Startups Seek to Master the Education Market
The increasing flow of venture capital into K-12 and heightened interest in educational technology are creating opportunities for market newcomers
Less than a year ago, Sam Chaudhary and Liam Don met at the University of Cambridge in England during a so-called startup weekend, an event where would-be entrepreneurs, Web designers, and software developers gathered to brainstorm for 54 hours straight.
The two had coffee in London about a month later and hatched an idea. Within days, they had applied to an American business-incubator program for education entrepreneurs, and by last August, they had launched Class Dojo, a classroom-management tool for teachers, which has grown significantly in schools since it was launched.
Even a few years ago, this Silicon Valley-esque story might not have had such a happy beginning. While it remains to be seen whether Class Dojo will cut it, the Palo Alto-based company got traction, and quickly, despite the still uncertain state of the American economy.
The company's route to success and its entrepreneurial founders reflect a shift in the economic climate for those who want to break into the education business, and in the motivation of those would-be entrepreneurs. Mr. Chaudhary had studied quantitative economics in college and ended up teaching high school economics while Mr. Don had studied computer science.
"It's what we both knew: There's a lot of problems in education. There's a lot of room to be solving problems," Mr. Chaudhary said. "And we were both looking to do something meaningful."
For decades, industry giants have ruled the education sector. A few textbook companies, testing providers, transportation companies, and school meal providers have "owned" district and state education business because they have something small companies don't: the financial resources to weather hard times and slow budget cycles, said Douglas Lynch, the vice dean of the graduate school of education at the University of Pennsylvania.
Established companies, he said, can afford to wait out the district budget cycle, spend time lobbying school board members who have differing opinions, and travel from district to district demonstrating their products.
In addition, big companies have clung to their monopolies because investors were reluctant to dive into the education sector.
"The timeline is slower," Mr. Lynch said of the education market. "If classic venture capital is 36 months for 118 percent growth, in education it might be seven years."
On top of that, while the American K-12 marketplace may seem large, with roughly 15,000 school districts, he said, "there's no real market. There's 99,000 teeny tiny markets. It's hard to go viral quickly."
Newcomers are fighting an uphill battle in that marketplace.
"In education, everybody's looking for the algorithm, the panacea—that we're going to find one thing and scale it to everybody," said Mr. Lynch, whose university has paired with the Milken Family Foundation several times to run an education business startup-plan competition, which awards cash prizes for the best ideas.
"It's not a healthy ecosystem," he said. "There's no way to nurture, grow, and greenhouse" new ideas that may apply to a niche.
At least, he said, not until very recently.
To begin with, the flow of venture capital into the K-12 market has exploded over the past year, reaching its highest transaction values in a decade in 2011, and surpassing even the flow of venture capital into higher education. The increase is attributed to a heightened interest in educational technology, a drop in the cost of electronic devices that can be used for teaching and learning, and the movement toward a standardized curriculum through the Common Core State Standards.
That sets the stage for more support for startups.
Beyond the increased influx of venture capital into K-12, Mr. Lynch outlines other factors that are helping create a more favorable environment for startups, including:
• The first federal Investing in Innovation, or i3, competition poured $650 million into projects aimed at advancing innovative approaches in education. The program is now in its third phase.
Dozens of companies that hope to break into the K-12 education market have formed in the past few years. Here are a few that have become popular quickly, gotten the attention of big-name investors, or are considered by industry observers to have had a successful start:
A real-time tool that aims to help teachers improve student behavior and engagement by generating reports that can be emailed or printed for parents and staff members. Part of the education venture capital ﬁrm Imagine K12’s inaugural cohort of companies. One of the ﬁrst investments of the NewSchools Venture Fund’s new seed fund for early-stage education companies. Created in 2011.
