EdTech Thoughts 9/19 - 9/25

A very public negotiation strategy

Hello!

It was wonderful seeing so many folks in NYC this week, I arrived back home smiling ear-to-ear (and having completely lost my voice). If you are a new subscriber, a quick reminder on what this newsletter endeavors to accomplish:

EdTech Thoughts is a short ( < 5 mins), weekly overview of the top stories in EdTech, with a few (hopefully interesting) gut reactions attached

On to the news!

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Funding / M&A / IPOs

• GiveCampus raises $50M: Washington D.C.-based GiveCampus provides fundraising software custom-built for educational institutions. While the company went through Y Combinator in 2015, this is its first priced equity round, after growing profitably to $20M+ in revenue over the past seven years¹

• The Muse raises $8M: New York-based The Muse is a well-known brand in the job search space whose business has been up-and-down since their founding in 2012. MBM capital, who led this funding round, specializes in these types of “formerly venture-backed” businesses and hinted at a roll-up strategy in the funding announcement

• Sparrow raises $7M: New York-based Sparrow provides a platform for finding and comparing private student loan rates across lenders. Sparrow already has seventeen universities who refer students to the platform and plans to use the capital from this round to expand the number of universities and private lenders in its network

• Growth School raises $5M: Bengaluru-based Growth School is a professional upskilling platform that delivers training via synchronous online courses. The platform is a formalized extension of founder Vaibhav Sisinty’s extensive social reach in the marketing field

• EAB acquires Concourse Global: Washington D.C.-based EAB provides research, advisory, and technology services to the US Higher Ed market. Acquiring Chicago-based Concourse Global is a bet by EAB on “alternative admissions.” Concourse’s platform attempts to flip the current admissions process, where students submit their college applications into a nerve-racking, monthslong abyss in order to find out their postsecondary options. Via Concourse, students build their own user profiles and schools often make admissions decisions in days. Perhaps sensing the pressure, the Common App has been investing in a similarly speedy admissions process

• Times Higher Education acquires BMI: Times Higher Education (THE) was a Europe-focused Higher Education media organization acquired in 2019 by the private equity firm Inflexion. After (presumably) taking a couple years to stabilize THE, Inflexion appears to be embarking on a rollup of other Higher Ed media organizations. Earlier this year, THE acquired US-based Inside Higher Ed. They now add BMI, which is known for its in-person international student recruitment events.

• StraighterLine acquires Childcare Education Institute: Baltimore-based StraighterLine provides access to affordable, largely introductory-level postsecondary courses that are certified for credit by the American Council on Education (ACE). Or, well, that is what they used to do. Since being acquired by private equity firm BV Investment Partners in 2020, the company decided to pivot towards a workforce education strategy rationalized by increasing “American [skepticism] about the value of postsecondary education and its alignment with jobs.” Childcare Education Institute, which provides online training for early-childhood educators, is an investment in the continued evolution of this thesis

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Story

Reach Capital’s Impact Report

One of my favorite parts of working at the intersection of finance and education is that we spend just as much talking about impact as financial returns. Reach Capital is a leading example of this - the firm is the most diverse in the VC world, has been a top-performing fund financially, and holds themselves publicly accountable for their portfolio company impact (see above for 2022’s report, here for 2020’s).

Beyond just seeing Reach’s impact data, my favorite part of reading reports like this (and others like it from Rethink, New Markets, and Owl) is that the firms show how impact is woven into their financial theses.

Take one of Reach’s forward-looking examples in the report - “tech-enabled, external providers can help schools provide more and higher-quality student services than they are able to on their own.”

There are two trends that make this thesis a smart one in this particular moment - school staffing is at an all-time high at the same time as enrollment declines precipitously.² That combination is perilous, as funding for school staff is typically tied closely to the number of students in a given school.

But, hopefully(!), cost-effective, software-based solutions will emerge that help schools maintain (ideally improve!) academic outcomes even if schools are forced to face budget declines. In their thesis, Reach can attempt to counteract a bleak potential reality in a way that drives both financial and socially impactful returns.

So much of venture capital is not about just being right, but being right *at the right time.* Reports like this one from Reach provide a very public window into whether and how this is playing out for a firm in (almost) real time.

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Links

• Zovio plans to dissolve, aims to sell Fullstack Academy for $55M: There is some fun game theory at work here. Fullstack is, at least, a moderately desirable asset - growing about as fast in university and corporate partnerships as any other bootcamp provider in the US. If acquirers got into a bidding war, they might all believe that $55M is the number to beat. However, it is a little funny to me that a company would announce a desired asset price at the same time as its imminent demise. Without the luxury of time, it seems just as likely that a potential acquirer would call with the lowest possible offer that Zovio’s board would still have to take seriously (call it $20M, I don’t actually know) and then say “let us know if you have any tasteful corporate art that we might want too”

• OnDeck’s pivot: It takes courage to say “we were wrong” publicly, especially after a period of riding high. The OnDeck and Maven teams deserve credit for their relatively transparent conversations with Techcrunch over the past two weeks. At issue with OnDeck: it is hard to scale exclusivity, particularly on a venture timeline. The company will now return to its roots as a for-pay accelerator with a $23M fund to invest in its biggest winners

• A16Z’s EdTech Thesis: No major surprises among the themes mentioned, but the piece is well-researched and it is worth taking note when one of the biggest VC funds in the world writes about the sector

• India’s education tech giant struggles with math: the problem with having a long-running, highly-visible financial problem is that The Media has more time to come up with creative headlines. I hedged last week that it is hard to know the true outcome of the Byju’s accounting scandal without access to their books, though this headline was still a real zinger. The actual headline to keep an eye out for is whether Byju’s has any trouble fundraising after re-calibrating the business to the their new accounting reality

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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!

If I missed something, or there is a topic you’d like to learn more about, I encourage you to submit a story! Submissions can be named or anonymous

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Question of the Week

If your answer is “Other”, please write me so I can do a follow-up that includes your topic! I am also open to the discussion of whether 2020 and 2021 are appropriately monikered.

Speaking of follow-ups, the results of last week’s Question look like this:

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Disclosure

Disclosure - Jan 2022

1. For Finance folks, the investment case for this is kind of fascinating. GiveCampus says they’ve built to $20M in revenue off 1,000 customers, implying an average contract value (ACV) of $20K. A low ACV in a relatively small market like education makes this look like a relatively small market - (4500 HED institutions + 3400 private high schools) * 20K / school = ~$150M total market size. This leads me to three potential conclusions, 1) the company expects to branch out beyond education at some point soon, 2) the margins on their software are REALLY good, 3) this was done at a relatively low valuation. The three are not mutually exclusive, but would have different effects on the business

2. Reach also provides their own rationale for the thesis in the report, but these two trends stick out to me among the others