Edtech Business

Reach Capital’s Newest Education Technology Investment Fund Closes at $82 Million

By Tony Wan     Jul 30, 2018

Reach Capital’s Newest Education Technology Investment Fund Closes at $82 Million
Reach Capital team

Raising money, Shauntel Garvey admits, is not her favorite activity. It’s usually more fun to be on the other side of the table, reviewing pitches—rather than pitching.

On the bright side, that experience “helps you build empathy for entrepreneurs,” says the co-founder and general partner at Reach Capital, and “what it feels like when investors ignore you, when they lead you on.”

Over the past six months, Garvey and her colleagues have been on the road, raising their second fund. These meetings, she says, inform how they interact with entrepreneurs. And now that Reach Capital is done fundraising, it will return its focus to evaluating pitches from education entrepreneurs, all vying for a piece of Reach’s new $82 million fund.

The Palo Alto, Calif.-based firm has established itself as a familiar name within the education technology industry. To date, Reach Capital has invested roughly $40 million in 42 startups.

The firm traces its roots to 2012, when Jennifer Carolan and Wayee Chu (now both general partners at Reach), started a $12 million “Seed Fund” at NewSchools Venture Fund, an Oakland-based education nonprofit philanthropy. There, they invested in 39 startups and 4 non-profit organizations focused on the K-12 market.

When Carolan’s team started Reach Capital in 2015, it raised $53 million for its first fund. (It brought over the companies from the Seed Fund into its portfolio as well, and re-invested in 14 of them.) In total, this first fund supported 35 investments.

Since then, Reach’s focus has broadened, investing in early-stage companies building tools to support early-childhood education, postsecondary institutions and adult professional development.

When Reach began fundraising again at the start of 2018, it initially set a target of $75 million. It ended up with $82 million. About 80 percent of the investors from the first fund re-invested in the second fund. Returning backers include what Garvey calls “strategics,” the industry parlance for organizations that operate in the same sector. For Reach, they include Sesame Workshop and TAL Education, a Chinese education company.

“We are advocates for early and equal access to education,” said Jeff Dunn, President and CEO of Sesame Workshop,” told EdSurge via email. “If we can help other mission-aligned companies become sustainable and grow, then we are greatly expanding the impact of our work.”

New investors include the Los Angeles Police and Fire Pensions fund. There’s also Hall Capital Partners, an investment firm that manages money for endowments, foundations and families. It eyed the edtech industry as early as 2014, says Elizabeth Fisher Marshall, a managing director at Hall Capital, but “our concern at the time was the depth of the opportunity set and the unproven exit market.” Today, however, “those opportunities are becoming more attractive, with more IPOs and more private equity activity in the sector.”

Reach Capital investments from Fund I
Reach Capital investments from Fund I (Source: Reach Capital)

In recent years, the education industry has witnessed an uptick in acquisition and exit activities. Earlier in 2018, Pluralsight, which provides online classes for technology and business professionals, went public. In 2017, private equity firms including BV Investment Partner and The Rise Fund poured hundreds of millions into acquiring edtech companies. This year, Francisco Partners is following suit, buying two established brands in Discovery Education and Renaissance Learning.

“They ping us all the time,” Garvey says of private equity firms. A couple of companies in Reach’s portfolio have sold to them: SchoolMint was bought last year by Hero K12, a company owned by BV Investment Partners. Nearpod is now majority-owned by Insight Venture Partners.

In total, seven Reach portfolio companies have exited successfully—meaning their sales led to positive financial returns. The most recent of these, the writing feedback assistant WriteLab, was acquired by Chegg, a publicly-traded education company, for $15 million.

Yet not all investments pan out. Zeal, which attempted to bring on-demand tutoring to classrooms, shut down earlier this year. Curriculet, which offered a digital library of reading materials and assessments, briefly closed shop before it was acquired by the nonprofit Waterford Institute. Blendspace was purchased by TES. (Investors took a loss on these latter two deals.)

“Every failure is gut-wrenching for me because I know there are children, teachers and families on the other end that have been let down,” Reach’s Carolan told EdSurge via email.

