A new $5 million investment fund launched this month to support startups building tools to scale online learning. But for entrepreneurs seeking to tap into this pot, there’s a catch.
Companies that take the investment have to agree not to sell their products with the latest features to a list of colleges that includes Arizona State University, Purdue University Global, Southern New Hampshire University and Western Governors University.
The reason: The new fund, SEI Ventures, is an offshoot of Strategic Education, the publicly-traded holding company that was formed as the result of a merger between two publicly-traded, for-profit online higher-ed institutions: Strayer Education and Capella University. The merger, worth an estimated $1.9 billion, was finalized on August 1, 2018. Both Strayer and Capella, which serve adult learners, continue to operate as distinct brands, and this arrangement means they get to work with new tools that their largest competitors would then be barred from buying.
For Karl McDonnell, the CEO of Strategic Education who had led Strayer University since 2013, one reason to start the fund was a frustration at watching his faculty spend time helping education companies pilot, test and refine digital tools that the companies then immediately sold to competing colleges.
Early-stage companies whose goals are usually to get as many eyeballs and users as possible may find those terms restrictive. In the higher education industry, the colleges that McDonnell identified are considered pioneers when it comes to testing and buying emerging tools. And Arizona State University is one of the largest public universities in the country, and boasts a growing digital footprint of more than 30,000 students enrolled online.
More broadly, the limitations may seem at odds with higher education’s spirit of being open and sharing new ideas, research and innovation. “I acknowledge that [the fund] is not going to be for everyone,” says McDonnell in an interview.
The upsides to working with SEI, he notes, is “a commitment from us to purchase the product for two to four years.” He also says that the myriad colleges in Strategic Education’s portfolio offers a testbed and experts who can “help entrepreneurs refine their products much faster than they’d be able to do on their own.”
Aside from Strayer and Capella, other institutions owned by Strategic Education include a trio of coding schools (Dev Mountain, Hackbright Academy and the New York Code + Design Academy) and Sophia, an online college course provider. Altogether, these institutions serve more than 90,000 students, according to McDonnell.
Among the tools that McDonnell said his team at Strayer Education has piloted and improved are Yellowdig, a social learning platform that provides automated “nudges” (alerts) to students who may be struggling, and Civitas Learning, a predictive analytics tool used to predict student success.
One company has already decided to take SEI’s investment: ecree, the developer of a tool that provides automated assessment and feedback on digital writing assignments. The $500,000 investment will support the startup’s continuing efforts to develop and scale the tool across other higher-ed institutions. Ecree must wait two years before selling new products to Strategic Education’s competitors. (It can still sell existing tools.)
SEI Ventures will focus its investments on four areas: leveraging artificial intelligence and machine learning to improve teaching and learning; providing more streamlined and effective student-support services; helping students persist through courses and graduate; and building career pathways that connect students to jobs.
Some of the competitors that Strategic Education has identified are trying to woo and partner with higher-education startups themselves. In 2016, ASU created an accelerator that provides product development, testing assistance and up to $25,000 to education technology entrepreneurs. SNHU launched its own $15 million edtech venture fund last year in partnership with Rethink Education, an education-focused investment firm.
SNHU President Paul LeBlanc told EdSurge via email that the fund has no restrictions on who its portfolio companies do business with.
