Revisiting EdTech: Opportunities for 2016 and Beyond

It’s been a few years since I’ve written extensively about education technology and the opportunities that exist in the space. Since my last set of posts back in December of 2012, the space has continued to be a fast growing sector with much opportunity. Back in 2012, the sector was a $4.1T industry globally. That number just topped $5T in 2015 with a 7% CAGR. Unsurprisingly, the education sector remains the second largest industry, trailing only healthcare in terms of global market size.

Likewise, venture capital investment has picked up substantially in the last 3 years. In 2012, Series B investments totaled just $159M—that number is expected to top $500M in 2015 once the final numbers are published. Similarly, deal activity across all stages has picked up. In 2012, the total number of deals across VC/PE was ~500 deals—that number will reach nearly 800 deals by end of year 2015.

Most importantly, exits have finally begun to provide some hope for returns. A scarcity of exits has long been one of the big problems for entrepreneurs and investors considering EdTech. Indeed M&A activity has historically been slow (<1% of all M&A exits from 2002-2012) and IPO showings have often been abysmal (e.g. Chegg which fell 23% during its IPO debut and now has a market cap of just ~$620M, half of its opening day valuation.)

In the last three years, however, there have been a handful of successful EdTech IPOs including companies like 2U and Instructure. Others, such as Coursera, Udacity and Edmodo, are all not far behind in the IPO pipeline. M&A activity likewise has been quite strong. In fact, U.S. EdTech companies tend to command higher revenue multiples than the average tech exit—3.2x for EdTech companies vs. 2.5x for the broader tech industry. Furthermore, M&A exits themselves over the last 5 years have been fruitful with 25 buyers spending more than $100M on U.S. EdTech companies.

exits-1438648868.jpgSource: EdSurge

Yet despite this progress, there remain a wide array of inefficiencies and unsolved problems. Specifically, I see 6 promising near-term opportunities for entrepreneurs to take advantage of and for investors to invest in. In no particular order here are a few thoughts of what we will see beginning in 2016.

1) Cloud SaaS will finally replace on-prem at the school district and system admin level

Having spent time working at the district level in education policy, I was always amazed at how archaic many of the tools districts and school systems use at the city-wide/admin level. Software tools that track important mission-critical information such as attendance, student demographics, building information, zone data, etc. across schools within a district are still often hosted on-premise, using archaic databases and outdated software with GUIs that look like they were designed in the ‘90s. Below is an example of what the NYC DOE ATS currently looks like:

Untitled.pngSource: NYC Department of Education

I suspect that in 2016, as much of the IaaS and PaaS layers begin/complete their moves to the cloud through services provided by the likes of AWS, Azure, SoftLayer, etc, we will begin to see more B2B SaaS applications layered on top to replace the traditional on-prem software solutions. This will bring much needed functionality, analytics and a cleaner user experience to the education world. This in turn will increase productivity for educators working at the district and administrative level across school systems.

2) Learning content will be far more personalized

Recent survey data showed that less than 50% of teachers reported having digital resources that could be used to meet teaching standards. Moreover existing technology solutions often are not tailored to individual students and their specific needs. The next generation of student-centric software tools (across grade levels and subjects) will provide high levels of granularity and insight into the specific needs of individual students allowing for an end-to-end customized experience across lesson planning/ delivery, class activities and periodic assessments. This will be even more important for special needs students in ICT, 12/6:1 or similar learning environments. Personalizing learning content will ultimately allow for a more tailored learning experience and better long-term knowledge retention.

3) K-12 teacher development will rely more heavily on software platforms and tools

As it stands today, professional development for teachers is largely untouched by software tools and applications. At the district level, spend on professional development for K-12 teachers in the U.S. is ~$3B and usually takes 1 of 4 forms: (1) periodic school-wide workshops, (2) observation of other teachers, (3) coaching (usually by a more experienced teacher) and (4) generic online research.

In 2016, we will begin to see more PD content move to the cloud as doing so makes training teachers: (a) less expensive, (b) more accessible and (c) more personalized. Horizontal HR solutions like Workday, Cornerstone OnDemand and PeopleSoft will be re-built / tailored for the education sector enabling professional development in education to be more sophisticated and effective.

4) Higher education software tools will focus more on degree completion  

As the Baby boomer generations’ offspring (Gen X) move beyond the college-age window, the college enrollment growth rate will begin to slow and the focus for many higher-education institutions, from a revenue perspective, will shift away from recruitment/ matriculation and towards retention/ graduation. As of 2012, ~50% of all college students were in at least 1 remediation course.

