Goldrush 2012: Why Venture Capital $$$ Is Flooding Into The EdTech Startup Market
By Wired Academic on September 12, 2012
Domestic, Education Quality, K-12, Required, Startups, Technology, Universities & Colleges, Venture Capital
EdTech is booming. That’s a fact backed up with data that shows More venture capitalist money is flowing into the space. It’s still a small slice of the overall VC pie… but education technology is showing “hockey stick growth” in the VC world, with rapidly rising deals, dollar funding totals and numbers of companies involved. Here are three recent stories from various media that explain what’s going on in edtech funding and why it’s happening now.
Nick DeSantis from The Chronicle of Higher Education writes:
Investments in education-technology companies nationwide tripled in the last decade, shooting up to $429-million in 2011 from $146-million in 2002, according to the National Venture Capital Association. The boom really took off in 2009, when venture capitalists pushed $150-million more into education-technology firms than they did in the previous year, even as the economy sank into recession….
Udacity, Udemy, and University Now all have plans to revolutionize online learning. There’s the Coursebook, a young online-learning start-up. And Coursekit, a nascent challenger to Blackboard in the market for learning-management software. And Courseload, the Indiana-based digital-textbook enterprise. And CourseRank, the class-sorting outfit acquired by the textbook vendor Chegg two years ago.
This isn’t the first ed-tech boom to crowd the market with companies whose names sound alike. A similar wave hit in the late 90s, during the larger dot-com frenzy. But today’s investors believe this round of growth is different. Michael Moe, co-founder of the investment-advisory firm GSV Asset Management, said the first ed-tech wave had been based mostly on euphoria that anything digital would work.
“There were just a bunch of things that were, candidly, thrown against the wall,” he said of the 90s start-ups. Some companies pitched ideas that had no sustainable business model. Others, Mr. Moe added, were years ahead of their time. (Courseload, the digital-textbook start-up revived in 2009, was born in 2000, but its leaders say tools weren’t available to support it until more recently.) When the dot-com bubble burst, investors fled the market.
Since then, huge ad vances in computing power at colleges have created a fertile ground for companies offering technology services. Rob Go, a partner at the Boston-based venture firm Nextview Ventures, said near-universal wireless Internet access, high-speed connections, and growing comfort with cloud-based software make it easier for today’s start-ups to get traction on campuses.
Over at VentureBeat, Mehdi Maghsoodnia writes about his vision for what the “next multibillion-dollar edtech company will look like.” Maghsoodnia is CEO of Rafter, which makes a cloud-based software platform that helps educational institutions better manage the distribution and cost of required course material to their students. It’s also the parent company of textbook rental service BookRenter.com. He writes:
Education companies nationwide are raising funds, and eyebrows, as they receive more and more attention from the national media. In the past few months, more than $110 million has flooded startups like 2tor, Coursera, The Minerva Project and StraighterLine. In 2011, VCs invested nearly $430 million in edtech companies, and by 2015, the market size for U.S. education could reach $1.2 trillion, according to recent estimates.
We’re in something of an edtech “venture bubble” — investors are realizing that there’s a proliferation of education-focused companies for a reason. But that doesn’t mean all of these approaches are set to succeed. So, how can you assess which of these new companies will become the next Facebook or Google of education? Like any large, complex industry with an influx of capital, the company’s business model (and the investment pattern) will make all the difference.
Right now, there are three major types of business models emerging within education technology companies: alternative institutions, new products, and services. Of these, alternative institutions and newer products may have larger presences right now, but ultimately, companies that serve existing college institutions are the ones that will be the most profitable, and have the most potential for long-term impact and growth.
The number of students applying to brick-and-mortar colleges has increased 38 percent between 1999 and 2009, according to the Institute of Education Sciences. It’s clear that the traditional model of education that has persisted for hundreds of years isn’t going away any time soon, and most of these institutions are looking for technology partners to help serve their growing student body.
The next Google-like outcome in education will come from this type of business. It will be able to fundamentally offer advantages to existing educational institutions on a global basis — without competing with them — and it will most likely disrupt the market in a way that existing large-scale players won’t be able to.
Emily Goligoski at TechCrunch writes:
As the number of online degrees being issued surpass traditional ones, this year the number of charter schools and districts trying startups’ alpha and beta versions of blended products and supportive offerings will be higher than ever. An increasing number of brick and mortar schools are now paying for tools that their faculty members have been requesting (more insights into individual student performance, ability to access information remotely), and startups are happy to provide licenses for technology that they are uniquely positioned to build (responsive systems for sharing curricula and cloud-based collaboration tools among them).
Rather than create one-off math or reading apps, ”middleware” companies for education are trying to help schools systemically implement blended techniques. Among the companies complimenting in-person instruction are Clever, which shared education software and hopes of standardizing APIs for schools at the most recent YC Demo Day. LearnSprout has recently launched tools to make information in Student Information Systems more transparent and secure. Instructure introduced its Canvas learning management system as an open way to increase teacher effectiveness and parental engagement. And New Tech Network has built Echo, a system that integrates Google Apps for Education and online assignment information to facilitate project-based learning.
One startup working to introduce blended designs and strategies to schools is San Carlos-based Education Elements. Its SaaS, cloud-based “hybrid learning management system” will be in 44 schools this fall (up from 11 last year), including Mission Dolores Academy and Aspire Public Schools. In recent months it has brought former Starbucks COO Howard Behar onto its board. Since raising $6M in Series A funding it’s also added Shelli Taylor of Disney English in China as COO and Jawbone exec David Sanchez to lead product and partnership development. In some ways Education Elements acts as classroom curator: making recommendations about buildout of physical spaces and how to best schedule course time between collaboration, teaching, and screentime (switching between modes based on “lab,” “classroom,” and “flex” plans).
Students at California and Wisconsin-based Rocketship Education schools, which focus heavily on online content to improve the quality of students’ time spent learning, have long been exposed to the concept of hybrid forms of instruction to help them meet Common Core State Standards. But CEO John Danner said that it hasn’t always been easy to find organizational partners who were as concerned with student performances as teachers were.
Jennifer Carolan, co-founder of the NewSchools Seed Fund, says she’s seen a major shift in how teachers are providing lessons and connecting with their students. As a non-profit seed fund, it’s among the first of its kind and has invested in Education Elements and Junyo among other tech companies. “Emerging platforms like Edmodo, Education Elements and Engrade help raise attention for the tools, products, and apps that have come on the scene,” Carolan says. (The former said it had reached 80,000 schools when it announced that it had raised a $25M Series C funding round earlier this summer. Engrade’s reported 4.5M person user base helped it secure a $3M seed round recently.)
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