“Personalized learning” is no longer a term confined to the lexicon of education entrepreneurs. Today, technologists-turned-philanthropists, including Bill Gates and Mark Zuckerberg, espouse these words to describe their idealistic vision of the future of education.
But what exactly does “personalized learning” mean? Definitions can vary just as much as all the different ways that each student learns.
One investor, who has spent the past ten years supporting education entrepreneurs, offers this answer: “We are moving from this one-size-fits-all model to a more differentiated approach to education,” says Jennifer Carolan.
She is the co-founder of Reach Capital, which invests solely in technology tools that make personalization possible. The firm, which spun off from the nonprofit NewSchools Venture Fund in 2015, boasts a $54 million fund to support that vision. “We don’t have the tools, content and processes in place yet,” she says, but “we are trying to back the startups that are helping educators and schools make that transition.”
Reach recently shared more about its investment theses in its 2016 Edtech Outlook, which identifies challenges, opportunities, and how their portfolio companies are tackling them. (Disclosure: Reach Capital is an investor in EdSurge.)
This is an extended and edited interview that first appeared on Chapter 2 of EdSurge’s State of Edtech report.
How much money does Reach Capital have under management?
The Reach Capital fund was fully raised in October of 2015. That’s a $54 million fund for K-12 edtech tools. Prior to that, the Seed Fund [which was then under the NewSchools Venture Fund and managed by Carolan] was a $12 million fund, which was fully invested as of February 2015. We moved those assets from NewSchools Seed Fund to Reach Capital. In total, we have $66 million under management.
What is the average size of those investments?
For the Seed Fund, we invested $100,000 to $200,000. Now, the amount ranges from $500,000 to $2 million. We aim to use this money to back startups that are targeting personalization in schools.
What does personalization in schools mean?
Our belief is that we are moving from this one-size-fits-all model to a more differentiated or personalized approach to education. But we don’t have the tools, the content, the processes in place to do that yet, so we are trying to back the startups that are helping educators and schools make that transition.
What makes edtech investing different from other sectors?
It’s very similar because it comes back to the founders. Across all sectors, [investors] are trying to support mission-driven founders...entrepreneurs who are trying to solve an authentic problem. But education is also different because the stakes are very high. At the other end of these investments and companies are children, families, schools and administrators. We want to get this right, so we feel a huge sense of responsibility.
You talked about passion. What are the other two things you look for when reviewing prospective investments?
[The tools must] fit with our overarching thesis of personalization and schools. We see about 30 companies per week. This is double the volume I experienced when I managed the [NewSchools] Seed Fund [from 2012 to 2015]. A lot of these are incredible entrepreneurs and yet we have to turn most of them down.
This is the toughest part of my job... turning down these incredible entrepreneurs. I have to do that two or three times a day because they just happen to be outside of the space that we are in. We are trying to back companies that are reaching the mass market, huge scale, and especially improving outcomes for the most underserved families, kids and teachers.
What nixes a deal for you?
If we perceive that this is a mercenary founder [whose company] is outside of our investment thesis. We sometimes see in pitches a slide about who they are going to sell this company to. We want them to build a huge, sustainable high-impact company in K-12, [and] talking about an exit before you even get started just doesn’t sit right with us.
What percentage of your investments are going to succeed?
We’ve built our model on a 50 percent failure rate. This is pretty standard for early-stage venture capital [funds]. Every time you make an investment, you wholeheartedly believe that this company is going to succeed and yet, according to the numbers, half of your companies won’t. In education, from our Seed Fund numbers, those numbers are actually better. We've had a lot fewer companies go under.
What are your long-term criteria for successful investments?
I do think the IPO market will open up as it will for other tech companies, too. We look for scale. So our companies are aiming to reach the mass market: millions of students, hundreds of thousands—if not millions—of teachers, or millions of parents. We are looking at efficacy. We are a double bottom line fund, so we are looking at both impact and financial metrics.
Is there a healthy ecosystem for selling education technology?
I believe there is. [Education] has been a marketplace for for-profit players since the 1820s, since the McGuffey Reader. Teachers are desperate for great tools.
We are seeing a major shift right now, from print to digital. Also, we are seeing a whole unbundling of content and how that content is being consumed at school level. There is a lot of opportunity there and a lot of money is being spent on education—on content, on professional development, on workflow tools. Frankly, lot of that is spent inefficiently now. There is an incredible opportunity to build healthy businesses here.
What about the companies that failed?
Those companies so far have been acquired. Sometimes at a loss for investors, but thankfully their technology has lived on in other ways. That doesn’t mean that sometimes companies shouldn’t go on. In those cases, there are tough discussions and decisions, where investors and entrepreneurs have to decide to shut the company down.
What's one misconception that entrepreneurs have about the kind of investor you are?
We are rigorous around building sustainable businesses. To reach impact goals, you have to build sustainable companies and have strong business models. Sometimes people may confuse impact investing with philanthropy or foundations. When you take venture capital, there is an agreement in place around having rigor and building a sustainable company.
We talk about disrupting schools, we talk about disrupting the way we teach kids, ultimately families even. Can we disrupt the venture world?
Venture capital in education will look very different a decade from now. The whole venture capital industry is undergoing changes...We have new models, diverse sources of capital and lots of experimentations going on.
Listen to the full interview with Jennifer Carolan.