A Report from Education Venture Fair on the State of EdTech

[ 0 ] January 24, 2011 |

Last week, DC saw one of the biggest education events I can remember. In partnership with the US Department of Education, the Aspen Institute convened over 900 invitation-only guests to discuss the challenges and opportunities facing American education.

The 2-day Forum included a number of panels with top-billing speakers such as Alan Greenspan, Joel Klein, and Mark Ecko as well as an Expo showcasing 91 high-scoring i3 projects.

To kick-off the event, Startl banded together with the Investor’s Circle to host an Education Venture Fair. The goal was to bring awareness to the investor community about some of the early-stage, cutting edge market opportunities in the “edtech” sector.

I was asked to do a brief Report Out from the Entrepreneurial Edge at the Forum. It’s broken down into a brief market orientation, a short overview of the Fair, and the 5 key tensions I see surrounding this market.


Market Orientation

I want to begin with a little orientation to that market, so we are all starting from the same basic point of departure.

In just the last three quarters of 2010, the education technology market saw close to $600 million dollars in investments and M&A’s.

We have heard tell of the larger scale, later stage activity around companies such as Wireless Generation, Kno, and Knewton in the news.

At the same time, however, start ups such as Learnboost, Edmodo, and Presence Telecare have also been making their own news by finding interesting ways to revolutionize education with smaller scale, earlier stage investments.

We’ve also begun to see a real, viable host of angels in this space, something that this market has traditionally lacked. These early, early stage investments are essential to driving education innovation for today as well as tomorrow. Prime examples of can be found in MindSnacks, TenMarks, and Udemy (you-da-me).

While a lot of market activity is still focused on higher education, we are seeing a significant uptick in private investments and M&A’s in the K12 market.

One of the most wizened minds in the edtech space (thank you, Adam Newman) has even ventured to say that “we’ve seen more investor interest in the last year and a half than we’d seen in the last 15 years.”

Some of the factors explaining this movement include the following:

  • Public funds from initiatives like i3 and Race to the Top as well as philanthropic dollars from efforts such as Next Generation Learning Challenges stirred this market while the rest of the economy was slumping
  • Sustained meaningful discussion about how to drive innovation in the K-12 system at the policy level, not least of all the common core standards, portends to reduce certain structural hurdles around
  • It costs far less to build (and thus buy) tech / media products today than 5 years ago (let alone 10 years ago), making the edtech market more attractive from both a supply and demand perspective

But, before we get too comfortable with the belief that the K-12 edtech market is mature and healthy, I want to remind you that there are still many barriers to sales and distribution, and that scale is something that still alludes most edtech innovations.

So, let’s say for now that while its far easier than ever before for entrepreneurs to “get in the game,” it still remains to be seen how easy it will be for them to “change the game.”


Venture Fair Overview

At Startl, we believe private companies have a critical role to play in the development and the disruption of the education market. We believe it is our job to help turn early-stage start-ups into long-term game changers.

Thus, we were delighted that the Aspen Institute asked Startl and Investor’s Circle to organize the Venture Fair on January 19 and to present a handful of companies poised to change the face of education.

We are even more delighted that the event went off as well as it did!

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I’d like to spend the next couple of minutes just giving a quick overview of the presentations and conversations that transpired at the Venture Fair.

In so doing, I hope to move beyond simply reporting out to pointing toward opportunities – if not necessities – for public-private partnerships that could help generate and accelerate the edtech market.

Quickly, a little bit on the process and structure of the Venture Fair.

Investors Circle and Startl conducted a national outreach, nomination and review process.

The 31 nominated companies were reviewed by two committees and 15 investors over the course of 3 weeks.

As a result of that process, 19 for-profit, early-stage, investment-ready companies were selected. All 19 companies were given showcase space, and 9 were also given stage-time to pitch their companies.

While all are edtech companies, the 19 covered a spectrum of value propositions and represented a range of product segments.

  1. Learning products focus on enhancing the educational experiences and academic outcomes of students  (8 of 19, ~ 40%)
  2. Productivity tools and services focus on advancing the instructional capacity and delivery of administrators and teachers (7 of 19, ~ 40%)
  3. Infrastructure products focus on improving the operations and efficiencies of schools and school systems (4 of 19, ~ 20%)

In addition to the 19 companies and the 40 entrepreneurs behind them (who, BTW, came from a range of backgrounds outside of education, including: investment banking, media and film, and techbuild / techbusiness), we had about 175 investors in the room. By show of hands, I estimated the breakdown to be 15% new investors, 65% veteran investors, and 10% foundations.

