Nick DeSantis of the Chronicle of Higher Education writes about the incredible surge in investing in education technology start-ups. While people in the article claim ‘this time is different, I am not so sure. (I was at the University of Chicago when a bunch distinguished professors created UNext.com during the late 1990s — BIG BUST just like the startup I joined in 1999). From DeSantis:
Investments in education-technology companies nationwide tripled in the last decade, shooting up to $429-million in 2011 from $146-million in 2002, according to the National Venture Capital Association. The boom really took off in 2009, when venture capitalists pushed $150-million more into education-technology firms than they did in the previous year, even as the economy sank into recession.
“The investing community believes that the Internet is hitting education, that education is having its Internet moment,” said Jose Ferreira, founder of the interactive-learning company Knewton. Last year Mr. Ferreira’s company scored a $33-million investment of its own in one of the biggest deals of the year.
The scramble to make bets on a tech-infused college revolution has led to so many new companies that even Mr. Ferreira can’t keep track.
Udacity, Udemy, and UniversityNow all have plans to revolutionize online learning. There’s the Coursebook, a young online-learning start-up. And Coursekit, a nascent challenger to Blackboard in the market for learning-management software. And Courseload, the Indiana-based digital-textbook enterprise. And CourseRank, the class-sorting outfit acquired by the textbook vendor Chegg two years ago.
This isn’t the first ed-tech boom to crowd the market with companies whose names sound alike. A similar wave hit in the late 90s, during the larger dot-com frenzy. But today’s investors believe this round of growth is different. Michael Moe, co-founder of the investment-advisory firm GSV Asset Management, said the first ed-tech wave had been based mostly on euphoria that anything digital would work.
“There were just a bunch of things that were, candidly, thrown against the wall,” he said of the 90s start-ups. Some companies pitched ideas that had no sustainable business model. Others, Mr. Moe added, were years ahead of their time. (Courseload, the digital-textbook start-up revived in 2009, was born in 2000, but its leaders say tools weren’t available to support it until more recently.) When the dot-com bubble burst, investors fled the market.
The piece highlights that students are perfectly positioned to play a role in the revolution in higher education (campus as market). A number of students and recent grads I work with through Startup Mason on working in the higher education space:
Mr. Staton said his fellow entrepreneurs had also flocked to education because they know its challenges better than any other industry.
“When you ask a 19-year-old what problem in the world they want to solve, it’s highly likely that the problems that they’re most familiar with are problems from their own education,” Mr. Staton said. By the time they graduate, he added, many of those students are “looking two opportunities in the face: a substandard job market, or creating their own company and trying to be Mark Zuckerberg.”
And entrepreneurs like to solve problems that they care about, Mr. Staton said: “There are a lot of people that are passionate about this, that know it, that want to do something about it.”
While the piece discusses the amazing activity that has occurred in recent years (startups and funding) it says little about value created for students, professors, and universities and nothing about the profitability of any of the firms that are mentioned. This is a clear sign of a bubble in education technology.