Reaching Every Age and Stage

From Reach Capital’s new fund (simply called “Reach II”), the team aims to invest in roughly 20 deals. Ten of these will be at the seed stage; another 5 will be what Garvey calls “pre-seed.” Rounding out the rest will be a mix of Series A and B funding rounds, in which Reach will consider being a lead investor.

Already, Reach has invested $6.4 million in 7 companies from this second fund. They include a handful of companies that are not historically within its purview, such as Winnie, a parenting-support app, and Lovevery, a monthly subscription service that delivers play kits for babies. Then there’s The Podcast App, which is pretty much what the name suggests.

The new fund will see Reach wading into different investment areas. Garvey says she’s been reading up on the student debt and tuition problem, and researching emerging financial options like income-share agreements. Other Reach team members are exploring services that “engage and educate parents to be good educators at home,” she adds. And in K-12 education—the area that the team is most familiar with—the team is beginning to look at healthcare, mental support and what they call “empathy technology” services.

Before fully committing to doing deals in a new sector, Shauntel says Reach’s approach is to “learn by doing” by making a few small deals, followed by a market map that informs its investment thesis and strategy. (These maps are publicly shared.)

For each successful bet, there are misses and many more what-ifs. “Investing is humbling because we inevitably miss out on or pass on companies that go on to achieve great success in realizing their mission,” says Carolan. She adds: “As an early-stage investor, we are making decisions with so little information or visibility.”

Reach is not the only education venture capital firm that’s refilling its tranche of investment capital; their counterparts, including GSV AcceleraTE and Owl Ventures, are raising their next funds.

“I’m not surprised that they can raise capital,” says Susan Wolford, who heads the technology and business services at BMO Capital Markets, an investment bank. “Private equity firms have been paying high premiums to acquire education companies,” she notes, adding that private equity firms are willing to acquire edtech companies at a higher valuation than which investors valued them at.

In the first half of 2018, 62 U.S. education technology companies altogether raised $739 million in venture funding, according to EdSurge.

Edtech Business

Reach Capital’s Newest Education Technology Investment Fund Closes at $82 Million

By Tony Wan     Jul 30, 2018

Reach Capital’s Newest Education Technology Investment Fund Closes at $82 Million
Reach Capital team

Raising money, Shauntel Garvey admits, is not her favorite activity. It’s usually more fun to be on the other side of the table, reviewing pitches—rather than pitching.

On the bright side, that experience “helps you build empathy for entrepreneurs,” says the co-founder and general partner at Reach Capital, and “what it feels like when investors ignore you, when they lead you on.”

Over the past six months, Garvey and her colleagues have been on the road, raising their second fund. These meetings, she says, inform how they interact with entrepreneurs. And now that Reach Capital is done fundraising, it will return its focus to evaluating pitches from education entrepreneurs, all vying for a piece of Reach’s new $82 million fund.

The Palo Alto, Calif.-based firm has established itself as a familiar name within the education technology industry. To date, Reach Capital has invested roughly $40 million in 42 startups.

The firm traces its roots to 2012, when Jennifer Carolan and Wayee Chu (now both general partners at Reach), started a $12 million “Seed Fund” at NewSchools Venture Fund, an Oakland-based education nonprofit philanthropy. There, they invested in 39 startups and 4 non-profit organizations focused on the K-12 market.

When Carolan’s team started Reach Capital in 2015, it raised $53 million for its first fund. (It brought over the companies from the Seed Fund into its portfolio as well, and re-invested in 14 of them.) In total, this first fund supported 35 investments.

Since then, Reach’s focus has broadened, investing in early-stage companies building tools to support early-childhood education, postsecondary institutions and adult professional development.

When Reach began fundraising again at the start of 2018, it initially set a target of $75 million. It ended up with $82 million. About 80 percent of the investors from the first fund re-invested in the second fund. Returning backers include what Garvey calls “strategics,” the industry parlance for organizations that operate in the same sector. For Reach, they include Sesame Workshop and TAL Education, a Chinese education company.