So, it was a very full room and as someone said to me, “If you had done this 2 years ago, you could have had a small dinner party at your apartment in Brooklyn. Who would have thought!”

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Now that I have given you a sense of the overall market activity and a sense of the Fair’s energy, let me take a few minutes to quickly run down the 9 companies that presented yesterday. A full list of all 19 appears at the end of this post.

If we consider the 9 presenting companies to be the trailblazers or bell weathers of edtech innovation, then Tom van der Ark may well be right: “this will be the year of the platform.”  Though, of course, platform is one of those words that means everything and nothing at the same time.

Nevertheless, all of our presenting companies described themselves as a “platform” of one type and stripe, each designed to solve a different problem and serve different constituencies.

  1. A “game publishing” platform focused on taking learning games to both the school market and the consumer market (E-Line)
  2. An “Open Education Resources” delivery platform designed to aggregate learning materials for “for remix, reuse, redistribution” (AcrossWorld)
  3. A unified “social media” platform for student learning, with real-time communication, collaboration, and content sharing features (Everloop)
  4. A “school management” platform that manages school data and covers all facets of a school’s administrative and educational processes (Spiral Universe)
  5. A “curriculum sharing” platform explicitly for teachers to share quality educational content with one another (BetterLesson)
  6. A “blended learning” platform that serves the four primary stakeholders of education – administrators, teachers, students, and parents (Schooltown)
  7. A multi-device “digital storytelling” platform, where publishers can distribute content and students can learn reading and literacy skills (Speakaboos)
  8. An “autism treatment” platform that integrates video tutorials, assessment tools, data tracking, and professional development  (Rethink Autism)
  9. A “cloud-based” desktop platform that   allows large networks of old desktops to run new operating systems extremely fast (Neverware)


5 Key Tensions

I started my comments by highlighting some of the evidence of entrepreneurial and investor interest in the edtech market as well as some of the factors that have contributed to the recent increase activity.

I want to now shift to reviewing 5 “tensions” that surround not only the companies we saw at the Fair but entrepreneurial companies writ large that are trying to innovate in this market.

1. Revolutionary Versus Evolutionary Innovation
In addition to the company presentations at the Fair, we were treated to a panel discussion between Adam Newman (Ed Growth Partners), Gregg Gunn (formerly Wireless Generation, currently City Light Capital), and Eric Hallstein (Omidyar Network).

A key issue debated on this panel was whether the entrepreneurial market opportunities — and responsibilities – are or should focus on optimizing our current system of schooling or on rethinking our whole vision of learning?

While the panelists took slightly different positions, in the end they arrived at the same conclusion – this is not an “either – or” question. Rather it is a two-sided coin.

We need to re-imagine, re-invigorate the education infrastructure as we know it, dramatically changing the organization and operations of schools.

And, while in the “edtech” market we all like to talk a lot about tech du jour, accomplishing this is not going to happen through the introduction and implementation of new technologies alone.

It is going to require some very fundamental business innovations that will transform basic administrative / management processes and free school resources (time, space, staff, money, and imagination) to be used differently.

These less sexy but essential solutions will then allow our schools to pick up, plug in, and scale out some of the more innovative education technologies that our edtech entrepreneurs at Startl (and elsewhere) are building.

2. Institutional Versus Consumer Market
A related discussion emerged about the institutional versus consumer market, and which audience offered the best ground for innovation.

As Mitch Kapor observed, the investors in the room were easily divided into two camps: those who believe in institutional change and private venture as a means for changing school performance, and those looking for “good deals with big returns” that can also lead to social impact.

By contrast, I’d say most of our entrepreneurs were less one camp or the other. Most of the companies that presented had product strategies that sought to straddle in-school and out-of-school learning, with one foot in the in-school and the other in the out-of school market.

While some of the entrepreneurs’ dual-market approach can be traced to their core beliefs about learning, I’m going to bet that more of it is driven by the complexities of each market and the difficulties of placing a bet.

As Gregg Gunn put it, “Institutional investor momentum and consumer market dynamics may be changing but the core company requirements and market barriers are just the same as they were 10 years ago.”

While the institutional market in the United States is ossified, the consumer edtech market is still immature. Market penetration in and customer acquisition in the other makes scale an equally difficult albeit different challenge.

