data channels and measurable impact.

As he recently wrote, “As we’ve seen on the rollercoasters of crypto, metaverse, and VR, adoption depends on whether or not the product delivers better experiences and outcomes. In simpler terms, how does AI make lives better?” Ironically, the same question he sees as essential to AI is the same question that edtech’s success always hinges on: can it work for the right people, at the right time, in the right, most equitable way?