EdTech Thoughts 2/13 - 2/20
To whom it may concern
Hello!
I suspect that, despite the holiday, most of the Higher Ed world had a serious case of the Mondays today. I hope this newsletter brings a little more joy to your week. On to the news!
Funding / M&A
Ignite! Reading raises $10M: San Francisco-based Ignite! Reading provides daily 15-minute, 1:1 virtual tutoring sessions to 1st-8th graders. I appreciated that the company worked to have their early efficacy results placed prominently in the article about their venture funding.
Knowunity raises $9M: Berlin-based Knowunity is a rapidly growing social app centered around learning. Most of the bigger “homework help” companies, like Chegg, started by professionally sourcing the answers to homework content.1 In contrast, Knowunity’s platform encourages user-uploaded content from their community of creator-type “knowers.” This round is an extension of last fall’s $10M raise, but the company more than doubled their user base in Q4 2022. They now count 5.7M users across 6 European countries.
House of Math raises $4.5M: Oslo-based House of Math offers its 1.7M users a selection of grade-appropriate math and physical exercise activities. Despite the best efforts of a certain, Tiktok-famous green owl, I cannot read Norwegian, so it is hard for me to comment on the efficacy of the company’s content. But the concept is interesting and it is impressive for any company to acquire that many users.
HireSure.ai raises $2.5M: Bengaluru-based HireSure.ai is a platform that helps employers benchmark compensation data both within and across companies. It feels like compensation data is quietly having a moment; in addition to HireSure.ai’s fundraising, this year California joined New York, Colorado, Connecticut, Maryland, Ohio, Nevada, Rhode Island, and Washington in requiring employers to list salary ranges with every open position.
Tactile Engineering raises $1.5M: Lafayette-based Tactile Engineering (TE) makes dynamic braille tablets. Late last year we talked about Clusiv’s fundraising and how the Blind / Visually-impaired market is not only high-impact but way bigger than you think at 12M people in the US alone. I’m not the right person to evaluate a hardware investment like this, but TE’s demo videos are wild!
Workday adds $250M to corporate venture fund: It sounds like this is a sort of Fund II for Workday, who originally committed $250M to their corporate venture arm in 2018.
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Story
To whom it may concern
Before I say anything, a reminder that I am not a lawyer. If this week’s DCL affects you - and if you or your company are paid, in any way, by a university, it almost certainly does - I recommend you get some time on the calendar with your lawyer ASAP.
This week the US Department of Education (ED) announced listening sessions on Incentive Compensation in early March and released a new Dear Colleague Letter (DCL) on Wednesday. The DCL goes into effect immediately and is so expansive and unexpected that it is hard to pick out what to say about it in ~500 words.
The way I’m coming to grips with it is by trying to separate the tactical implications from the philosophical ones.
Tactical Implications
If you work with or for a university, Wednesday’s DCL impacts you. ED dramatically expanded the definition of third-party servicers (TPS) from Online Program Managers (OPMs) to virtually every company that does business with a university that receives federal funds. The exceptions appear to be 1) banks, 2) cloud infrastructure providers, 3) strategy-only management consultants, 4) non-mandatory tutoring services, and 5) content publishers who play no role in the classroom.2
How it impacts you is where most of the industry debate is happening. To over-simplify, most companies will have to do a fair amount of new reporting on the details of their relationships with universities. This will add overhead costs, but I expect folks will adapt quickly to these requirements.
Of more strategic importance, there are also clauses regarding foreign association and joint liability.
Foreign association is easy to define, but the definition is worth reading several times. If a TPS is owned by a non-US citizen, or an American-owned company provides (or sub-contracts) a service from outside the US, they have to, uh, stop that. Effective immediately.
There is no consensus interpretation of what joint liability between TPSs and universities is, so you will not get a public definition from me or anyone else. What I can say is that joint liability concerns seem to have frozen the private equity < > for-profit university buyout market and it is possible we will see that fear translated to EdTech companies.
If you are a TPS, you need a working definition of joint liablity that quantifies your risk exposure ASAP.
Philosophical Implications
Perhaps counterintuitively, I found the rules in Wednesday’s DCL pretty reasonable.
The US government spends a lot of money funding higher ed. It makes sense that they would increase oversight as private vendors become a more integrated part of the modern university and accreditors - the quasi-governmental organizations nominally in charge of this problem - continue to fail to hold institutions accountable.
