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Why VC’s Almost Never Invest in K12 – Reflections from a Discussion with the Ed Tech Community

Rob Go
February 17, 2012 · 3  min.

Yesterday, I had the pleasure of joining a number of investors in a meeting with entrepreneurs and policy makers in the education space. It was a terrific group that includedd Karen Cator (Director of Ed Tech for the US Department of Education), Paul Reville (MA Secretary of Education) and Joanne Weiss (Chief of Staff of the US Secretary of Education) among others.  As an investor that is really just dabbling in the education space, it was a really amazing opportunity to learn more about the challenges facing innovation in education, especially in the K-12 space where I have yet to make an investment.

It was really just a preliminary conversation, but a couple simple themes came out loud and clear:

1. The biggest challenge for companies targeting K12 is excessive friction in winning early customers and early growth. Some sub points:

  • VC’s look for a rapid path to growth, but it isn’t available in K12 sales.  VC’s almost categorically pass on any company that requires sales into schools and districts
  • Slow transmission of information. One would think that a program that is successful in a few districts or schools would spread quickly. Not so. My friend Teddy Rice, the founder of a growing company in the ELL space shared his experience walking into districts that had no clue what his company did, even though most surrounding districts were using his product with great success
  • On one hand, investors get excited about “over the top” opportunities that bypass traditional sales channels in favor of a more direct-to-consumer approach. But Alex Grodd from Better Lesson brought us a bit back to earth, reminding that the only payers are consumers, teachers, and schools/districts.  And it’s easier said than done to get consumers and teachers to pay for core educational programs on a broad scale.

2. The common core could provide some positive lubricant for the problem in #1

  • Not only is the common core simply motivating broad reform in many states, but it provides a  common set of standards that new companies can build their products around and sell to a much broader market.  This has the potential to reduce some of the friction posed by idiosyncratic state needs
  • A common core also should make evaluation of new technologies and programs more straightforward and easier to promote broadly if the data shows positive outcomes.
  • Personally, I’ve started to see some companies already start to take advantage of this change.  LearnZillion in DC is building a very interesting personalized learning platform aligned to the common core.  Although their product was conceivable before the common standards, I expect their speed of adoption and quality of content and instructors to be augmented because of this initiative.

3. Fixing the buying process is probably the biggest opportunity, but there are no easy answers

  • Lowering the bar to trial, adoption, and purchase of new technologies is potentially the biggest opportunity for change.  Alex Taussig from Highland articulately compared the standard practice of the consumer web (where broken products are shipped all the time) to the much less forgiving enterprise sales dynamic in the K12 space.
  • One proposed solution was to create a streamlined, group RFP or RFD (request for discussion) process for new technologies.  But again, Teddy pointed out that “there is a big difference between stated customer preferences and revealed customer preferences”.  I tend to agree that very few innovative products designed for end users survive an RFP.
  • Another concept introduced by Stephen Marcus from AdmitPad was some sort of lightweight payment system that could empower innovative teachers to pull the trigger on adopting new products without having to go out of pocket or deal with school or district bureaucracy.  It seemed intriguing, but difficult to implement. Ultimately, we came away thinking that innovation in the payment system would probably most help investors get more excited about companies selling to the K12 space.

It was just the start of hopefully a longer discussion.  I learned a lot, and am thankful to have been able to join.  Many thanks to New Schools Venture Fund, Highland, Flybridge, and Bessemer (esp. Chris Gabrieli) for pulling this together.

Rob Go
Rob is a co-founder and Partner at NextView. He tries to spend as much time as possible working with entrepreneurs to develop products that solve important problems for everyday people.