Investments Decline As Education Technology Grows Up

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All The News From Google I/O 2014

Investments Decline As Education Technology Grows Up

School may be out for summer, but the nation’s education-focused technology startups are still hitting the books, drumming up new business and new investments to capitalize on overwhelming demand for innovation from primary and secondary schools and colleges.

New government initiatives are underway nationally — where education spending is expected to top $1 trillion — and internationally, cheaper technologies are making their way into the classroom, and venture capital firms are backing new companies targeting the market at an unprecedented clip.

In all, it’s a good time to be a technology company selling into the land of learning.

With all of the newfound interest and spending on education technologies, startup companies and established vendors alike are making moves in the market.

Today, the test-prep giant Kaplan said it has acquired the Dev Bootcamp for an undisclosed amount, making it a formidable force in the growing market of software development training.

Kaplan said it would be folding the Dev Bootcamp business into its New Economy Skills Training group, which already includes Metis — a business unit providing training for product design, Ruby on Rails, and data science.

Meanwhile, Treehouse, which sells web programming and development training services online, is expanding its reach through a partnership with the Clinton Global Initiative.

The company has committed to partner with regional and local governments, workforce investment boards and community-­based organizations to provide 150,000 unemployed and underemployed workers an opportunity to train for software jobs.

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Outside of continuing education, startups like Schoology, Knewton, Instructure, and Clever, have all launched major initiatives.

Looking to take advantage of the wind at its back the New York-based education management platform Schoology has raised $15 million in a new round of financing, led by Intel Capital, with participation from new investors Great Oaks Venture Capital and Great Road Holdings. Previous investors FirstMark Capital and Meakem Becker Venture Capital also participated in the financing.

Earlier this month the company signed a contract that will see it supply every school in Uruguay — covering up to 620,000 students — with access to its learning management system.

“We’re seeing lots of activity coming from Latin America,” says Schoology chief executive Jeremy Friedman. “[In Uruguay] they bought 620,000 XO devices and they really needed a platform for teaching learning and collaboration.” The country chose Schoology.

“It’s definitely not a one-off type of deal internationally,” Friedman says. “Latin America in particular has been really interesting [and] we see a big opportunity.”

International expansion is just one reason why Schoology’s tapped the investment community to raise cash. The company is also looking to climb up the educational ladder and knock on the doors of the lofty, hallowed halls of higher education.

“On the U.S. front we’ve started making a more significant investment in higher ed as well,” says Friedman. The company signed a partnership with CSU-Global, the country’s first fully online state university, which was created by the Colorado State University System Board of Governors seven years ago.

Schoology’s new round comes on the heels of a down quarter for education investment, when it seems venture capitalists caught their breath after the breakneck pace of investments in the first quarter of the year. For the second quarter, venture firms invested only $218 million in 66 startups, down from over $500 million in the first quarter of the year.

Yet, even as some in the industry worry about an edtech investment bubble, chief executives, like John Baker the CEO of the well-funded edtech startup Desire2Learn are unconcerned. “I don’t see a bubble in the space given the sheer under-investment in education relative to other industries,” says Baker. “If you look at it on a percentage basis, investment from private equity and venture capital into e-learning or ed-tech is relatively small.”

And his company is still expanding its reach. At this point, the company is integrating applications from 891 different startups, student designed programs and large businesses in the edtech market, including content from the massive publisher McGraw-Hill. That content will appear in front of roughly 15 million users, giving it one of the broadest customer bases in the industry.

Schoology and Desire2Learn aren’t the only companies making waves in education. Earlier in June, Instructure announced its own deal with Unizin, a consortium of universities including Indiana University, Colorado State University, the University of Florida, and the University of Michigan. Operating on the Internet2 service distributed among this consortium of colleges and universities, the company’s Canvas learning management and collaboration system will be shared among institutions on the network.

“This follows a trend that we’ve been talking about for a while, which is that the online [education] world is not a for-profit world only,” says Knewton chief operating officer David Liu. “Not-for-profit institutions are going online to offer real classes.” And they need learning management systems to help monitor, manage and operate online offerings.

As learning management systems like Instructure and Schoology move into higher education, companies like Knewton are expanding their professional services capabilities. The company announced that it would be working with Elsevier to build products for nursing, health professions and medical students in the coming years.

“We’ve been very focused in the K-20 world… mostly in K-12 and universities,” says Liu. “With nursing, and medical students we’re extending into graduate level and vocational domains. These are the highest growth education domains on the planet.”

According to Liu, the partnership with Elsevier, one of the world’s largest academic publishers, will be among Knewton’s most significant in terms of size, scope, and subsequently, revenue.

These days, education investments are concentrating on technologies that operate as a management and distribution system for content creators, rather than on the content itself, according to Schoology’s Friedman.

No startup embodies this platform approach more fully than Clever, which announced its single sign-on tool in May. The company launched in 2012 with a service that integrated educational content from several vendors on a single platform. Now it’s offering its users the ability to have single sign-on ability so young students don’t have to memorize several passwords for applications from different vendors.

“We’re at a tipping point,” says John Krull, the Information Technology Officer of the Oakland Unified School District. “It’s sort of a convergence of common core and technology. Those two things have come together to create all this demand.”