I mostly shrug at the arguments that regulation stifles innovation and/or favors incumbents. There are lots of competitive, federally-funded industries - though it does matter that the costs are clear and known.3 I also understand the argument that there may have been better data points to focus regulation on. My hope is that student outcome targets are on the way!
The real issue I have with Wednesday’s announcement is that it came via a Dear Colleague letter.
For context, the Education Department has many ways it can make rules. The two main ones you hear about are Legislation and Negotiated Rulemaking. Without going into too much detail, both involve inputs from many interested parties and language that is well-publicized prior to rules being implemented.
A Dear Colleague letter has neither of these features. That can be OK, depending on the scope of the rule changes. As a concrete example, asking for more data from universities on their use of third-party marketing partners does not seem particularly onerous.
Wednesday’s DCL dramatically expanded the definition of what a third-party servicer is, blanketed all newly-defined third-party servicers with joint liability, and ended international outsourcing in higher education. That is a massive scope change to hand down without any warning or discussion! Why is ED holding listening sessions for Incentive Compensation but not any of these changes?
Lots of folks will agree or disagree with specific points in Wednesday’s DCL. That is fine. What was far more jarring to me was the unexpectedness and ambiguity of such an important announcement.
For more thoughts Wednesday’s ED announcements, I recommend the following:
Whiteboard Advisors offers a short overview of what these two announcements are. Inside Higher Ed adds some subject-matter expert color commentary to their own overview. The Wall Street Journal focuses mostly on the Incentive Compensation sessions
2U CEO Chip Paucek provides a relatively measured perspective that is (probably) reflective of what most major EdTech company leaders are feeling right now
Phil Hill digs into the implications of the DCL for the EdTech market4
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Links
Teacher Shortage, Salaries, & Unions
A few weeks ago I highlighted a new proposal for a salary floor of $60K/year for K12 teachers in the US. I wasn’t sure whether the momentum behind the proposal was real and many of you agreed with me in that week’s Question of the Week. This week, The74Million reminded me of a variable I hadn’t thought about. The National Education Association (NEA) is the largest labor union in the US, with almost 3 million members. They have the means to accelerate movements that seem to have public support.
And teachers do have a lot of support right now, following the incredible strain they faced during COVID. There is also more | nuance | emerging about the national teacher shortage in favor higher pay. (TLDR: states and districts that pay better have fewer job vacancies). There are now active bills in both the house and senate for a minimum salary.
Wharton partners w/ Wall Street Prep to launch Private Equity certificate program
Another example of a trend that sort of makes sense following the “creator” hype of 2018-2020, but only started crystallizing for me when Youtube announced their partnership with Crash Course and Arizona State University in January. Universities, even traditionally “elite” universities like Penn, are hungry for new pools of students. Creators and niche content companies, like the Crash Course brothers and Wall Street Prep, have access to large and/or highly-engaged audiences. I don’t think anyone knows whether partnerships like these will have a stronger ROI than using an OPM or Google/Facebook ads, but it makes sense that universities would be experimenting as a way to reduce their dependence on any one acquisition channel.
No one wants to hire junior engineers
I would have liked to see more quantitative evidence for this argument, but I’ve been hearing this lament for years and am glad someone put it into words.
Question of the Week
Note: votes are anonymous
Results of last week’s poll: I think I like option 2 as well? This was a hard one
Ed Tech Thoughts is a short ( ~ 5 mins), weekly overview of the top stories in EdTech, with a few (hopefully interesting) gut reactions attached. If you enjoyed this edition, I hope you will subscribe and/or forward to your friends!
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Disclosure
I’m generalizing here - Chegg has moved beyond “homework help” and there is more nuance to how they approached the answer-gathering problem that I hope to write about someday.
Reminder: not a lawyer! I do find this a funny list of exceptions though. Banks and Cloud providers make sense - their services do not change much by industry. I don’t really understand the carveouts for consultants, tutors, and publishers.
There is an interesting scenario where universities start opting out of federal funding to avoid regulatory costs, but it seems unlikely to happen anytime soon (the lure of Title IV funding is too great).
Phil’s post is very good and I don’t want to detract from it by making Office Space jokes in-line. But I do want to tip my virtual hat to him and announce that I am in the market for good TPS report memes.
To what extent, if any, will the DCL and the potential subsequent actions have on edtech startup funding? For that matter, what about edtech startups still 9in their startup phase.