Friday, June 05, 2015

Rethinking EdTech Investments

TechCrunch reports a slowing of EdTech investments in the first five months of this year (see here). The period in question is perhaps too short to pick up a trend, but this may allow us to think through some of the issues on the table.

For example, what kind of EdTech is really going to change things? The EdTech business is a slow one - someone told me that you will need 36 visits to an university to sell them a piece of technology, and make it 72 if it is a new idea - and indeed, most investors and entrepreneurs, believing the trade press perhaps a bit too much, are already feeling disappointed that the things do not change as fast. In fact, not just this piece of news about slowing deal flow, but also the big successes - like Lynda.com - tell us a story of continuity, rather than change. 

The big investments in EdTech going to video perhaps tells us that while technology is being adapted in the classroom, and people are learning themselves, the ways of doing so are changing only slowly. Content remains the biggest attraction in EdTech - and video is coming of age - followed by tutoring solutions, which one can perhaps still see as content. Third on the list would be assessments, which has large international market. But the other popular ones with entrepreneurs, such as end-to-end delivery frameworks, or smart pieces of technology that seek to disrupt things, are perhaps still out of favour. An Angel investor recently told me that all his investments in scalable businesses do not grow, but one he did in a face-to-face tutoring business, one that is not supposed to scale, has returned him many times the money. In summary, in more ways than one, Education continues to frustrate technology investors.

Which, in itself, is not a bad thing. Education, a separate sector with its own dynamic, needs its own specialist investors. Right now, it gets lumped with Technology, Media and Telecom (TMT) because the investors are not sure what it really is. However, we are starting to some specialist Education funds, some of them focused on social impact, which is really good news. In fact, the Technology Investors getting into education, while it brings a lot of money to the sector, muddies the pond quite a bit, and subverts the dynamic. The nature of Education, a service that requires relatively less money to build but has a long gestation period, one that continues to depend on people (think Content and Tutoring businesses) and is not really a Consumer Technology business (can not be used twice a day, using Larry Page's analogy, but rather once in a lifetime commitment), is ill served by a technology mindset, where the most important metric is the one related to customer acquisition, because the rest can figure itself out. The investment models based on instantly scalable customer acquisition and efficiency-driven delivery cost savings subvert the personal nature of education. In short, education, while it can be a business, needs its own investors and investment approach.

Given the demand for education worldwide and its importance, education investment is here to stay. For all those who think education is not a business, they should note that education was always an enterprise - with personal tutors leading the game since the days of Aristotle through our very familiar Adam Smith and now all the SAT schools - and an opportunity to invest and grow. It is state-funded education which is a modern thing, perhaps necessitated by the Industrial Revolution, and state is retreating rather than expanding in scope in education. The point, of course, is that no one knows definitively what comes next. This is the job for the next generation investors, entrepreneurs and educators to figure out.



 

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