There are not too many education conferences that flip the script and let CEOs grill investors with questions. However, BMO Capital Markets’ 17th Annual Back to School Conference is the kind of event your boss’s boss attends. From bigwig financiers to bankers, along with heads of private and publicly-traded education technology companies, the gathering attracted around 900 attendees last week to share the opportunities and challenges in the industry this year.
The Industry Seeks a Rebound
With more technological infrastructure in place, more capital to spend, and advancements in software, mobile technologies and cloud-based computing, business is expected to boom. According to the BMO Capital Markets Education Training Report, investments in education technology are projected to rebound after a sluggish 2016. (The previous year, 2015, set a record for education technology investments with over $3.1 billion in venture funding.)
The report notes that although more money is expected to change hands in the industry this year, the volume of transactions has decreased. This means a few large deals, such as Blackstone and Canada Pension Plan’s proposed $2 billion acquisition of educational content and software provider Ascend Learning, may skew perceptions a little.
Overall, revenues in the edtech industry have increased, driven by a demand for more blended learning options, greater use of technology in education and a growing middle class overseas. BMO cites research from Gartner, a business-technology research firm, which estimates that these companies will see more than $11.6 billion have revenue by the end of 2017, and projects that number to increase to $14 billion by 2022.
Who is the biggest spender in the education technology market? That would be school districts, which the report says make up about 33.5 percent of education technology purchases. The districts are largely spending their funds on software, with expenditures estimated to reach $3.9 billion in 2017. The majority of the purchases were for learning management systems.
Working With Teachers (Without Compromising Them)
Executives, including Renaissance Learning’s chief financial officer Mike Evans and Edmentum CEO Jamie Candee, noted that it was time the edtech industry changed its approach to building products for public school teachers.
“A lot has happened in edtech under the thought process, ‘I have got issues with teachers, so I am going to develop a technology that will be put in place in lieu of the teacher,’” explained Evans on a panel. “That is a fundamental mistake because it doesn’t recognize the human interaction that teaching and learning are, especially with younger students. This idea of understanding and integrating what a teacher does with their children in the classroom every day, I think, is a critical expectation of tech companies today, one that will grow over time.”
Candee concurred. “We have to work with the teachers. The days of districts procuring technology tools, throwing them in the laps of teachers and saying ‘good luck’ is gone. We have to do things differently.”
It’s a sentiment that is echoing across the industry. In a previous interview with EdSurge, DreamBox CEO, Jessie Woolley-Wilson explained that she believed sustainable transformation in learning depended on building working relationships with teachers.
To her peers who are seeking more visibility for their products, Candee suggested that companies proactively partner with teachers. “Make them part of the purchasing decision, work with them to make them comfortable with the tools, and they will sell it for you,” she said.
Suggesting that teachers be cheerleaders for a product is a contentious flashpoint, however. A recent New York Times story on the usage of “brand ambassadors” raised ethical quandaries about the relationship between public school teachers and private companies.
Candee told EdSurge after the panel that’s not her goal. Instead, she hopes to build a more integrative approach where teachers are part of the design process. In her company's development and update cycles, she is looking to create feedback-loops where educators can consistently offer comment and critique.
“We are not asking teachers to go out and sell for us by giving them free products. We are talking about working with teachers as we design the technology and making sure we don’t miss the mark,” Candee explained. “We want to bring educators in to give us constant feedback, not to use them as a spokesperson.”
"We have placed so much focus on putting the technology in front of the student and not enough focus on making the teachers feel empowered,” Candee continued. “It became almost adversarial for a couple of years, and that is not what we want. We want to be the teacher's greatest tool.”
Education Success Means Our Success
Some district officials may not be asking as many questions as they should about whether a product actually works. But investors are not letting companies off the hook. Throughout multiple panels, investors such as GSV Capital’s co-founder Michael Moe and Vivian Wu, managing director of the Chan Zuckerberg Initiative, emphasized their search for companies who could prove their product was as successful as they claimed.
“Technology’s ability to show the real-time effectiveness of products is a game changer,” explained Moe. “What has underlined everything we are looking for in the education space is this concept we call, ‘the return on investment equals the return on education.’ This describes the effectiveness of the educational product and the investment returns we are able to gain from that. That alignment is critical for the success of this industry.“
For Moe and Tim Millikin, a principal at TPG Capital, impact investing does not imply that they intend to compromise on financial returns. For them, the effectiveness of a product and its profitability are not in opposition.
“I was in a meeting with several impact investors, and they were all asking the question, ‘Should we take a lower return?’” Moe shared. “If you have to sacrifice return, for an opportunity, by definition I don’t think it is going to work.”
Millikin noted that quantifying a “return on education” was also a priority when his firm created the RISE Fund to make impact investments. (Its first deal was a $150 million investment in EverFi.)
“We have a very calculated measure of what we think impact is, what the multiple of our money is from an impact perspective. So in education, you can actually quantify the economic impact of additional access and improving performance between grade levels,” said Millikin. “If you have a good business model that is self-reinforcing [and] if you also can do good on the impact side, then you are going to have a really powerful flywheel.”
For all the talk about making an impact, however, neither Millikin nor Moe offered more specifics about the formulas that undergirded their “return on education” investment principles.
Wu reminded the audience that many of education companies that are public today took a long time to get where they are. She doesn’t see the education industry as a place where a deluge of venture capital alone can bring success. Instead, she is looking for efficacy.
“One of the things I am seeing is a little bit more sanity,” said Wu, reflecting on her experience investing to the crowd. “More companies have to demonstrate their monetization strategies and ability to raise enough money to get to their next milestone.”
