

VC investments in education - rafaelc
http://www.learnboost.com/vc-investments-in-education/

======
carbocation
Education is just a vast market. Based on his audience, Patrick's Bingo
software is essentially in the Education market. My small company that tries
to predict college admissions can also be seen as part of the Education
market. The landscape of things that qualify as "Education" is quite broad
and, at places (e.g., U of Phoenix; Kaplan), quite deep.

------
jonbischke
I'm curious as to where the author got the "$100 million max" number. There
has been significantly more than that invested in the industry. Four companies
alone that I can think of have raised about $100MM alone (2tor, Global
Scholar, Grockit, Smart.fm) and there have been dozens of smaller financings
(and no doubt some bigger ones I'm omitting). Private equity guys have also
been at work here funding companies like Grand Canyon and Bridgepoint (both of
which IPOed and returned big #s).

I agree that education has been an under-invested in industry but question as
to whether the amounts are low as are stated in the article.

~~~
rafaelc
To clarify: on average, over the past 5 years, the estimate is $100 million
max _per year_. Those are great examples but Grockit pulled in $7 million this
year. Even if you add in 2tor's anomalous number this year ($22 mln) you still
have a way to go to get to $100 mln this year for VC financings.

~~~
jonbischke
In the last six months -Knewton raised $12.5MM -Eleutian Technology raised
$10MM -Orbis Education raised $8MM -LiveMocha raised $8MM -Kakai raised $7.5MM
-Moonshoot raised $6.6MM -Cramster raised $6MM

That's about $100MM in the last six months alone and this is an industry where
there are a number of fundings that never get announced. Again, I agree with
your main premise, just not sure the data is as dire as you suggest.

~~~
rafaelc
Good point over the last six months. Still, that's why I said averaging $100
mln per year over the last 5 years. For example, last year was an incredibly
challenging year for everyone but the investment in education was really low
and counts for that 5 year average. Regardless, you can look back over the
years before and see that it hovered around $100 mln average per year.

Stepping back, your last 6 months point is why I wrote the article -- you can
see that VC investments are accelerating, and it's only going to get better
for guys like you and me with education startups.

------
danielnicollet
Great post but, If this equation was all it took for VCs to switch their
attention away from software, biotech, and energy maybe they would also be
investing a lot in social services, retirement homes, and other growing
sectors of the economy. I think you miss the point that VCs are not just after
market size, they are primarily interested in value creation through strong
cash flows and large profit margins which are not strong in the educational
sector. Dan

~~~
patio11
_they are primarily interested in value creation through strong cash flows and
large profit margins which are not strong in the educational sector_

The following comment doesn't apply to any VCs y'all may be friends with: the
key skill for maximizing a VC firm's income is to maximize their assets under
management, and _that makes investments a marketing decision_ which have
second order consequences on capital returns.

Cleantech is sexy and will attract dollars. Education is not sexy. Given the
choice between a sexy field with N% expected returns and an unsexy field with
N+3% returns, a rational VC would back sexy almost every time.

This should not come as a surprise to anyone who has studied the mutual fund
industry, which is also perpetually chasing the new hotness (which juices
inflow) at the expense of returns for the owners.

~~~
byrneseyeview
The market is more efficient than that: the accurate way to describe the
situation is that unsexy fields have a higher return on investment _to
compensate_ for their unsexiness, and thus that their undervaluation is way to
quantify how much people dislike them.

Take BP as a good example of this. It's a major oil company trading at a P/E
under 6. If they made a catastrophically huge one-time payment of $30 billion
to settle the Deepwater Horizons case, they'd still be worth ~50% more than
their current price. But who wants to say that they profited from
environmental destruction? Better to invest in Google--you get a stake in the
business, but you also get a stake in the smugness.

------
jbyers
Speaking from an education collaboration perspective, entering the market
requires grass-roots adoption, high-touch support, non-trivial insight into
how schools buy stuff, and patience. These characteristics may not be
compatible with venture investment, especially if you can't draw a convincing
line from zero to a hundred million dollar business. I'd guess the next big
education success will fly in well under the Silicon Valley radar.

~~~
johnl
That's what I was thinking. The markets is there but in front of it there is
this very big bureaucracy that you have to deal with. So maybe point the app
towards something like homework where the educational bureaucracy doesn't have
much control.

~~~
dhimes
I'm giving that a shot, but if teachers don't endorse it that can be a very
tough road.

~~~
johnl
My thought would be to stay away from the teachers. Quiz the kid to see where
they need help and then teach away with loads of feedback and reinforcement.

~~~
dhimes
Teachers wield a lot of power. I noticed this when I was teaching, and see it
more now that I'm tutoring. I can give a student something that will help him
or her to understand something, but if the teacher didn't assign it s/he may
or may not take it seriously. They don't even go to the freely accessible web
site that the book references unless assigned.

I don't know how the hell I'm going to get them to pay for mine. They will pay
for me to tutor them, though, so I _know_ there is a way.

~~~
johnl
The parents are the ones that pay you so maybe that is where the deal can be
made. Make it so the parents can oversee the kid's progress without actually
knowing the answers or doing any work. A cheaper tutor.

~~~
dhimes
That's exactly the idea. Although, the funny thing about it is: in person, the
parents don't really oversee the progress. I imagine it's because I talk
conversationally about how the student is doing, his or her strong points,
etc. But nobody really tracks how far along the student is progressing with
me. That is all done by the report cards (I tutor independently of any tutor
center -like Sylvans- and independently of the school systems).

I believe you are correct, however, in that things will shift when it is
"anonymous" and online. Kind of like selling childrens' toys: the kids have to
like it, but the parents have to be willing to pay as well.

~~~
johnl
Sound like you need 2 apps, one: the teacher's assistant app that the kid
works with and a second app that monitor's the analytics of the students
progress real time so instead of working one on one with the kid you can work
with multiple kids with different hours and with different study paces all at
the same time. Teachers and parents can review the progress from a overview
level and direct accordingly.

~~~
dhimes
Within my current design, it would be a matter of letting someone other than
the customer/consumer see the progress. With a parent/child relationship, the
parent can simply say, "show me." Putting in a separate parental monitoring
capability may be selling point (even if it doesn't get used). Thanks for the
idea. I'll ask some of the current parents what they think.

------
expertcs
[http://berkerynoyes.com/news/pr_VCED_SUMMIT_2010_update%20.a...](http://berkerynoyes.com/news/pr_VCED_SUMMIT_2010_update%20.aspx?ContactId=2145199453)

100+ VCs in this event.

