ChatGPT and AI will drive new EdTech boom

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Venture capitalists predict that artificial intelligence, virtual reality and video learning startups will dominate the space by 2023.


The Covid-19 pandemic may not really be over, but the boom it spawned in online learning and tutoring startups certainly is. With the kids back in the classroom and venture funding for edtech nearing pre-pandemic levels, entrepreneurs and venture capitalists have turned their attention to virtual reality, short form video and, first and foremost, artificial intelligence.

“Investors are going nuts over artificial intelligence,” said Tony Wan, head of platform at Reach Capital, a venture capital and private equity firm that invests in dozens of edtech companies. The education industry has been flirting with AI for six years, he notes, but suddenly the relationship has become serious.

“Every ed tech company – if not an AI company – should have an AI component,” reiterates Michael Moe, founder and CEO of GSV Holdings, a VC firm focused on the education and vocational skills sectors.

Much of the recent AI buzz has focused on OpenAI’s newest language model, ChatGPT, and the underlying model OpenAI used to train the program, GPT-3. There are fears within the education community that GPT-3, or its successor, could disrupt traditional education by helping students write essays or cheat on homework. But Wan believes AI could help educators create grading tools, rubrics, and syllabi, and students could legitimately use the technology as a study tool.

Edgi Learning already offers Edgi Bot, an AI that uses GPT-3 to answer students’ homework questions. Edgi Bot, backed by early-stage tech investor Avalanche VC, debuted in May, but the bot improved after OpenAI updated its model in the fall. High school and college students have since moved on from using it as a new app to relying on it for study aids, said Josh Shapiro, co-founder and CEO of Edgi Learning, Edgi Bot’s parent company.

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Shapiro believes that tools like Edgi Bot — and the AI ​​that underpins them — are the first step toward an education system that relies on creators of educational content students already crave, such as science and engineering YouTuber Veritasium, YouTube teacher Vsauce of Hank and John Green.

“These people make great educational content and students respond to it without any extrinsic motivation to do so,” Shapiro said. “They’re not obligated to do it, they just choose to watch these creators.”

Avalanche is also looking at Koalluh, a company that uses AI to write books tailored to children’s individual interests to encourage reading, said Katelyn Donnelly, founder and general manager of Avalanche.

“Historically, there has been a lag between the emergence of new technology and its recognition and adoption in education,” says Wan. “But what’s remarkable about ChatGPT is its acceptance by people across the community. Not only are the developers excited about it, but we see many students taking the lead when it comes to using it for things like homework or introducing it to their friends and their teachers at school.”

While Reach Capital has yet to fund companies that respond directly to ChatGPT, it has recently invested in startups like Mainstay, an AI-powered chatbot that colleges and businesses use to support and retain students and employees, and Derivata, an AI math course and assessment platform. Other edtech startups use AI to turn textbooks into spoken video lectures or to give teachers feedback on how they teach.

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Sure, the dollars at stake are a lot smaller than they were in the early days of the pandemic, as they are for fintech and other tech categories. Private investment in edtech rose to $16.1 billion in 2020 and $20.8 billion in 2021, before falling to $10.6 billion in 2022, according to data from HolonIQ. Much of last year’s decline was due to Chinese investors pulling out of the market, although funding also fell from its 2021 peak in the US, India and Europe.

Experts expect funding to fall further this year to pre-pandemic levels: $7 billion in 2019 and $8.2 billion in 2018. another year closer to that normal, rather than the overheated pace of investment we’re seeing in 2022,” predicts Crunchbase.

Augmented and virtual reality is another edtech niche that is expected to grow this year, Moe said. “The metaverse, going through boom and bust moments, seems to be a great opportunity both for creating learning communities and in corporate learning,” says Moe. Some schools already offer virtual reality classes, and AR and VR education platforms, such as Immerse and Prisms of Reality, are popping up quickly.

Donnelly predicts that 2023 will bring more “effective entertainment, which is the mix between education and gaming. Game developers and major technology platforms are really getting smarter by building learning design and gaming together.”

Video-based learning was already popular in 2022, but Moe, Donnelly and Wan expect it to grow in 2023. stories, making stars out of actors and having a high-quality, low-cost scale,” Moe says. “That playbook applied to learning is very exciting and it really is the future.”

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While AI, VR and video learning platforms are on the rise, several edtech trends are on the wane. The market is saturated with online tutoring companies and a la carte online education, says Moe. “In the future, you’re going to see a real breakout of some and many left behind.” Shorter, more niche online courses are more likely to succeed, while broad online education options will have to prove themselves in the midst of a lot of competition, Donnelly notes.

Online tutoring options had a big moment during the Covid-19 pandemic, but many schools that signed contracts with tutoring companies found that only a fraction of students and families actually used the help, Donnelly notes. In addition, as federal funding from the Covid-19 pandemic runs out, schools and colleges will look for ways to cut their budgets, potentially putting ineffective tutoring services on the chopping block.

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