Like technology stocks in general, edtech has fallen over the past six months. There have been staggering declines with failures in brands such as Robolex, which was once recognized as the “future of education” – when half the stock price disappeared last year and investors predict harder times for the company’s shareholders.
The news may make you think that the future of edtech is marked by doom and gloom.
Responding to some EdSurge material in the Biz newsletter, Athens Batra, founder and general partner of 27 Ventures, is the first investor in companies such as Fiveable live learning platform, wanted to offer an alternative point of view. He held out his hand and agreed to answer some questions by phone and email. In his view, lower valuations are not a bad omen for the sector.
For Batry, the lesson of the pandemic was too optimistic to be overshadowed by the end of the “pandemic”. This has shown the industry, Batra says, that consumers have become willing to buy edtech. And if the federal government gives universities and schools extra money, they are likely to invest more edtech resources, he says.
EdSurge: You responded to the Biz newsletter that highlights the sharp decline in edtech scores by saying you don’t think edtech will get as big a hit as it seems. Why is the death and gloom associated with underestimation overestimated?
Atin Batra: Let me start with the fact that the current collapse of the state market has affected all industries, including education. Companies have fallen by an average of 30-50 percent from their 52-week highs. However, the cliché “public markets are not the economy” is the same today as in the heady days of the V-shaped recovery in 2020, only this time the opposite. Although it may seem that the world around us is moving, I see great opportunities.
There are two main reasons for optimism in the education technology sector namely: sustainability and evolution of business models and wealth of talent.
The pandemic has forced governments around the world that have spent little on education for decades. Just in the US the government postponed [about] $ 190 billion under Primary and Secondary Emergency Care (ESSER) help package. This is a huge opportunity for companies that focus on sales in districts and schools, as it will provide resources for testing that will lead to full-scale deployment once value is proven.
In addition, business models at edtech have evolved over the past couple of years.
Companies are increasingly selling directly to consumers – parents and students – and there are a growing number of best practices that founders can learn from in the process of creating.
The hard labor market seems to be weakening. Every day in May was accompanied by an announcement from a technology company that was laying off work [about] 10 percent of their workforce will extend the runway. For operators, the opportunity costs of joining a startup compared to Big Tech are no longer as high as before, due to lower ratings in the public market.
While this is a really scary situation for job losers, it is perhaps the best opportunity in a decade for startups (in different sectors) to hire exceptional talent with a reasonable level of compensation.
What portion of parents ’spending on edtech is driven by their concerns about losing learning from COVID-19, which forces them to spend money to get home something they don’t feel like they get in school? And how does this affect your optimism about the edtech sector?
The high cost of edtech today is due to parents ’fear of losing learning.
Virtual schooling has allowed parents to look deeply into the state of our current education system. The realization that the system is inadequate and has not changed since they went to school has forced many parents to take matters into their own hands and supplement traditional schooling with external resources.
Sales of educational products directly to consumers have been gradually increasing, but over the past two years has exploded as a viable business model. So, if earlier venture companies saw only one way to success in educational technology – selling directly to schools and universities, now we see completely new opportunities. And there are plenty of success stories to learn from. The founders look at Outschool, Duolingo, Quizlet and Byju’s and choose pieces that relate to their own business.
The federal government is allocating money to upgrade infrastructure in schools across the United States. How many are waiting for venture companies to find their way to edtech? And which edtech companies are likely to help?
Honestly, no one knows how much of that money will go to edtech.
But here’s what happens: District principals and school principals, who three years ago refused to accept calls from service providers, are now actively calling to say, “We have the capital. We want to upgrade our systems. What products and solutions are on the market? ”
As much as $ 2,800 is set aside for one student in the United States.
There are two main types of companies that should thrive in this environment: those that provide services to administrators, and those that interact directly with students to improve the end-user experience.
Teachers are there demoralizedburned and scraping to pass. Increasingly, they are also being laid off, creating opportunities for EDTech companies to capture them. In a sense, is the flight of teachers really good for editing companies?
First, I would very much like us not to have such a thing as a flight of teachers. This is detrimental to the upbringing of our next generation. But I don’t blame our teachers. They have repeatedly found themselves in situations similar to what they are at the forefront, whether it be dealing with COVID-19 or the school shootings as a horrific tragedy last week.
For edtech companies, on the other hand, this situation is a huge boon.
They gain privileged access to unique staff qualifications. Honestly, I love supporting teachers; they are the best at building edtech companies because they understand the gaps and problems first hand and have a genuine passion for supporting students.
Five of our portfolio companies are founded by former teachers, and I believe that their unique, but connected, experience has led to their continued success. Just look at Fiveable, which helps students around the world create communities with virtual classrooms, or Aktiv Learning, which improves outcomes in STEM courses for university students.
What are the final prospects for edtech next year? In other words, how should edtech think about this period in the sector as they move forward?
When I think of this period of time, I don’t at all think it’s doom and gloom. I really think it will be an incredibly exciting time to build all kinds of businesses, especially education.
I have told all my portfolio companies that they should be concerned if they do not have enough cash, because now it will be difficult to raise them. But if they are smart enough and can cut costs to be more frugal, they will come out of this in a much stronger position.
In fact, they should be able to survive the next 15 months. And once they do, they will have all those winds – be it business model or talent – that will lead them to success.
For founders trying to survive a storm, I recommend following these three guidelines: (1) unit economics is crucial (2) cut early and deep and (3) use time to reset / build.
Finally, you describe your edtech investment strategy as solution-oriented. You find the question you need to answer, you said, and then try to find solutions. What problem do you want to solve at the moment?
That’s right. The unique advantage of being sector-oriented, investing only in edtech and the “future of work”, is that I am constantly thinking about what these industries need. This allows me to create multiple micro-theses that I can then search for in the market solutions.
Right now, in fact, I’m thinking about how we can improve MOOC completion rates and online courses. As the economy experiences an impending downturn, our current workforce will strive to improve / retrain to find better jobs. Most people turn to online courses that are not interesting enough in themselves.
The most common solution I’ve seen lately is to create cohort courses from scratch, or at least recreate cohorts for the MOOC. Personally, I do not consider it the best solution, so I’m looking for something else. Maybe I found one and we now understand it.