A common misconception about edtech is that there are few and only small exits in the market. In reality, the private (M&A) and public markets for edtech stocks are really heating up. Overall, we’ve seen buyers excited by the fact that edtech is growing globally – the market is estimated to reach $252BN by 2020.
Jim Lobdell, co-founder of Teachers’ Curriculum Institute (TCI) and Venture Partner at Reach Capital, tells us why educators must be at the center of product development.
Artificial intelligence has many exciting applications in education: from sophisticated assessments to personalized tutoring systems. As we discussed in a previous BlendED post, over 40 AI acquisitions happened in 2016. These numbers are climbing: recent research predicts that the AI education market will increase 47.5% by 2021. Despite its influence, AI in the field of education remains a sensitive topic – specifically, what does AI mean for the future of teaching jobs? AI should not be used to replace teachers, but instead, should be used to superpower them to support the needs of students.
We’re pleased to share Reach Capital’s Edtech Outlook, a data-rich dive into the state of education technology with case studies into emerging-frontier innovations.
Edtech adoption is growing rapidly in the K-12 market, particularly by schools with high connectivity and device penetration. For reference, in the last 4 years, 33M students were connected and less than 2% of the schools lacked high speed connectivity. I won’t delve into general market entry and competitive strategies such as judo that have been around for decades. Instead, I’ll cover fundamental learnings from two recent examples of overseas edtech companies that have gotten a foot in the US market – Lab4U and PeerGrade.
While several edtech companies have built successful go-to-market strategies following freemium models, freemium isn’t as easy as it looks. From my experience, committing to a freemium model comes with certain implementation challenges and risks. Here’s what to look out for when considering freemium:
Most entrepreneurs (and VCs!) in the edtech space are in it not only as a business opportunity, but also because we care about educational opportunity. As a result, many of us feel the need to balance impact and return. I believe true impact is derived primarily from these two factors: 1. A product that adds real value to your users (QUALITY), and 2. A product that has a far-reaching user base (SCALE)
Starting the PioNears ambassador program was one of our best decisions during the early stages of our growth. Our ambassadors brought classroom experience, a deep understanding of our tool and its use cases, and an enthusiasm to develop and discover best practices for using Nearpod. Let’s take a look at how these programs help both teachers and edtech companies.
For this post I’ll skip the “official” advice, which would involve talking about the right metrics to present, the quality and consistency of your deck, best practices for demonstrating product-market fit, etc. Esteban has already written about a few of these topics, including metrics and TAM. In this post I’ll share some guerrilla strategies from someone who has been fundraising in edtech for the past 5 years.
As an early-stage entrepreneur, time is your most scarce resource, so I am happy to provide a summary of the main resources I’ve found helpful to navigate the early stages of edtech company formation. Needless to say, don’t worry about going deep through all the resources you come across. Instead, focus on your key priorities and find the resources that are best suited for addressing those needs.
Here’s a quick framework to get you started thinking systematically about resources.
Your TAM, or “Total Addressable Market,” is a dollar figure representing the total amount of money spent on the problem your product or service addresses. The term is often a proxy for how big the revenue opportunity is for your company. The bigger the TAM, the bigger the opportunity. VCs, of course, tend to like big TAMs.
At the same time, it’s common for early-stage entrepreneurs to hear VCs encourage them to stay laser-focused on solving a narrow problem. As a resource-limited startup, you need to scope and focus on successfully solving one pain-point for your customers in order to overdeliver in customer satisfaction. The thinking goes: start by doing one thing really well with your limited time and capital, and then expand.
In many cases, the classroom is ready for virtual reality (VR) and other frontier technologies. Students and teachers deserve the best tools for learning, and these technologies offer promising ways to engage students and improve outcomes in K-12 and beyond.
The caveat is that schools don’t typically have the same need as other industries to chase the “flavor of the month.” Schools aren’t going to adopt something simply because it’s “innovative.” Rather, I have found that schools and districts will massively deploy a new technology only if it fulfills the following four criteria:
The general conception is that you can only raise money from a VC when you have amazing metrics. However, metrics are relative to where you are in your company trajectory.
In my experience, the best founders and the savviest investors will look at contract churn as a key indicator to determine the health of a business. New sales matter, but churn among your existing paid customers matters even more!
My first piece of advice is to define exactly how you want to measure churn and align everyone in the company around the same metric.
When starting a new company, entrepreneurs like you typically aren’t picky about their very first customers. Beggars can’t be choosers, after all. In education your first customer could be a teacher, a school, or (more rarely) a district. In my work at Reach, I’ve found that it’s usually an assortment — you might have a few dozen scattered teachers, a school or two, and maybe even a small district.
If you want to sell your product to schools, you need to think multi-platform from day one. When we started Nearpod in 2012, our focus was purely on iPads. We were certain that Apple was going to own the K-12 space.
Fast forward to today: Google Chromebooks, Amazon Kindle Fire, Windows, Linux, and various other devices have entered the classroom. While some schools have a 1:1 program with a specific device (e.g. iPads), most schools have diverse hardware ecosystems: a computer lab, bring-your-own-device (“BYOD”) classes, Chromebook carts, etc.
As forecasted, 2016 saw a softening of venture activity, especially at the seed stage, and a return to historical means after a frenetic 2015. In this letter we share what we’re seeing in the edtech investment environment and offer our thoughts on what that might mean for you.
Edtech investment generally follows the same trends as the overall tech investment landscape, and 2016 was no different. Overall, tech investment declined for 6 straight quarters, with seed rounds seeing the sharpest drop. Similarly, education saw a ~30% decline in investing activity last year. 2016 was off from the year prior by about 60 fewer deals and $370M dollars. Keep in mind that education remains a very small slice of overall venture capital activity: in 2016 education investments represented about 1.5% of total VC investment.
On March 1st, Nearpod publicly announced that they raised $21M in a Series B round of funding led by Insight Venture Partners, a world-class tech investor with deep knowledge and a strong portfolio in the k-12 education space. Below you will find a copy of the announcement, and for more information you can see some of the press in TechCrunch and EdSurge.
In my experience, the advice you’re hearing doesn’t always apply in edtech. I’ve seen that movie before: edtech company builds a product, gives it away to teachers for free, company tries to put up a paywall, teachers don’t want to pay.
So while I agree that building a great product comes first, to me a great product is a sticky product.
You shouldn’t hire your first salesperson until you know you have a product that sells. That means that as the founder of a product, you are your first salesperson. In fact, if you’re not selling your product from day one, you’re missing out on valuable learning opportunities.
If you want to work in a meaningful industry and make an impact on students’ lives, then as far as I’m concerned, it’s always a good time to start an edtech company.
I get this question a lot, particularly from entrepreneurs who have not worked in edtech before. There is a general perception that education is full of regulations and red tape that make it impossible to innovate. But I have found that there is a lot of interest from teachers and admins in new digital solutions that “superpower” their work, and edtech companies are finding creative ways to monetize use of their products.