THE PROBLEM WITH EDTECH

EdTech is an incredible industry. It’s an industry marked by passion - in its founders, investors, and educators. This passion leads to lots of amazing organizations being created constantly in so many parts of the world. This amazing creative energy is driven by another unique aspect of the industry - every person has had a lived experience in the education industry. There are so many incredible outcomes from this truth:

EdTech founders can be anywhere - and they are.

The problems that EdTech founders work on are extremely varied - from teacher effectiveness, revolutionizing PD, disrupting test prep, improving access to higher education, etc…

The folks that start EdTech companies are extremely diverse and reflect the diversity of our student populations

The global community of EdTech founders is one I would bet on any day of the week to innovate in our education sector and tackle the challenges that it faces.

The journey in creating and scaling companies for these EdTech founders is far from easy, however. There are myriad challenges staring at you as you begin creating a company in the EdTech industry.

From foundations, to VC, to schools themselves, There is simply not enough money to support a rich and innovative EdTech startup ecosystem

The funding that does exist is inequitably applied to those with more social capital and these folks tend to be male and white - a stark contrast from the diverse populations that start EdTech companies

Your city or state might not have the best startup support ecosystem

Because there are very few EdTech VCs, they have the liberty to invest almost exclusively in later rounds and invest in higher growth areas like early childhood and higher education, often leaving K12 behind

Foundations that support EdTech are few and large. They tend to dictate the impact work they’d like to see, leading to lack of operational funds for impactful nonprofits.

Foundations and schools also demand EdTech companies shoe efficacy before entertaining funding opportunities. Meanwhile (good) efficacy studies are maddeningly expensive creating a frustrating chicken and egg problem from founders

A funding pipeline that is skewed towards later rounds with sparse opportunities in early stages; et. al.

These problems are symptomatic of a larger problem in our industry - a lack of collaboration. VCs, foundations, schools, and edtech founders are all doing good work towards their own missions, but not enough attention is being paid to what each other is doing and how it adds up adds up to broader change. How are we doing in our collective goal of leveraging technology to create better learning outcomes for our kids?

“The global community of EdTech founders is one I would bet on any day of the week to innovate in our education sector and tackle the challenges that it faces.

THE IMPORTANCE OF REVENUE FOR EARLY STAGE COMPANIES

The reality of our industry is that there is simply not enough money invested in it to ensure that we have a thriving and innovative edtech startup ecosystem. There are few exclusively EdTech VCs, and they are incentivized to invest in later rounds and in sectors that return their investment quicker - like early childhood and higher education. The pandemic has changed a lot but from a funding perspective, it has changed very little. More VC money has come into the sector in this year, but most of that money has gone into growth rounds or propping up incumbents, so the numbers are a little misleading. Additionally, the only real bets being made are in direct to consumer education apps.

The truth is that if you’re building an EdTech product that hopes to sell to schools, you should not be planning on raising VC money. The reason is because the Education technology sector does not work like other technology sectors in a few important ways.

For the most part, the only exits in EdTech are through acquisition. There are precious few EdTech IPOs, so most investors will optimize for the kinds of companies that they could see go at it alone.

Sales cycles are extremely long. No matter what part of education you’re in, it takes a long time to close a deal.

Your user is typically not your buyer. Your user - perhaps a teacher or student is very rarely the one who will be paying you for a software license. Lots of folks have successfully figured out ways to convert their users into evangelists for a sale, but this complication just adds substantial levels of difficulty to building a successful edtech business

So what does all this add up to? Well, it means you should not expect a VC investment. This doesn’t mean that there aren’t other opportunities for funding - there might be so local incentive programs, grant programs associated with universities or local governments, pitch competitions, etc… but the number of people actually receiving VC funding (especially in the pre-seed and seed stages) in EdTech is very low.

If you can’t depend on investment, the only road for you will be to build revenue - and that’s what we try and focus on in the AT&T Aspire Accelerator. And I don’t want the non-profits listening to think they can ignore this part. The grant funding ecosystem is in a very similar state, and you’re going to have to build your earned revenue strategy as well.

The most maddening thing is that as soon as you've figured out a good revenue generating strategy, that’s when investors start to be interested in what you’re doing. And that’s a good thing! I am not trying to disparage venture capital or foundation money with my talk - in fact, it is a critical piece of making sure our ecosystem works well. We simply need more of it.


CONCLUSION

The unfortunate truth of the matter is that the EdTech industry is extremely inefficient right now. Don’t get me wrong - there aren’t any bad actors here. Foundations have a noble goal and are funding impactful things, typically at the base of maslow's hierarchy of needs. VCs in EdTech are largely here because of passion for the industry and are doing a good job of returning their funds successfully. Schools themselves are doing the best they can to run a building, engage their communities, and educate kids. EdTech founders are an incredible group of people following their passions to create meaningful change.

Every one of these groups has the same ultimate goal - to create more equitable learning outcomes for all students. The problem is that without working together across VC, foundations, schools, and edtech founders we will never have a clear picture of whether or not we’re being successful in working towards our ultimate goal. Not only do we need new entrants to help invest in this ecosystem - we need a ton more collaboration to ensure that we’re doing what we set out to do as an industry.

“The problem is that without working together across VC, foundations, schools, and edtech founders we will never have a clear picture of whether or not we’re being successful in working towards our ultimate goal.

So that’s the new vision for edtech accelerators - to collaborate. We’ve all evolved our programs over the years to ensure we’re serving edtech entrepreneurs throughout their life cycle. We talk often, trade notes, and often support the same organizations.

And this year, I’ve started a new organization with the support and collaboration of my colleagues on this panel called Project FoundED. FoundEd hopes to be an organization that bands EdTech founders together to highlight all the problems we’ve talked about here, and also create a platform to celebrate the great work being done. Ultimately, we hope it can be a platform to collaborate across stakeholders in this sector to keep us aligned to our north star - equitable learning outcomes for all our students.


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