Edtech Thoughts 8/22 - 8/28
Harvard says, "Bless their heart"
A relatively slow week in the funding world was counterbalanced by a monster announcement in student financing.
Next week’s post will come on Monday on account of the holiday.
On to the news!
Funding / M&A / IPOs
Upkid raises $1.7M: Utah-based Upkid provides a marketplace connecting childcare workers with licensed schools. Upkid is a more infrastructure-focused take on the early-childhood space than parent-to-school marketplaces like Kinside and Winnie (though Winnie launched a marketplace similar to Upkid in June). They are also more workforce-focused than school-hosting platforms like Wonderschool. Childcare tends to be a low-paid, highly local activity, though one with an unfortunately high turnover rate. I am curious to see how Upkid manages their acquisition costs (of both centers and workers) relative to the fees they generate
ETU raises growth equity round: ETU offers interactive simulations across a range of L&D categories to large enterprises like PWC, IBM, Merck, Deloitte, Microsoft, and Macy’s. It looks like the funding from this round will be used to continue building out the company’s simulation authoring platform, which allows clients to create/customize their simulations while measuring skills gained by employees via training
Renaissance Learning acquires Illuminate: Renaissance, one of the largest K12 content and assessment companies in the US, bought Illuminate, maker of a number of highly-regarded K12 assessments. The deal is notable for its combination of scaled assessment providers, but made much more interesting by Illuminate’s highly publicized data breach, which I wrote about just last week! Sadly, we are unlikely to learn how the data breach factored into negotiations, the terms of which went undisclosed
Alchemy acquires Chainshot: Alchemy is a Web3 infrastructure developer whose technologies powered $105B+ in transactions last year. Chainshot is a bootstrapped software development bootcamp focused on preparing students for Web3 roles. The rationale for this acquisition is similar to the one Amazon used for their partnerships with Lambda School and Kenzie Academy - the company believes that one of the limitations of the size of their market opportunity is the number of software developers with the appropriate skills to work with their technologies
Akili goes public via SPAC: Akili, maker of the ADHD “digital medicine” video game EndeavorRX, sits at the intersection of education and pharmaceuticals, making it tough to evaluate than a traditional edtech company. Here is what we know: in May the company received FDA approval of their “medicine”, paving the way for clinicians to prescribe the game to the 10% of children with ADHD. The company reported just $66,000 in revenue in Q1 of this year, a 44% decline from last year. After taking $163M in cash onto their balance sheet as part of the SPAC transaction 6 days ago, the company’s market cap sits at $133M as of this writing…1
This week President Biden signed an executive order providing $10K in loan forgiveness to individuals making less than $125K and families making $250K. Pell grant recipients will be eligible for an additional $10K of relief. I thought the New York Times had the best high-level coverage, while Whiteboard Advisors had the best in-the-weeds explainer.
A few other important facts on the policy:
Fully wipes away the debt of 20M of the 43M current student loan borrowers
Impacts 90% of borrowers
Includes Graduate and Parent Plus loans (which are uncapped and can be particularly nasty in terms of long-term debt)
For borrowers with income-driven repayment plans:
Reduces monthly payments from 10% to 5% of discretionary income
Allows ED to automatically pull income data and sets a salary floor of 225% of the federal poverty level (currently $15/hour) for making required loan payments
Forgives borrowers with less than $12K in loan balances after ten years instead of twenty
Perhaps naively, I like that this policy targets the borrowers who need it most and includes mechanisms (like salary floors and automatic pulling of income data) designed to prevent future borrowers from falling into a debt trap.
I wish that it had done something to address tuition prices, which Lumina Foundation CEO Jamie Merisotis and I believe are the root cause of the student debt problem. Could it have helped people with no post-secondary experience? Yes. Am I a little confused by the move to a blanket 5% income-driven repayment threshold when the rest of the policy so pointedly accounts for different income levels? Also yes.
But the thing that really sticks out to me is how deftly this administration navigated turning loan payments back on. It’s been 3+ years since borrowers made their last required payment. Turning payments back on was a recipe for political disaster for whatever president or government body forced it to happen - I honestly thought it might not happen until we had a lame duck president. And President Biden managed to turn it into a popular policy right before midterms!2
I’m not enough of a policy guy/economist to have a grand statement on whether this is definitively good or bad. But, I do appreciate a practical solution to a problem, especially one that feels relatively moderate and allows the technocratic machine of student loan financing to get back to work.
Endowments are (almost) bigger in Texas: Riding skyrocketing energy prices, Bloomberg calls attention to the fact that the University of Texas endowment company (UTIMCO) now manages $42.9B, good for second among all US higher ed endowments behind Harvard’s $53.2B. It feels disingenuous to equate Harvard’s endowment with UTIMCO, which manages the endowments for all thirteen universities in the Texas system, but it is 2022 and headlines > math. Setting that aside, this article is a good reminder that the business of both Harvard University and University of Texas has increasingly little to do with educating students. Like most other elite universities, both generally lose money on students and make it back via endowment growth, asset licensure, and research funding
The final final word on the teacher shortage (for now): I really liked Thompson’s description of why it feels so hard to get a straight answer on whether there is a teacher shortage or not: “When you’re facing a murky narrative with conflicting data, communicating the message ‘This is a total catastrophe!’ is easier than ‘Well, this is confusing, and a lot of things seem to be happening at once.’”
UpGrad’s founder on their competition’s lack of focus: Most founders focus on playing it safe in interviews. There are a lot of good reasons for this and I do not fault them for it. But, man, do I love it when we get an interview this unvarnished and incisive. There is a lot of good content to pick from, but my favorite piece was “Today, something I see is that some of our competitors have one foot in India and abroad. So the focus on India is not fully there, and that has allowed us to, I mean, I can very clearly say that just in terms of Indian revenue, we are at least twice, three times bigger than the next competitor’s India revenue.”
The promise and peril of accessibility tools: Similar to last week’s link on students who learned nothing during COVID and the booming world of buying custom term papers, I appreciate stories like for the reminder they provide of the human impact, both positive and negative, of edtech tools
Thing(s) I’m Thinking About
I know the data is historically important to track, but I always struggle with what to take away from these types of articles in the moment. The headline is not really a surprise, given how crazy 2021 was for fundraising and the broader pullback in the markets we’ve seen in 2022.
What should this data tell me about life going forward for edtech startups?
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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There is also a whole sub-plot on Akili’s SPAC sponsors, led by tech impresario Chamath Palihapitiya, that is fascinating but beyond the scope of this newsletter…
Yes, I recognize that no borrowers will actually make payments until next year, after midterms. This illustrates my point about how deft a move it was! Though it also makes it more political