Tom Segal: "A Critical Transition Period for Edtech Venture Capital"

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Tom Segal: "A Critical Transition Period for Edtech Venture Capital"

Rethink Education analyst shares three key areas to watch in 2014

By Tom Segal     Jan 10, 2014

Tom Segal: "A Critical Transition Period for Edtech Venture Capital"

This article is part of the guide: EdSurge 2014 Outlooks.

Two-thousand thirteen was an exciting year for the progress of the edtech venture industry, one where money poured into LMS integrations, Common Core alignment, accelerator programs, big data platforms, and MOOCs galore. But that's so last year. Here's what I have my eyes on as 2014 rolls around.

The Public Markets

The public markets are a leading indicator of an industry’s economic impact, and if we are truly hitting a maturation period of edtech, it will ultimately be reflected in the stock price.

This year will be a critical transition period for edtech venture capital as it relates to the public markets. Chegg (CHGG) is still in its public infancy after its November IPO but has struggled to date: Its stock price has dropped below $8 (at the time of writing) after opening at $12.50. Houghton Mifflin Harcourt (HMHC), which IPO’ed at the same time as Chegg, fared better: After pricing at $12/share, the stock has climbed as high as $17.50, and as of this writing trades for $17.32. In fact, Wells Fargo just issued its first equity research report on the stock, bestowing the coveted “Outperform” label on the company’s prospects.

Others in the edtech space are likely to go public over the next year. How they perform will help determine just how active they will ultimately become as acquirers, which will have several ramifications for the industry as a whole. Many young startups view big publishing companies like Pearson as potential acquirers. And the more active and bountiful the acquisition market, the more willingly venture capitalists will look to seed and bring to scale early-stage companies and tools that gain traction and deliver results.

Additionally, with each example of an edtech venture successfully reaching the public market, there is that much more evidence to compel a talented entrepreneur to test the waters of education, or entice a talented engineer or developer to leave her position at (fill-in-the-blank multibillion dollar social network) to join a small edtech startup. The network effects from there are limitless, but it is clearly essential for the health of the ecosystem; if education is to go digital, it could use the help of the highest quality talent.

Higher Education

Universities are true corporations, with billion-dollar endowments and elite research facilities that help drive the world’s economies. But they often suffer from a crumbling and disconnected infrastructure and there is growing public frustration at the increasing costs and questionable value of the college degree.

The response by the venture industry (entrepreneurs and investors alike) has been to seek an entirely new approach to the college experience and the equivalents thereof. For the last couple years, the popular theme in higher education has been the disruption, circumvention, and at times outright subversion of the traditional university system.

But here’s the thing: universities aren’t going anywhere. And they shouldn’t. The university system has successfully piloted the growth of our economy for decades (the connections between Silicon Valley and its proximity to Stanford are well documented, for instance), and continue to be innovative hubs of intellectual growth and stimulation unlike anything in this world outside of a Google in-house hair salon.

Yet traditional university settings are often riddled with administrative processes and disparate systems and software. Where there lives administration, there lies room for technological disruption in the form of automation, analyses, and general streamlining of process. Universities, both online and off, are increasingly keen on improving their retention figures. It is the single greatest concern of those in charge of budgets, and we continue to learn just how connected retention is to engagement.

Heading into 2014, there will be an increased focus from the venture industry on solving the immediate needs of the traditional university system: better connecting administrators to the students they strive to improve, helping faculty balance the unenviable task of teaching whilst researching, facilitating a more efficient admissions and employment process, connecting the myriad software across a campus in manners that create a more unified, holistic view of the university setting.

The Corporate Landscape

In 2013, Twitter University (the social media giant’s internal training program structured around the acquisition of Markana) gained significant public exposure. This year, I foresee a transformation of the corporate world as it increasingly begins to mirror the hubs of education that nurtured its leaders.

With all the hoopla around leveraging online platforms, open content, and social media for the betterment of K-12 and higher education, there has been relatively less momentum around the idea of professional development and continued education in the corporate world. This will rapidly change.

The business world combines such promising factors as having talented/motivated “learners” and “teachers,” sophisticated technologies, and deep pockets with an eye toward investing in improvement (both organizationally in terms of efficiency and individually in terms of capability).

Many a large-scale corporation will likely follow in Twitter’s footsteps, building or acquiring its way to housing an internal platform for the training, assessment, collaboration, knowledge sharing, and targeted social networking of employees. Others are likely to find footing with third party applications designed to maximize the value and exposure of a company’s proprietary data, as well as general goals for the improvement and enhancement of their workers. These third parties should have the added benefit of learning from the best practices of a suite of companies and learners across an array of desired outcomes and company structures.

As education reform and education technology increasingly become synonymous, it’s only a matter of time before the concept of lifelong learning more directly permeates the corporate world (as well as governments and for-profit entities) through online platforms that both leverage adaptability and scale best practices. After all, we really only spend about 25% of our lives in a formal, institutional education setting. Why stop learning after graduation?

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