In the years ahead, there will be a greater focus on retention and remediation of students already admitted into colleges. Software tools will increasingly be used for (1) recruiting the right type of student to admit, (2) providing BI and predictive analytics platforms for identifying and tracking high at-risk students and (3) supporting remediation instruction for at-risk students to get them back “on track.”

5) Online courses and degrees will become more relevant

While online courses (including MOOCs) and degree programs will never replace the off-line experience, these offerings will increasingly be used to supplement off-line instruction as well as provide a new delivery format to non-traditional segments (such as continuing education students). Two important trends are happening that will accelerate the pace at which this happens in 2016: (1) online courses and degrees are becoming more socially acceptable (many programs have been accredited, employers are increasingly hiring graduates from these programs, etc.) and (2) the infrastructure (managing enrollment, handling payment, providing tech support, hosting platforms, etc.) to provide these offerings is cheaper and more readily available.

As such, we will see a greater number of higher education institutions join the ranks of UNC, USC, ASU and many others that provide courses and degrees online. This trend will create a range of software opportunities across: video collaboration, course development and delivery, student / faculty services and recruitment / retention.

6) Demand for software tools that teach skill-based training will increase  

As colleges increasingly charge exorbitant tuition fees while failing to equip graduates will real skills, demand for skill-based programs, vocational certifications and other alternative teaching tools will increase. In 2013, the number of vocational certificates granted was nearly 1M—up 35% from 2005. Similarly, from 2013 to 2015, the number of graduates who graduated from coding programs (such as Codecademy) increased 630%+.

In 2016, we will see an even greater emphasis on tools for skill-based training. Some of this will be purely software delivered via the cloud and some will be more hybrid: software mixed with in-person training. Companies like Lynda (acquired by LinkedIn), Udacity, General Assembly and Udemy have already made significant dents in this space. We will see much more of this in the upcoming year.

EdTech Part 3

“New Things in New Ways”

In order for a startup to be truly disruptive it must fundamentally change how society approaches one or more of the following areas: curriculum development, organization, architecture, teaching methods, student assessments, parental influences and administrative procedures. Much like blogging changed the publishing market, disruptive EdTech ideas must approach one or more of these areas in a way that drastically changes how users and the market as a whole (students, teachers, parents, administrators, etc.,) approach education.  There are several great examples of VC backed startups that are doing “new things in new ways.”

Edmodo is an example of a “new things in new ways” startup that has is trying to change both the organization and teaching methods of the education system. Edmodo promotes learning at anytime and anywhere via its online platform. It strives to close the gap between how students live their lives socially and how they learn in school. In doing so, Edmodo utilizes the power of social media to differentiate instruction for all types of learners. The toolkit has allowed for its user to learn in new places and ways that never existed before in the traditional classroom environment.

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Another example of a disruptive “new things in new ways” startup is Verbling. Verbling gives students and other language learners access to native speakers in a quick and easy way. Research has shown that the best way to learn a language is by talking to a native speaker. Verbling makes learning the language via online “language immersion” trips a possibility that never before existed in the confines of a school. It is disrupting the way in which people learn to speak foreign languages with extremely positive results.

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A final example of an EdTech startup doing “new things in new ways” is Udemy. This startup disrupts the world of education by enabling anyone to teach and learn online. The Udemy platform makes it fast and easy for anyone to build an online course centered on any subject or topic. This grassroots toolkit has the capability to empower potentially millions of experts around the world to teach and share what they know—either for free or for profit. In doing so, Udemy has democratized teaching and made so that anyone can be a teacher.

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In the span of the last 3-4 years EdTech has become an under followed, yet increasingly attractive sector for both entrepreneurs and VCs. That being said, it has become increasingly necessary for those in venture funding to hone in on investments that will make returns for their funds and for society as a whole. While the investing theory discussed here is certainly not all comprehensive, it seems as though the wisest investments in EdTech are those ideas that fundamentally change our perception of learning. Those startups that do “new things in new ways” seem to be the strongest choices for both VCs building a portfolio and society re-imagining education.