“We are advocates for early and equal access to education,” said Jeff Dunn, President and CEO of Sesame Workshop,” told EdSurge via email. “If we can help other mission-aligned companies become sustainable and grow, then we are greatly expanding the impact of our work.”

New investors include the Los Angeles Police and Fire Pensions fund. There’s also Hall Capital Partners, an investment firm that manages money for endowments, foundations and families. It eyed the edtech industry as early as 2014, says Elizabeth Fisher Marshall, a managing director at Hall Capital, but “our concern at the time was the depth of the opportunity set and the unproven exit market.” Today, however, “those opportunities are becoming more attractive, with more IPOs and more private equity activity in the sector.”

Reach Capital investments from Fund I
Reach Capital investments from Fund I (Source: Reach Capital)

In recent years, the education industry has witnessed an uptick in acquisition and exit activities. Earlier in 2018, Pluralsight, which provides online classes for technology and business professionals, went public. In 2017, private equity firms including BV Investment Partner and The Rise Fund poured hundreds of millions into acquiring edtech companies. This year, Francisco Partners is following suit, buying two established brands in Discovery Education and Renaissance Learning.

“They ping us all the time,” Garvey says of private equity firms. A couple of companies in Reach’s portfolio have sold to them: SchoolMint was bought last year by Hero K12, a company owned by BV Investment Partners. Nearpod is now majority-owned by Insight Venture Partners.

In total, seven Reach portfolio companies have exited successfully—meaning their sales led to positive financial returns. The most recent of these, the writing feedback assistant WriteLab, was acquired by Chegg, a publicly-traded education company, for $15 million.

Yet not all investments pan out. Zeal, which attempted to bring on-demand tutoring to classrooms, shut down earlier this year. Curriculet, which offered a digital library of reading materials and assessments, briefly closed shop before it was acquired by the nonprofit Waterford Institute. Blendspace was purchased by TES. (Investors took a loss on these latter two deals.)

“Every failure is gut-wrenching for me because I know there are children, teachers and families on the other end that have been let down,” Reach’s Carolan told EdSurge via email.

Reaching Every Age and Stage

From Reach Capital’s new fund (simply called “Reach II”), the team aims to invest in roughly 20 deals. Ten of these will be at the seed stage; another 5 will be what Garvey calls “pre-seed.” Rounding out the rest will be a mix of Series A and B funding rounds, in which Reach will consider being a lead investor.

Already, Reach has invested $6.4 million in 7 companies from this second fund. They include a handful of companies that are not historically within its purview, such as Winnie, a parenting-support app, and Lovevery, a monthly subscription service that delivers play kits for babies. Then there’s The Podcast App, which is pretty much what the name suggests.

The new fund will see Reach wading into different investment areas. Garvey says she’s been reading up on the student debt and tuition problem, and researching emerging financial options like income-share agreements. Other Reach team members are exploring services that “engage and educate parents to be good educators at home,” she adds. And in K-12 education—the area that the team is most familiar with—the team is beginning to look at healthcare, mental support and what they call “empathy technology” services.

Before fully committing to doing deals in a new sector, Shauntel says Reach’s approach is to “learn by doing” by making a few small deals, followed by a market map that informs its investment thesis and strategy. (These maps are publicly shared.)

For each successful bet, there are misses and many more what-ifs. “Investing is humbling because we inevitably miss out on or pass on companies that go on to achieve great success in realizing their mission,” says Carolan. She adds: “As an early-stage investor, we are making decisions with so little information or visibility.”

Reach is not the only education venture capital firm that’s refilling its tranche of investment capital; their counterparts, including GSV AcceleraTE and Owl Ventures, are raising their next funds.

“I’m not surprised that they can raise capital,” says Susan Wolford, who heads the technology and business services at BMO Capital Markets, an investment bank. “Private equity firms have been paying high premiums to acquire education companies,” she notes, adding that private equity firms are willing to acquire edtech companies at a higher valuation than which investors valued them at.

In the first half of 2018, 62 U.S. education technology companies altogether raised $739 million in venture funding, according to EdSurge.

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