BY: P.H. MULLEN, JR. Last week, I moderated an amazing edtech panel at the 2016 Venture Summit West at the Computer History Museum in Palo Alto.
Here's what I said:
We’re not in a bubble; we’re in a long-term business shift. It's a usage shift. It's a benefit shift. These adjustments are lasting and profound.
Like any evolving market, it's a confusing place. We move super-fast; our customer moves super-slow.
This is a good thing. Imagine the level of crazy that would occur if both innovation and customer adoption moved at equal speeds.
Here’s what I said to frame the market before we launched into one of the best panel discussions I've heard on the state of edtech innovation and investing.
Today, we're going to talk about is where the edtech market is and where it’s going.
To frame it, I want you to think about four key pillars supporting what we do.
But first: We have an amazing panel of people here.
Combined, this group has positively impacted the lives of millions. They’ve built businesses around the world. They’ve empowered a new generation of leaders and carved a new business category.
In edtech, you first measure venture-capital success by number of lives changed.
Tonika Cheek Clayton of New Schools Venture Fund, Monica Dodi of The Women’s Venture Capital Fund, Isabelle Hau of Omidyar Network, Amit Patel of Owl Ventures, Ned Renzi of Birchmere Ventures, and Debbie Staufer of Atrium Capital.
I want to acknowledge Evernote Founder Phil Libin as one of the biggest influencers in today’s edtech market. He may not even realize it.
(Ed: Phil had originally planned to participate, but ran into a scheduling conflict. They let me moderate in his place. Wow, big shoes to fill!).
Phil’s the godfather of freemium. He didn’t invent the model, but he made it a life’s passion to advocate for it. His insistence on building great products and providing most of it for free has transformed the opportunity for edtechs to get into the market.
Why is this important to mention today?
Freemium today is a driving force in our industry. It may be one of the Top 5 most influential catalysts.
The best thing to happen to the edtech industry was the Great Recession of 2008.
There was no money in the education market. U.S. education is funded about 60% on local property taxes. So the hit – the pain – was especially protracted during the long housing long recovery.
We all know this.
Tens of thousands of superintendents, CTOs and principals both in the U.S. and globally told their teachers something quite simple:
They said, We trust you.
They allowed their teachers to introduce into their classrooms new products. Products they personally believed in. Products that existed and succeeded only within the radius of a single room.
This was massive change in the global education market.
It eroded several hundred years of institutional structure.
It brought us to where we are today — Right now in this room talking about edtech venture-capital investment.
Arc Capital Development, where I’m a partner, has been around a dozen years.
Ten years ago, less than 5% of companies we talked to had a freemium or “teacher-first” strategy.
Last year, that percent was 70%.
The biggest question for edtech businesses is: How do you sell?
Is it a bottom-up approach direct to teachers? Nearpod and Edmodo and many others will say yes.
Or is the road to lasting success based on top-down selling like all those market influencers, industry veterans, and BD guys advocate?
The answer is yes.
Your success will be based on both strategies.
In almost every case.
That will be true, even if your BD top gun spends all the time talking to administrators.
It will be true for the basic reason that all 1,000s of teacher-first products have created a new market and a new customer.
Teachers are decision-making influencers in a way that seemed unimaginable a decade ago.
You have to win them over.
As you observe today’s edtech market, here is a straightforward way to frame it.
There four observable pillars supporting what we do.
EdSurge has 1,803 products in its edtech database. That doesn’t include many enterprise offerings or very early startups or much of the international market. So roughly triple that number. Why not. This suggests there 5,000 available edtech products today. And the innovation occurring today will make many obsolete in 5 years. VR, anyone?
In 2015, we saw an all-time record in funding with $1.85 billion. Which broke the 2014 record, which broke the 2013 record, which broke the 2012 record.
There were 200 funding transactions last year. About 40% of funding went to K-12 and 60% to higher ed.
If you think this is a U.S. phenomenon, you’re wrong. China alone had $670 million. That’s 35% of everything.
India has only $60 million in 2015 investment. But it funded 27 new companies.
All this data is from our friends at EdSurge.
Are we in a bubble?
I say no. Some on the panel will say yes.
Keep in mind that while edtech in 2015 had 200 funding events, it also had 415 mergers, acquisitions or exits, according to Berkery Noyes.
That 1.5 exits every business day for the year.
How do we sell? What is successful? What does the trajectory look like for the market?
Why do companies stall at $100,000 in revenue and 100,000 monthly users?
Why do the stall again at $1 million in revenue?
This pillar is where most of you expend all your wetware energy.
We could be in any industry. We choose Education. We’re passionate about something beyond financial gain.
It’s critical that we acknowledge our commitment to positively impacting how the world learns.
There is strength and power in nurturing that passion.
It also can be can complicate things. So we have to be aware of how it influences are thinking.
For us in Silicon Valley and overall in edtech, that positive impact often translates into products that are driven by data analytics, personalized learning, OER access, equal access opportunity, and closing the Digital Divide.