Over the past few years, every new day has seemed to bring news of another higher-education technology start-up company promising to change the world. According to the National Venture Capital Association, investment in education technology jumped from $100-million in 2007 to nearly $400-million last year. On Easter weekend earlier this year, I flew to Silicon Valley to find out what was going on. The result was a long article in Washington Monthly, called “The Siege of Academe.” (You can read it here.)
I had known some of the reasons for the start-up boom before arriving in California. The world has changed since the first wave of ed-tech start-ups went belly-up in the dot-com bust. Educational tools have become more sophisticated; computing power is cheaper; broadband access and mobile technology have spread.
What I didn’t really understand, until I got there, was how the economics of technology start-ups have also changed.
The company that best embodied the new dynamics of investment was called Imagine K-12. It’s a copy (in valley-speak, a “fast follow”) of a start-up incubation model developed by a firm called Y Combinator, except Imagine K-12 focuses specifically on education. The model works like this: Say you have an idea for a start-up but no idea what to do next. Imagine K-12 brings you in for three months, gives you a chair and table on which to put your MacBook Air, and teaches you the basics—how to build a prototype, craft a business plan, and hone a pitch. They help get the product in front of users for feedback and improvement, and introduce people to angel investors, venture capitalists, and other members of the start-up ecosystem. In exchange, Imagine K-12 gets between 4 and 8 percent equity in the company.
In the old days (that is, 10 years ago), huge and well-capitalized venture-capital firms would simply load a bunch of money into their companies and light a fuse. As the companies tried to generate enough rapid growth to get to an IPO (where, presumably, everyone gets rich) many would flame out. The process put enormous stress on the start-ups, many of which ended up blowing apart on the launching pad. A few big hits would leave the VC’s in the black, but over time people realized that the process could be improved with a more sophisticated manipulation of financial fuel.
At the Imagine K-12 / Y Combinator levels, the initial amounts of money are small, in the range of $25,000 to $50,000. Imagine K-12’s president explained to me that the cost of starting a new company is 10 times less than it used to be. That means investors can spread their money around to more entrepreneurs and ideas. Also, the entrepreneurs themselves can “fail faster,” which is crucial in an ecosystem driven by constant iteration in search of the next great breakout product.
The “fail faster” dynamic has certainly borne itself out. A couple of days ago Twitter informed me that OneSchool, the founders of which make a cameo appearance early in my piece, has already “imploded.” Parker Holcumb, by contrast, whom I described unsuccessfully pitching his mobile app to a venture capitalist, has forged ahead and is now selling his electronic highlighter on iTunes. Doubtless, companies that didn’t even exist in April have already been dreamed up, funded, and passed their prime, while others have already garnered legions of followers and are well on their way to making people rich.
What I don’t think will change are the underlying economic and cultural forces driving the larger trend. It’s not just that the tools, money, and opportunity are there for the taking. It’s also that people living in Silicon Valley are of the mind-set that the education industry is ripe for disruption.
Late in the trip, my guide Michael Staton and I met two men in their 60s at a Greek restaurant in the Financial District. It was the first time we had ventured north of Market Street, into the world of tall buildings and suits. The two men were Stewart Alsop and Tom Kalinske. Alsop was a technology journalist for a number of years before turning to investing. Kalinske ran Sega back when Sega Genesis was the coolest video game console you could buy. Then he went into business with Michael Milken and helped found Knowledge Universe and the popular educational-toy manufacturer, LeapFrog.
Kalinske told me a story about a long time ago, in the 1990s, when Michael Milken was having pretty much exactly the same idea that Silicon Valley people are having now: There are great college professors out there, so why can’t we just videotape their lectures, sell them to people, cut the middlemen colleges out of the deal, and be the middlemen ourselves? They identified Nobel Prize-winning college professors because they are, of course, the best. They sent video teams to the professors and, because this kind of thing that used to cost a lot more money to produce (what with film cameras and so forth), they’d sunk $20-million into the project before realizing that most Nobel Prize winners are by and large really terrible lecturers and that nobody is going to want to pay money to watch them drone on for hours at time. Luckily, they got Thomson publishing to buy the business for $20-million so nobody took a bath, at least on their end. It was a close call.
Then Alsop told his story about education and the Valley. Back in the 80s, he says, he tried to set up a foundation to help education with technology. He went to the meetings where curricula were set and talked to the people who made decisions about education. He came away disappointed and cynical. The system struck him as calcified and absurd. Nothing has happened in the years since to change his mind about that.
That’s pretty much the way people in Silicon Valley see it, which in and of itself doesn’t distinguish them from lots of people everywhere; there is a long tradition in this country of dissatisfaction with our public K-12 education system, along with a much more recent (but growing) movement, led by the likes of Peter Thiel, of dissatisfaction with higher education. The difference is that (and that they, themselves, could make that happen, and reap untold riches in the process). By combining almost unlimited access to capital with the greatest software engineers in the world, they believe they are increasingly able to give prospective students what they want, when they want, in an instant, for free. How and when those forces reach higher education will be one of the fascinating dramas of our time.
Kevin Carey is director of the education-policy program at the New America Foundation.Return to Top