EdTech Part 2

“Old Things in New Ways”

The majority of EdTech startups receiving venture funding are channeling their energies towards using technology to enhance or simplify long-standing teaching and learning practices—i.e. doing “old things in new ways.” In these settings, technology simply enhances usability and makes learning slightly more entertaining, rather than fundamentally disrupting the way education has been done for decades (i.e. doing “new things in new ways”). At the Venture Capital Summit in Education (in June 2011), 10 up and coming startups showcased their products and services to a large audience of angels, VCs and other investors. The table below shows the startups and the type of idea they developed.

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As seen in the table above, the majority of the startups (7/10) at the summit are “old things in new ways” startups. It seems that most of their goals as entrepreneurs are to add value by enhancing the user experience of traditional methods of learning rather than bringing new methods of learning altogether.

To illustrate, Brainscape is a modern flashcard toolkit. It takes the “old” idea of using flashcards to study, adds a user-friendly interface and complex flash card algorithm to enhance the traditional flash card experience. Undoubtedly, this is a nifty application and something that may enhance the user experience significantly. It may even make a solid return for any VC firm backing the startup. Nevertheless, the startup is not a disruptive player that has the potential to fundamentally change how society learns.


EdTech Part 1

In the last several years there has been growing interest from entrepreneurs, angels and venture capitalists in the K-12 EdTech space. Yet this interest has been primarily speculative in nature with little actual venture funding to back the “buzz” and few successful exits to date. In the public sphere, there is certainly much focus on school reform by the government—at the local, state and federal levels. Nonetheless large, bureaucratic education agencies, much like large private corporations, are ill equipped to pivot quickly enough to address the systemic challenges education faces today. Against this backdrop funding disruptive EdTech startups focused on changing education would seem lucrative, but venture firms have been slow to back EdTech entrepreneurs. On the flip side, entrepreneurs have not witnessed many successful exits in education to motivate further innovation in the K-12 sector.

Nonetheless, opportunities do indeed exist. Nancy Hanover, of the International Committee of the Fourth International, estimates that the education technology market is a $47 billion market. As large as this number seems—it number refers primarily to those directly as the forefront of education: namely students and teachers. This number does not include the broader impact of education players that are more on the fringe of the industry: parents, administrators, publishers, suppliers, test-prep companies, tutors, etc., An entrepreneur with an innovative product that focuses on just a small segment of one of these markets could in fact do very well.

Framing the Debate

With all this interest in education technology it has become less apparent who is getting the highly coveted venture funding and what ideas are the most valuable—both to venture firms (seeking a return on their investments) and society as a whole. Leading education technology researchers like Peter Knapp and Kathleen King have long discussed bringing technology into the classroom as a replacement for older methods of instruction or to learn traditional material in new, technologically enhanced ways. Others such as Zane Berg and Mauri Collins have focused on societal shifts and learning pattern changes as a result of computer mediated communication.

Despite the advances made in these research fields, most of these efforts have been focused on taking traditional practices that have been used for centuries, placing a new layer of technology on them and re-introducing them into the classroom—old ideas that are simply done in new ways. The smart board, for example, is a tool that allows students to do a number of useful tricks and makes it engaging to interact with. Yet, at the end of the day, one can’t help but notice that the smartboard is simply a modern blackboard with some bells and whistles. Very few agents in the EdTech community have proposed a fundamental shift in the way society views the intersection of education and technology.

This changed in 2006 when Marc Prensky published a bold article in Edutopia entitled “Shaping Tech for the Classroom.” In the article Prensky argued that in order for education technology to improve education in a high impact, long-lasting way, there needs to be a completely new architecture for learning and framework for the classroom. Education needs to be re-imagined in a way where technology is used to implement new ideas in new ways. I would argue that EdTech startups that are high-impact, disruptive players in the space think about education and the learning process in completely new ways. Likewise, venture capital firms looking to invest in EdTech should invest in companies doing “new things in new ways” rather than “old things in new ways.”

EdTech Corner: Nilsby

I’ve been meaning to do a quick post about a start-up I’ve been advising and am really interested in promoting but just haven’t had the time to really dig into for a while. I’m afraid to say that this post isn’t going to do justice to the importance of a toolkit like Nilsby, but it’s enough to say that a community like this is much needed for the millions of families with a special needs child.

The start-up is called Nilsby and it focuses on creating an online community for special needs students, teachers and families. The site allows members of the special needs community to ask questions of each other, offer advice and provide support. The startup just got out of private beta, and they looking for people to add content and help grow the site. If your a teacher or parent with a special need student, this site is for you and I’d encourage you to check it out today.