Get acquired, go public or close shop. Most venture-backed startups eventually face pressure to choose one of these exits.
The past five years have seen a flush of edtech startups, and finding that early funding is tough. But even tougher are decisions a few years down the road: Is the future bright enough to draw more funding? Is there enough cash to fuel growth? Or is it time to give up control and sell?
Teachscape has chosen the last option. On January 5, the San Francisco-based company agreed to sell its customer base and assets to Frontline Technologies, a Malvern, Penn.-based education services company. Teachscape’s K-12 products, including a suite of teacher observation and evaluation tools, along with a library of 170 online courses and more than 1,500 videos, will be owned by Frontline. (At the same time, Frontline also acquired EDTRAININGCENTER, a provider of K-12 professional development videos.)
Frontline’s chief executive and president, Tim Clifford gushed about plans to incorporate the acquired assets into its own professional development tool, MyLearningPlan, and “serve up content that different districts will utilize to perform evaluation, calibration and development.” The company also offers districts software to support, recruit and manage employees. Clifford expects that Frontline will add Teachscape’s estimated 1,500 district clients to its current 6,000-district customer base.
When the deal closes (expected by Jan. 15), it will mark the beginning of the end of a 17-year journey for Teachscape, whose professional development tools have drawn the attention of many educators, venture capitalists and, most recently, lawyers.
Founded in 1999, Teachscape aimed to bridge research on education with teachers in the classroom. It had a dream team of co-founders: Mark Atkinson, an Emmy Award–winning ABC News producer, and Dr. Roy Pea, a luminary in educational research and practice who is now with the Stanford Center for Innovations in Learning. Teachscape soon became a fixture on the K-12 professional development landscape.
By the mid-2000’s the company had grown—and so had its ambitions. With offices also in New York and Los Angeles, the company tried selling its tools into the higher-ed market. It dabbled in running events, holding more than a dozen teacher training conferences across the country in one year. (Its events business stalled and ended by 2008.)
In 2009, Teachscape started working with Charlotte Danielson, widely known in teacher professional development circles for her “Framework for Teaching” rubric, which is used by many state education departments across the country. Her framework is also featured in several of Teachscape’s observation and evaluation tools. They began collaborating on a $15 million project funded by the Bill & Melinda Gates Foundation, called the Measures of Effective Teaching project, to “improve the quality of information about what makes a teacher effective in order to build fair and reliable systems for teacher observation that can be used for teacher feedback, development, and continuous improvement.”
It was a critical moment. For states and districts to be eligible for federal support under the 2009 Race To The Top program, they had to find rigorous ways to evaluate educators. The work with Danielson offered just that. With an eye on growth, Teachscape raised a slug of venture funding—$18.25 million, closing the deal in August 2009.
Over the next few years, in spite of the growing number of district clients and its burgeoning video library, Teachscape’s pace just wasn’t enough to sustain an independent company. Andrew Morrison, a longtime education business executive who had run Smarterville and other companies, joined Teachscape as Chief Executive in March 2014. He came in with a eye on the market for potential acquirers. But first there were some legal headaches to subdue.
In February 2014, both Teachscape and Danielson were sued by Educational Impact (EI), a Pennsylvania company that claimed exclusive rights to Danielson’s framework. EI even sued to bar several Teachscape customers—the New York City Department of Education, the Rochester City School District and the Pittsburgh Public School District—from using tools based on the framework. Going after schools, Morrison said, was “an intolerable step.”
A New Jersey district judge ruled in January 2015 that Teachscape could not be held responsible for interfering with Danielson’s non-compete contract with EI. (The judge declined to dismiss entirely EI’s charge of a breach of contract, and so its suit against Danielson is still in progress.) The two companies later reached a settlement that included an agreement that EI would drop suits against the districts.
As part of the deal, Teachscape gained a license to use the Danielson framework. Morrison offers assurances that schools and districts can use the Teachscape tools—now owned by Frontline—without fear of further litigation from EI.
“From my point of view, Teachscape was an innocent actor in this,” Morrison says in an interview with EdSurge. “We licensed tools from Charlotte [Danielson], who may or may not have had the rights to do that.”
But his problems weren’t over. In May 2015, the Gates Foundation filed suit against Teachscape, contending the company was violating the terms of its contract with the nonprofit. As with all its projects, Gates required that Teachscape provide “Global Access” to the developed materials—effectively free or very low cost access. But Teachscape wanted to apply for a patent on the work. A month later, Gates and Teachscape reached an out-of-court settlement. Teachscape withdrew its patent applications.
These lawsuits did not influence the decision to sell Teachscape’s assets to Frontline, according to Morrison. “We’re past all that,” he declares. “Fundamentally, for Teachscape to continue to grow, we believe we could achieve more as part of a well-funded organization.”
The company, he adds, had already been “exploring opportunities to be part of a larger, integrated organization.” From his perspective, the education market is currently ripe with opportunities for deals and consolidations. Morrison, along with Teachscape’s board (which includes Paul Mariani and Phil Clough, both general partners at ABS Capital) saw Frontline’s offer as an “opportune moment.”
Morrison and Teachscape’s investors are hardly alone in their assessment. “There is a robust trend toward consolidation of education companies in certain niches, such as human and talent capital management,” observes Peter Yoon, managing director of Berkery Noyes, an investment bank that reports and advises on mergers and acquisitions. The group tallied 122 such deals in the third quarter of 2015—the peak volume throughout the past seven quarters. “We expect 2016 to continue to be very vibrant,” Yoon says.
Frontline is majority owned by Insight Venture Partners, a private equity firm that boasts a war chest of education companies including Achieve3000, OpenEnglish and Illuminate Education. Financial terms of the Teachscape acquisition were not disclosed in the press release. In total, Teachscape had raised more than $43 million in venture funding.
Frontline’s Clifford did not seem concerned with the legal distractions. “We are not party to any of the legal issues that happened in the past,” he told EdSurge. In a FAQ (PDF) addressed to Teachscape customers, the company assures that it has permissions to use Danielson’s frameworks.
The deal will effectively mark the end for Teachscape as an independent entity. Along with its core products, “the overwhelming majority of our team will be part of the Frontline family,” said Morrison. But he won’t be joining them.
To Teachscape’s credit, most edtech companies don’t last more than a decade. But longevity isn’t always a virtue in a business where expectations are high and patience is low. For any venture-backed startup, the clock is always ticking to show continuous growth.