Education is the second largest industry in the US following healthcare. Yet despite it's gargantuan size, start-ups have had a difficult time navigating it and achieving success. One of the few recent success stories is 2U (in Redpoint's portfolio), a company that partners with top colleges and universities to bring their degree programs online. 2U went public at a half billion dollar valuation last year and has quietly traded up to $1.5B in market cap - it's one of the biggest EdTech companies that you have never heard of. Separately, online learning platform Lynda.com was acquired by LinkedIn for $1.5B.
I want to see more case studies like 2U and Lynda in other areas of education. While the US was once the clear leader in global education, that is no longer the case in the K-12 sector - the largest of the education markets - with fears that the post-secondary sector may soon follow down that path.
There is $1.6 trillion spent annually in the US on education, and $5.5 trillion globally. The government alone spends $1 trillion. The US K-12 market and US post-secondary markets (both public and private funding combined) are $688 billion and $535 billion in size, respectively. To tackle this market, start-ups have also raised a fair amount from venture investors - $320 million in 2009 and approaching $2B in 2015. It's easy to throw around big numbers, but what's really going on?
Key Problems and Trends in Education
1) Enrollment and pricing pressure on universities due to families' inability to pay
Following the financial crisis, there has been a 39% decline in family net worth. Student loan debt has also been steadily rising, reaching about $30k on average today. Education is already expensive but it is becoming increasingly difficult for students and families to pay up.
2) Growing budgetary pressure to find cheaper solutions
Annual spend by educational institutions has increased as a percentage of GDP every year. Despite all of the increased spend, the US Department of Education, State, and Federal departments have all been facing budget cuts. At least 34 states are providing less funding per student for the 2013-2014 school year than they did before the recession hit. There is also growing regulatory pressure for better student outcomes and analytics.
3) Poor educational outcomes despite increasing expenditures and student debt
The unemployment curve today, particularly for younger people, is far worse than when compared to pre-financial crisis. Institutions are receiving less government funding and as a result students have to pay more. Adding in poor job placement to the mix is basically adding salt to the wounds.
4) Inefficient and bureaucratic organizational structures
It is just plain hard to weed through the bureaucratic and organizational mess that is education. Start-ups have to figure out how to navigate existing processes, deal with compliance, find the right budgets and decision makers, and determine the proper go-to-market strategies.
5) Antiquated learning models
Our current learning model, i.e. college degrees, textbooks, learning pedagogy, etc are all antiquated. Most of our institutional learning was developed a couple hundred years ago and has changed at a snail's pace in regards to technology when compared to other industries. There are better ways to learn.
What Could The Future of Learning Look Like?
Let me take a stab at the future here (applies to both K-12 and post-secondary):
- Outcomes-based learning will be front and center
- Education will be more about mass customization versus today's structured and regimented learning
- Less Common Core (wikipedia), more "individual core"
- Focus on adaptive learning in capsules rather than a one-size-fits-all approach (Altschool is a good example)
- Rather than teachers lecturing a class, they will instead employ a hybrid model where the teacher shepherds the learning process and leverages technology and automation in the classroom
- Vast amounts of data will be created which will reinforce the mass customization element
- Distance learning and online programs will solve issue of university saturation (colleges have fairly static enrollment supply while student demand keeps increasing)
So How Are We Doing Today?
There are many interesting start-ups going after K-12, post-secondary, and adult learning categories. Below are some of the main segments:
I could argue that some of the recent start-up successes have gotten to where they are by focusing on adult learning, that is, totally ignoring K-12 and post-secondary where the go-to-markets are quite challenging. Companies like Pluralsight, Lynda, Udemy and General Assembly come to mind. Still, there are promising young start-ups attacking the existing education industry such as ClassDojo, Remind101, Instructure, AltSchool, Clever and Brighbytes (and 2U). Some of these companies have done a particularly brilliant job of solving specific problems for end users by leveraging Silicon Valley consumer tech lessons to juice their go-to-market strategies (i.e. thinking product-first, freemium distribution, viral hooks, etc). In any case, it is still early days and I expect to see iconic companies built in educational content, software, infrastructure and services.
Note: Statistics borrowed from research by GSV Capital and BMO Capital Markets.