Investment in Education Technology on the Rise

(Image: Shutterstock)

(Image: Shutterstock)

For much of the previous century learning methods barely changed. Students worked out math problems on worksheets and teachers wrote instructions on blackboards. The only major shifts were moves from mimeographs to copiers and blackboards to whiteboards.

However, with the explosion of education technology at the tail end of the 20th century, learning methods are now rapidly changing. Investors have taken notice of the expansion of the ed tech market and are hopping on the investment train. The global ed tech market is expected to grow 17 percent a year to $252 billion by 2020, according to a report from EdTechXGlobal and IBIS Capital.

Ed tech startups are hoping to win funds from venture capital groups and investment banks. To do so, the companies need to demonstrate that they have a valuable product, a solid business plan, and ability to grow a customer base and maintain satisfaction. To understand what investors are looking for from ed tech startups, we sat down with two players in the ed tech investment space, Matt Greenfield, managing partner of Rethink Education, and Tom Costin, partner at Owl Ventures.

Not only does a deeper understand of investors’ needs benefit startups, it also benefits school administrators, IT staff, and teachers who are selecting what tech to bring into the classroom. Investors are looking to give money to only the top ed tech companies and products, so educators should keep an eye on what companies are getting significant investment to determine what tech they should choose for their schools.

What Investors Are Looking For

In order for education technology startups to be successful, they must identify a real problem, avoid redundancy, consult previously conducted research, and tell a convincing story, according Greenfield.

“It’s really hard to identify a real problem unless you understand the person,” Greenfield said. “You need to have a deep empathy for the people on the buying team as well as the user.”

Rethink Education is different from most education technology investors in that it’s interested in entrepreneurs who appeal to school districts as well as the teachers who’ll be using the technology. Since the districts make the spending decisions, it makes sense to focus on them. Other venture capitalists adhere to the direct consumer model, which doesn’t always work in the education market, according to Greenfield.

Costin explains that the people behind the product are often just as important as the product itself. Explaining that “a few key qualities we seek in a company is that they are (or can be) the market leader in their subsector and are led by talented entrepreneurs.” Costin also concurs with Greenfield, saying that “it is also important for the company to be solving a major pain point in a large addressable market.”

What a Successful Product Looks Like

Startups are more likely to be successful if they produce an original product that few or no companies already have. One example of a redundant product is the digital textbook.

Greenfield spoke with one college that had connections with 43 digital textbook companies. This idea was backward thinking, inflexible, and costly, according to Greenfield.

“Look around honestly and ask, who else is trying to do this, how well are they doing it, and what resources do they have?” Greenfield said.

Besides avoiding redundant products, Owl Ventures is also looking for companies with strong products, not just minor features.

“The company also must have the ability to be a “stand-alone” company versus a small “feature”-type company,” said Costin.

If too many companies already dominate the market on one idea, it makes sense to try something else no matter how personally invested the entrepreneur is, according to Greenfield.

Greenfield advises startups to take a look at research that’s already been done on their goal or product, such as how to design and build a learning tool. Rethink Education isn’t attracted to startups that think they can innovate the entire system without any prior knowledge.

“You can’t just ignore the research and expect to reinvent it yourself,” Greenfield said.

Keeping an Eye on the Future

With how rapidly the ed tech market is growing and changing, it’s essential for startups to have their eye on the future, not the present.

“There is a digital revolution occurring in the education system that is creating a historic opportunity to invest in companies that are disrupting and improving this large, important, and rapidly evolving industry,” said Costin. “We think there are some very compelling opportunities across all of K-12, higher ed, and continuous learning. Early learning and computer science/coding are two specific areas that we find particularly interesting for future opportunities.”

Advice for Startups

Another qualm that Greenfield had was that startups don’t know how to convince investors to trust that their product will make a difference.

“A lot of ed tech entrepreneurs don’t know how to tell strong stories,” Greenfield said.

Costin had advice for startups looking to make themselves more appealing to investors.

“The companies that stand out will be the ones that can demonstrate that they have a functioning business model through either revenue or traction and have a clear product and market fit. We also need to have a strong conviction around the ability of the entrepreneurs and advisers to execute against the vision so we spend a lot of time getting to know the leaders of the company. Entrepreneurs that are mission driven and have been trying to solve a major problem will stand out,” Costin said.

Tips for Educators

For administrators, IT staff, and teachers trying to determine what tech to bring into the classroom, Costin acknowledged that there are seemingly endless options.

“There is no shortage of technology options for teachers but the best ones will be able to demonstrate real efficacy on student outcomes. This is a key investment criterion for us as we believe that the most successful long-standing companies will be those that can quantify the student outcomes,” Costin said. “The best ones also often are being used by the most teachers and get viral adoption through teachers talking to fellow teachers about which products are the most helpful to them and their students. So we would encourage teachers to talk to each other or do research on companies that have conducted studies on their efficacy.”

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