In addition to the two-pronged market approach, many entrepreneurs are choosing to mitigate risk by working on the edges of the institutional market with charter schools, private schools, or overseas schools, where the points of control are easier to identify and overcome.

Putting together two comments, we can conclude that “charter schools are where entrepreneurs go to get products scaled up” and “large urban districts are where entrepreneurs go to die.”

3. National Versus Global Strategy
As I just mentioned above, we are increasingly hearing about entrepreneurs (as well as corporates) looking at overseas markets.

While some of the entrepreneurs we heard from at the Fair are taking a serial approach — first US, then global markets. Others have plans for early world domination.

Why are these guys (and most of them are guys) eyeing these global markets?

Well, not only because an international market strategy leads to a larger, expanded customer base. In many instances it is the fact that developing country locations in India and across Africa pose lower barriers to entry for experimentation and innovation.

This is an important if not slightly ironic discussion from my perspective.

We have heard over and over that education innovation is essential to our global market competitiveness. And, yet we are hearing over and over again that education innovation is easier in other global markets.

To this point, we heard directly from someone at the Inter-American Development Bank about initiatives being planned to cultivate more opportunities for private sector education innovation in Latin American countries.

4. Co-operative versus Corporate Financing
This is less a tension than an observation.

There are a lot of good ideas at the core of the companies at our Venture Fair. But, many of them (and most early-stage edtech companies in general) are unlikely to succeed with straight individual or institutional financing.

One solution is public-private co-investment. Many of these early-stage edtech companies are beyond the reach of angel investors and will need to layer non-diluted, non-equity public monies with private capital in new, disruptive but effective ways if they are to get to scale.

Another is merger and acquisition. We’ve just done a market analysis at Startl, and one thing is pretty clear. The market is bimodal. It’s like a topographical map. At one end of the terrain, there is a mountain of companies founded about 15 years ago or more. At the other, a mountain of companies all founded 5 years or less. Between them, a deep, broad valley.

While I am no market prognosticator, I believe (hope) that over the next couple of years this market is going to see a whole lot of M&A activity that bridges this valley in order to grow the industry.

5. Breakthrough versus Broken Industry
People ask me regularly whether the edtech market is at going to boom or bust. And, honestly, I really don’t know.

On the one hand, I believe the edtech market drafts the broader Internet market. Back in the dot.com era, for example, the Edtech 1.0 market followed the same rise and fall path as the Web 1.0 market.

If you also believe that and if you also read John Battelle’s Searchblog, then you might have every reason to be as optimistic about the Edtech 2.0 market as Battelle is about the Web 2.0 market.

On the other hand, I think there is every reason to temper that optimism with necessary caution. There are more entrepreneurs out there today, and still relatively few successes. As this market continues to heat up, we need to improve these odds if we don’t want to see it simply flame out (again).

We need to better connect product sellers and buyers so that this market is no longer dominated by fragmentation and dis-information. We also need to reform school-based purchasing procedures to reduce barriers to entry. And, while see big IPO’s on the horizon for the Web 2.0 market, we need to manage our expectations in the Edtech 2.0 market.

The pace of and returns to investment are still comparatively very slow and low back here in the draft.

PRESENTING COMPANIES
Speakaboos – Neal Shenoy
Better Lesson – Alex Grodd
AcrossWorld Education – Stephen Thieringe
Spiral Universe – Reuben Kerben
Rethink Autism – Daniel Etra
ELine Media –   Michael Angst
SchoolTown –  Mike Kritzman
Neverware – Jonathan Hefter
Everloop – Hilary DeCesare

SHOWCASE COMPANIES
New Futuro – Pete Wilkins
A-List – Edward Smallwood
Edu Funding Partners – Lynne Cole
Drop the Chalk  - Jennifer Schnidman
Muzzy Lane – David McCool
Remix Learning – Robert Chang
Advanced Brain Tech – Alex Doman
Digital Directions – Barbara Freeman
Interschola – Melissa Rich
Motion Math – Gabriel Adauto

Related posts:

  1. Investors’ Circle – Venture Fair April 22-24 APPLY NOW!
  2. Venture Capital in Education Summit Seeks 10 Companies for Education Innovators Showcase
  3. Education Venture Fair and Education Innovation Forum & Expo in Washington D.C.
  4. The Investors’ Circle Fall Venture Fair – Applicant Deadline July 30
  5. Ten Early-Stage Education Companies Selected for “Educators Innovators Showcase” at VC in Education Summit

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