The site provides adaptive lessons in math for elementary-age students based on the Common Core State Standards. Acquired in April 2010 by the Charter Fund in partnership with Reed Hastings, the chief executive ofﬁcer of Netﬂix. He helped raise $11 million for DreamBox in 2011. Created in 2006; went online in 2009. (The company’s C E O and president, Jessie Woolley-Wilson, is a trustee of Editorial Projects in Education, the nonproﬁt corporation that publishes Education Week.)
A secure social network for teachers and students that has more than 5.4 million users. The venture capital ﬁrms of Reid Hoffman, co-founder of LinkedIn, and Matt Cohler, formerly of Facebook, have joined its board and pledged to raise $15 million. Created in 2008.
An online community where anyone can teach what they know and learn what they don’t. Its software turns any tablet computer or Web browser into a recordable, interactive whiteboard. Part of the education venture capital ﬁrm Imagine K12’s inaugural cohort of companies. Created in 2010.
A tool that helps teams of educators, students, and parents collaborate around personal learning plans, including those for students with disabilities. One of the entrepreneurs in the inaugural class of the Kauffman Labs Education Ventures Program. One of the ﬁrst investments of the NewSchools Venture Fund’s new seed fund for early-stage education companies. Launched in 2011.
iCreate to Educate
Students use animation software to express their ideas and develop their understanding. One of the entrepreneurs in the 2010 inaugural class of the Kauffman Labs Education Ventures Program.
Late Nite Labs
Provides online chemistry and biology laboratory simulations for high schools, colleges, and distance learning. Raised $1.1 million in 2011, including investments from Harold Levy, a former chancellor of the New York City public schools. Launched in 2006.
A text-messaging service for teachers and students in which teachers never see students’ phone numbers, and students never see their teachers’ numbers. But teachers can send students messages reminding them of tests assignments, and projects, and in turn, students can ask heir teachers questions about those items after school hours. One of the entrepreneurs in the inaugural class of the Kauffman Labs Education Ventures Program. Launched in 2010.
Connects private tutors with clients. Was funded by Y Combinator, which provides seed funding for startups across industries. Launched in 2010.
• The NewSchools Venture Fund—a nonprofit venture philanthropy fund based in Oakland, Calif., that has put nearly $200 million into education projects since 1998—just created a new fund, the seed fund, intended specifically to invest in early-stage education technology companies "often overlooked by the traditional investing community because of their focus on schools."
• The 2-year-old nonprofit Startl, based in New York City, partners with other organizations working on incubation or acceleration of education technology innovations.
• One time startup Grockit, an online test-prep site based in San Francisco that mixes study with social networking, has hosted several startup weekends focused on education and has many more in the works.
• Imagine K12, a for-profit venture capital firm based in Palo Alto, Calif., was formed last year to provide training and capital because "building the right [education] products and getting those products to market will remain a very special sort of challenge." (Class Dojo was a member of Imagine K12's inaugural training class.)
• The Kauffman Labs Education Ventures Program, an offshoot of the Ewing Marion Kauffman Foundation in Kansas City, Mo., last year provided four months of intensive training to 23 education entrepreneurs.
At the same time, big names in and outside education have been espousing the potential of education technology, the medium of most education startups, said John Bailey, the director of the Washington-based Whiteboard Advisors, which provides research and strategic support to those looking for an understanding of the education policy and business environment.
"More tech luminaries are talking about ed tech," he said. He cited such people as Microsoft co-founder Bill Gates, Netflix Chief Executive Officer Reed Hastings, and the New York City-based venture capitalist Fred Wilson.
"You have A-list players talking about this and expressing an interest in the space," Mr. Bailey said.
Along with the influx of cash, coaching, and other attention to education startups, the Internet has contributed heavily to the potential for such startups to succeed.
"The Internet allows for a new mode of distribution into schools," said Tim Brady, one of the three founders of Imagine K12, who are all Silicon Valley veterans. "Back when we started companies in the '90s, you had to raise $1 million from a venture capital firm. That would go to buy computers. You would hire someone to manage your computers and just to put up your website.
"Now," Mr. Brady said, "for $10 a month, someone can replicate the same thing on Amazon's Web services."
