Pearson Still Won’t Buy Your Startup. But It May Invest in It.

Investors

Pearson Still Won’t Buy Your Startup. But It May Invest in It.

By Tony Wan     Apr 10, 2019

Pearson Still Won’t Buy Your Startup. But It May Invest in It.

Pearson probably still won’t buy your startup. But it may consider investing in it.

Today, the publisher announced the launch of Pearson Ventures, a $50 million fund earmarked for education technology startups raising Series A and B rounds.

The fund is framed as an effort to “future proof the company,” says Owen Henkel, investment director of Pearson Ventures. “As a big corporate company, there’s a dilemma where your most profitable and strongest products may not be the ones that will be relevant 10 to 15 years from now.” Through making “small bets,” he adds, Pearson can keep its ears to the ground about new market opportunities.

Over the past few years, Pearson has already let go of several flagship educational offerings, including a widely-used student information system in PowerSchool, and its U.S. K-12 courseware business.

Among the tools currently on Pearson Ventures’ priority list are those that expand access to higher education and employment, with a focus on next-generation assessments and credentials. In terms of technology, artificial intelligence, mobile delivery, remote proctoring, and augmented and virtual reality are of interest. The fund also has a preference for startups that operate where it already has a footprint: primarily the U.S. and U.K. markets, followed by Australia, Brazil, China, India and South Africa.

Pearson Ventures will write checks in the range of $1.5 million to 5 million, and is looking to make 5 to 6 investments a year. It will co-invest with other firms, and so will not be the lead investor in these deals.

And, just in case it isn’t clear: “We want to be pretty explicit in saying that this is not an acquisition pipeline,” says Henkel.

That comment is significant in the context of Pearson’s history in the education industry. Since 2000, it has acquired more than two dozen companies. But the publisher is no longer pursuing such deals. In an interview with EdSurge last year, Pearson CEO John Fallon said that “sell to Pearson” should not be part of any edtech startup’s exit strategy: “People should not be expecting us to write them a big check and buy them out.”

This is not Pearson’s first try at making investments. In 2012, it launched the Pearson Affordable Learning Fund, which supported edtech companies and low-cost school operators serving developing regions in Ghana, India, Indonesia, South Africa and the Philippines. In total, Pearson invested a little more than $20 million across 10 investments through PALF. A handful of them have exited, delivering $7 million in returns, according to Henkel.

As Pearson proceeded with its major internal restructuring, a process that began after Fallon took the helm in 2013 and which involved asset divestments and personnel layoffs, it put PALF’s investment activities on pause. Now that the company’s internal operations are more stabilized, the dealmaking will resume. Pearson Ventures will assume responsibility for managing the PALF portfolio.

Indirectly, Pearson has also supported many other education startups through Learn Capital, an education technology investment fund that has invested in over 100 deals. (Disclosure: EdSurge is one of them.) Pearson was the sole funder of Learn Capital’s first fund, and has contributed to each of its three subsequent funds. Neither Pearson or Learn Capital have disclosed the total amount that the publisher has contributed.

Creating its own investment fund, rather than funneling dollars through an outside firm like Learn Capital, “gives us more control over the scope of investments, and we can pick the verticals that we want to invest in,” says Henkel. “Pearson Ventures is a way for us to do deep dive into areas where we think are interesting.”

Investing through another party can also be limiting, he adds, because “their No. 1 responsibility is to maximize financial returns. They have a fiduciary duty to do so.” That means that while other investors may pursue deals that could generate financially attractive returns, those businesses may not fit with Pearson Venture’s investment thesis or interests.

Being in the portfolio of a corporate investor, one as large as Pearson, may conjure up concerns over how to operate in a large, bureaucratic environment. Henkel assures that will not be the case. Pearson Ventures will “keep an arm’s length,” and there will be no restrictions as to who the portfolio companies do business with, even if it’s one of Pearson’s many competitors. “We will never ask for exclusivity,” he states.

Aside from capital, Pearson Ventures offers prospective portfolio companies access to the publishers’ global distribution channels and networks. It will even enlist a Pearson employee to be a mentor or to work at those companies, if need be. And members of the portfolio company can work temporarily on a Pearson team through “entrepreneur-in-residence” or “micro-internship” arrangements.

In recent years, Pearson has proven more than willing to move from its past, through shedding employees and legacy assets. It is betting that this venture fund will help prepare the business to stay competitive in the future. “We’ll be looking at things that may not be quite relevant to our business units now, but products and partnerships that could be a threat in the market in three to five years,” says Henkel.

  

Trending

Get our email newsletterSign me up
Keep up to date with our email newsletterSign me up