Nov 14, 2012
They say money draws a crowd. And it surely did on Monday (Nov. 12) when over 200 packed the house at NestGSV for a conversation with three leading edtech investors: Alan Louie (Imagine K12), Jennifer Carolan (NewSchools Venture Fund), and Nari Ansari (Technology Crossover Ventures). Entrepreneurs, eager to get the latest scoop on where money's flowing, made up most of the crowd. (Even a busload of 28 Korean entrepreneurs on a tour of the Silicon Valley--some of whom are working in the ed space--dropped by!)
Louie proved to be the most gregarious of the group. Having helped incubate three classes of startups--and about to begin a fourth--he had plenty of tips for the many early-stage entrepreneurs in the room. To him, ideas are a dime a dozen; what really matters are the people in charge of executing. His most encouraging advice of the night: “At the seed stage, what you have is you. You are the strongest component of the business...the idea is less so. The idea may be wrong, but that’s fine and it’s part of the process.”
Investors at the seed level are typically less concerned with the fact that a team has yet to pull off market or customer fit, and much more focused on whether it can weather the storm of running a startup.
A step further up the investment chain, Carolan emphasized the importance of finding a credible lead investor to champion one's ability to deliver. “I can’t stress this enough. If you go into the fundraising process with somebody behind you, somebody who has already put in some money and leading, then you are at a huge advantage.” She also offered that entrepreneurs should do their homework on angel investors, an “idiosyncratic” bunch who can be very particular and specific about what they want to support. Her case in point: Goalbook, one of NewSchools’ seed fund investments, attracted quite a few angels who had special needs children of their own and who became involved for personal, mission-driven reasons.
However, for investors like Nari Ansari, whose firm participates in late-stage investments in the $40M to $275M range, the action is in a lull. “One of the offshoots from all the consolidation that’s taken place [involving Pearson, Blackboard, Renaissance] is that it’s thinned out the ranks of the later players. There are less targets now for the $25M space. It’s going to take some time, probably a little longer than other space.”
Ansari did add that this was an excellent time to raise early capital, noting that traditional firms that had shied away from education in past years--including Benchmark Capital, Sequoia and Andreessen Horowitz--have recently been getting in on the action. But he warned against overcapitalizing early, since “you will only grow as fast as the ecosystem allows you to.” At the same time, he also sees the education market as “also a very forgiving industry” for pivots, second lives, and 180-degree business model turnarounds.
The conversation at times also diverged into some playful banter on some West Coast-East Coast distinctions. Louie also observed that VCs in the West Coast tend to be more indulgent of pre-revenue startups that make up for their lack of revenue with strong traction (usage) numbers. Their compatriots on the East coast? Not so much. Carolan also surmised that “the East Coast hasn’t maybe embraced the lean startup as enthusiastically as the West Coast," in response to an audience member who brought up John Katzman’s (founder of Princeton Review, 2U (former 2Tor) and Noodle) recent op-ed on why edtech startups need to be “pudgy."
Pudgy, lean, big or small--it certainly sounded like there's space (and money) for edtech startups of all shapes and sizes to play.