Harnessing that power was part of the strategy at GoalBook. It's essentially a version of an IEP or individualized education plan—a document that outlines the goals and progress for a student with disabilities—that can be updated in real time. GoalBook was chosen to take part in Kauffman's training program and Imagine K12's incubator sessions last year. Imagine K12 helps its selected entrepreneurs work on developing a business strategy, crafting a product design, or forming a network of educators who can test products.
GoalBook, in Palo Alto, Calif., has several founding-partner districts that are paying customers, said Daniel Jhin Yoo, the former special education teacher and software developer who created GoalBook. But the venture has several thousand people using GoalBook for free.
"Our hope is that they love it, and it helps them and their colleagues, and then they have a conversation with a decision maker in the district who might be interested," he said.
But because the startup playing field has been leveled by using technology, "it puts all the startups on notice: You cannot just put a product out and rest on your laurels. You've got to keep moving," Imagine K12 founder Alan Louie said. "And that's the best thing for consumers. They get choice. They get to pick the product that best serves their needs."
In essence, he said, there can be multiple solutions to the same student and classroom challenges.
Predicting Potential Pitfalls
As much as technology is influencing startups, both in how easily an idea can become reality and in how quickly it can be distributed, it can also pose a problem if entrepreneurs overestimate how much technology is available in a typical school.
In an unexpected twist, one of the presenters at the Milken-Penn competition last year ended up telling the audience why his product shouldn't be a winner. The product, GoalPost, was intended to be a social-networking platform for students to share their reading habits. Students could review books and recommend books to friends while their teachers tracked what they read. Recommendations for books would pop up when students logged in, based on what else they had read, à ala Netflix or Amazon.
But creator Matt Pasternack, a former teacher who has since moved on to other projects, realized that despite the backing of a children's book publisher and several school districts, schools wouldn't have enough computer access to make the most of the program.
"The platform of the classroom is still paper," Mr. Lynch of the University of Pennsylvania said. "It was so much extra work for the teacher to do this. [Mr. Pasternack] gave a presentation about why we should not pick him."
Despite that cautionary tale, education entrepreneurs who believe in their ideas are undeterred.
They include a former mechanical engineer for Disney, Melissa Pickering. She wants to inspire others to enter the engineering field, especially young women.
After working for a few years, Ms. Pickering joined a research center at Tufts University, in Medford, Mass., and converted the center's work into iCreate to Educate. It's an application that allows students to create models of, say, a scientific process like photosynthesis and turn them into movies. Students need basic craft supplies, such as pipe cleaners and construction paper, a computer, and a Web-based video camera.
"We were trying to figure out a way to give students an alternative method of developing their understandings in science," Ms. Pickering said.
Her company, launched in 2010, was chosen to participate in Kauffman's Education Ventures program. And it has another advantage over typical education entrepreneurs: The idea for iCreate came while Tufts researchers were still in action.
"We're lucky in that the product was about 80 percent developed when we launched the company," Ms. Pickering said. Because of a $500,000 grant from the National Science Foundation, she hasn't had to spend a lot of time looking for investors to get her idea off the ground.
She said she quickly learned that early, expensive efforts to market her product at conferences were unnecessary: Now, teachers who use iCreate have become its de facto ambassadors.
Despite the many new channels that have opened for education entrepreneurs, the fresh sources of funds, and a new attitude of entrepreneurship for the greater good, the education startup environment still has room for improvement, Mr. Lynch said.
"There's definitely a thirst for this, and a need for it," he said of education entrepreneurship. "It just needs more catalysts."
Those catalysts, and in turn the companies and products they help cultivate, could have a powerful effect on education as people now know it, said Farb Nivi, the founder of Grockit.
"There may be a point when we look back at this time ... as being absolutely critical to education reform," he said. "People are willing to try new things; they need to do more with less resources."
Vol. 31, Issue 23, Pages s3, s4, s5Published in Print: March 7, 2012, as Startups Seek to Master The Education Market