TL;DR – the main takeaways:
- Edtech has huge potential. Ignore it at your peril
- Many of the challenges faced by education technology are actually unsolved problems within information technology itself
- Short-termism is as unwise in educational products as it is in early-stage investing. In both cases, the customer is not only always right, they’re right forever
- Don’t confuse skill development with access to knowledge
- Edtech is already devouring the recruitment/talent management industry
Earlier this summer, SyndicateRoom helped kick off London’s EdTech Week with An Evening with Simon Calver: The Future of Learning. Uniquely, the event sought to examine the UK’s flourishing educational technology (edtech) sector from an early-stage investor’s point of view.
Simon Calver, fresh from leading the largest ever Series A funding round into a British edtech startup, provided an insightful keynote. He was followed by Ulrik Christensen, an expert in adaptive learning, as well as the founders of four established startups: BridgeU, EEDI, Filtered and Zzish. Simon and Ulrik discussed investing best practices applicable to the education world – or more accurately, to those seeking to transform it.
Before digging into this guidance, it is perhaps worth establishing, for those less familiar with edtech, why an investor might focus on one such seemingly narrow segment of the startup world.
Edtech has a vast, fertile expanse to grow into
The simple argument is that the opportunity for return on investment is colossal, and often underestimated. Estimated to be worth over £6trln, but with less than 3% digital penetration to date, the global education market is one of the few ultra-large, ultra-pervasive industries yet to undergo a notable technology-fuelled upheaval. Throw in some medium-term macro trends, such as the accelerating automation of white collar work and corresponding demand for increasingly regular re-training, or the exploding number of students worldwide (estimated to reach 1 billion by 2035), and it becomes hard to make a case that the £6trln pie is getting any smaller. Little wonder the GAAFAs are getting in on the action.
Edtech solutions go far beyond education
But there’s a more fundamental reason for paying attention to learning innovation. Edtech ventures that succeed in solving the challenges involved in delivering education via technology may actually be solving broader challenges in delivering information via technology. In other words, the most groundbreaking edtech solutions that emerge over the next decade will almost certainly be more widely applicable than just within the remit of ‘education’.
Take online content as an example. Web technology in 2017 has nailed a certain kind of information delivery: tweets, flight prices, the Wikipedia entry for Lady Gaga, etc. And as a result, hardly anyone frequents high-street travel agents, nor do they own up-to-date volumes of the Encyclopaedia Britannica. Yet, with 97% of learning content still ‘un-digitised’, we’re miles off achieving a similar metamorphosis with, say, medical training.
The Syndicate: Due diligence issue
Download your copy of the magazine today
So why is it easier to build and deliver a set of Wikipedia articles than it is a Coursera course? Well, the former is a reference, which should display the same exact information to every visitor. Indeed, consistency is the raison d’être of a useful reference. Conversely, and despite also being information-centred, the aim of an online course is really rather different : to instil in students a deep and genuine understanding of given subject matter. Unfortunately, enrolled students rarely harbour uniform learning rates, raw competence or initial understanding. Therein lies one of edtech’s major challenges.
But our general online experience will not be the only beneficiary of strides taken in edtech. Haptic and virtual reality-driven training technologies, already capable of recreating mock surgical environments for junior practitioners, are built upon and contribute to advancements in robotics, simulation and even classic VR obstacles such as the feeling of ‘presence’ in artificial worlds.
To summarise this somewhat elaborate point, consider the fact that education is one of the most advanced forms of value-add via content transmission. Inventors of techniques that overcome any of the numerous hurdles – for example, automating the grading of qualitative submissions by students and adjusting the learning material accordingly – will likely unearth hundreds of other lucrative use cases.
Look for products that offer long-term value
In the opening remarks of our The Future of Learning event, I drew some parallels between the tech products offered to students and the tech platforms used by early-stage investors. In both cases, the customer is making an unusually important commitment (as opposed to, say, subscribing to Netflix), the benefits of which are drawn out over the long term (as opposed to, say, jumping in an Uber). Furthermore, the educational or investment platform must first earn a reputation of trustworthiness if they are to attract any students or investors/entrepreneurs, respectively.
For an education platform, long-term value means many things. The credentials offered must be increasingly recognised and respected. There is also a minimum buy-in of sorts in terms of the breadth and depth of available courses. In his keynote, Mr Calver alluded to this, contending that edtech startups must ‘have a critical mass of content’ in order to offer ‘a strong product that people will use over the long term’.
How to Start Up Investing in Startups
Download your copy of the guide today
For an early-stage investment platform, long-term value-add is just that – an increase in the valuation of a startup due to business activities funded by groups of sophisticated investors, and a subsequent increase in the portfolio value of said investors. Investment platforms can accelerate this growth by supporting investee companies post fundraise. For example, SyndicateRoom will shortly roll out ‘SR Scale’, a tool for entrepreneurs to bring in sales connections, strategic input, niche expertise, talent, feedback and more from their decentralised investor groups. Think systematic, data-driven crowdsourcing after crowdfunding.
In both cases, long-term product thinking is key. To put it another way, educational and investment platforms designed around quick transactions struggle once the novelty wears off.
Distinguish between free and paid learning material
I spoke to Rory Henson, Co-founder of EdTechX, about the evolution of edtech pricing models as seen from his vantage point.
‘Take a typical tech startup’s pricing structure, where a user can access “freemium” services gratis and pay for “premium” services,’ said Rory. ‘In edtech, we’re seeing skill creation and legitimate certification as value-adds that increasingly tend to sit towards the premium end of the spectrum. It’s already difficult to justify paywalls in front of static content, and this will only become more true. These trends are leading to “pay-per-skill” and “pay-per-cred” models that enable new markets such as the freelance economy.’
His thoughts chime well with the aforementioned contrast between online references and genuine learning experiences. It’s rare we’re willing to pay for flat information – the closest we come is when Jimmy Wales’s face cajoles us into a donation.
Pay attention to ultra-vocational educational offerings
Until last year, a Master’s in Financial Engineering would set you back up to $100,000. Sure, you’d probably be snapped up by a trading house and pay back your debts within a few years. But what if you didn’t learn the exact, up-to-date skills that the industry was looking for? Wouldn’t it be great if prominent quant funds could teach you directly? Igor Tulchinsky, Founder of pioneering hedge fund WorldQuant, decided to do precisely that, opening the doors to a first-of-its-kind Master’s in mid-2016. Frighteningly, from a traditional university’s point of view, the two-year programme is entirely free.
The gap between universities and private sector employment is narrowing, fast. Edtech solutions that do not consider the forthcoming career of their participants will be shunned in favour of those with deep ties to industry. Udacity, who have long resided on education’s bleeding edge (with degree programmes co-developed with the likes of Google, Amazon and Facebook), are now completing the circle with their Blitz initiative – teams of decentralised Udacity-educated engineers, collaboratively working on projects for paying clients.
These extraordinarily practical learning products are setting new standards for education, but also encroaching on traditional recruitment functions. The skill of deciphering a candidate’s CV will surely be consigned to the dustbin of history when the employer and qualification provider are one and the same.
From an investor’s point of view, these comments present a rather polarised picture. If the trends discussed prove to be accurate, there will be many losers. However, those innovators who focus on skills over information, broad technological solutions over superficial offerings, vocation over tradition, and long-term product-driven value over one-off transactions – they will do very well indeed.