New Markets is bringing back a familiar face to steer its next education investment fund.
Jason Palmer has returned to New Markets Venture Partners, where he spent two years beginning in 2012 as an entrepreneur-in-residence. A stint on the Bill & Melinda Gates Foundation’s Postsecondary Success team followed, where Palmer helped oversee more than $75 million in grant investments. Highlight projects included the $20 million Next Generation Digital Courseware Challenge and the iPASS program, which gave more than $10 million to 45 higher-ed institutions to implement student planning and advising services.
Yet for the former entrepreneur and investor, the loudest calling has been working with promising but unproven businesses. “At Gates Foundation, it’s been about investing in colleges and nonprofit organizations—more on the traditional side of things,” he says in an interview with EdSurge. The opportunity to work with startups at New Markets and help them engage with schools “is a bit more where my heart and passion reside.”
Palmer’s entrepreneurial streak began as an undergraduate at University of Virginia, where he founded and later sold a debit card startup for college students to eat at off-campus restaurants. His career also includes stops at Microsoft, Schoolnet and Kaplan.
His newest role—as general partner at New Market Venture Partners—coincides with the first closing on a new education fund. The Fulton, Md.-based firm plans to raise up to $75 million, of which $30 million has been secured. This fund will be used to support investments between $1 million to $5 million at the Series A and B stages for up to 20 K-12 and higher-ed startups. The four focus areas include career credentialing, digital and adaptive learning platforms, STEM and computer science instructional tools and data analytic services for schools.
From this second fund New Markets has already made several investments: Practice (formerly ApprenNet), a mobile video-based learning tool; Credly, a digital credentialing platform; and Noodle Partners. A fourth deal is expected to close sometime this month.
New Markets has supported 43 companies since its launch in 2003; edtech startups make more than 90 percent of its deals in the past five years, Palmer adds.
Part of the new fund will also be used for what Palmer calls “recapitalization,” a scenario that companies want to avoid. These situations typically involve startups adjusting their valuation—often lower—to secure more funding; the rules are complex but in dire situations entrepreneurs and even investors may lose equity in the company.
“As someone who’s seen the education market through 20 years of ups and downs, it looks like we’re in a part of the cycle where a number of companies will need to recapitalize,” says Palmer. He adds that New Markets has funded “a handful” of companies in this situation. (He wisely kept mum on who they are.)
Palmer points to the ebbing of venture capital as one sign that investors are wisening up and revisiting expectations about how quickly education companies can grow. Investments in edtech companies in 2016 totalled $945 million, according to estimates from GSV Capital, less than half of the $2 billion tally last year. CB Insights projects 2016 funding totals to fall back to 2013 level, after three consecutive years of increase.
In New Markets, Palmer nevertheless feels secure in joining a firm with an “established a track record of picking successful companies.” Several of New Markets’ portfolio companies have exited through acquisitions, including Moodlerooms (sold to Blackboard in 2012), Starfish Retention (acquired by Hobsons in 2015) and, a few months ago, Think Through Learning (purchased by Imagine Learning).
He expects to see media companies play a bigger role in snapping up promising edtech startups. “Everyone once in awhile they decide they want to get into education,” Palmer says, from Washington Post’s purchase of Kaplan in 1984 and LinkedIn buying Lynda.com in 2015. Even News Corporation’s expensive, extravagant experiment with Amplify, borne out of its acquisition of Wireless Generation, will not dissuade other media companies for long, he believes, although it offers an important lesson: “Education is a different business than the media industry, where companies want to go directly to the consumer. In education it’s better to work with institutions rather than go around them.”