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Technology

A Look at Ed Tech’s Biggest Money Magnets

By Rebecca Koenig November 12, 2014

Investment in higher-education technology is booming. Venture-capital funding for individual companies trying to break into the market has climbed well past the million-dollar mark, and the growth shows no sign of slowing.

According to Peter Yoon, a managing director at the Berkery Noyes investment bank who specializes in the education and training sector, ed-tech investment has increased steeply since 2006. More than $1-billion was invested in ed-tech companies in 2013, he said, and in the first quarter of this year more than $50-million was invested.

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Investment in higher-education technology is booming. Venture-capital funding for individual companies trying to break into the market has climbed well past the million-dollar mark, and the growth shows no sign of slowing.

According to Peter Yoon, a managing director at the Berkery Noyes investment bank who specializes in the education and training sector, ed-tech investment has increased steeply since 2006. More than $1-billion was invested in ed-tech companies in 2013, he said, and in the first quarter of this year more than $50-million was invested.

“It’s quite a brisk pace in terms of the amount of investment,” Mr. Yoon said. “Compared to previous years, it’s a tremendous increase.”

Several arenas are attracting these well-funded players. Some companies provide services to colleges, while others seek to circumvent traditional institutions and provide education straight to students—or, as perhaps it would be more appropriate to say, consumers.

The Chronicle has created a list of the 10 best-funded higher-education-tech companies to date, according to Tyler McNally, director of growth at EdSurge, an education-technology reporting website.

To put all that capital in context, we’ve provided monetary frames of reference from other realms of the higher-education world. And we’ve asked Michael B. Horn, co-founder of the Clayton Christensen Institute for Disruptive Innovation and executive director of its education program, to weigh in on just how “disruptive” each company might really be to traditional colleges and service providers.

1. Chegg

Funding to date: $252,300,000

Context: That’s just a little less than Southwestern University had in its endowment as of June 2013: $252,949,637.

What it does: Chegg offers textbook rentals and sales, along with tutoring and career services.

How disruptive is it? “If some of these online upstart universities started to adopt it, that could be disruptive,” said Mr. Horn.

2. D2L

Funding to date: $165,000,000

Context: That’s close to the revenue generated in 2013 by University of Texas at Austin athletics, the highest-grossing program in the country: $165,691,486, according to USA Today.

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What it does: D2L develops learning-management systems.

How disruptive is it? “It was disruptive to the first set of learning-management players,” like Blackboard, said Mr. Horn. “They did a good job with an international bent early on.”

3. Pluralsight

Funding to date: $162,500,000

Context: That’s a bit less than the renovation budget for the State Farm Center, where the Fighting Illini men’s and women’s basketball teams play for the University of Illinois at Urbana-Champaign: $165,000,000.

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What it does: Pluralsight offers online corporate-training classes.

How disruptive is it? “I think that’s a huge area for growth in education,” said Mr. Horn. “I think it’s threatening to community colleges and work-first training colleges, as well as state comprehensive universities to some degree.”

4. Knewton

Funding to date: $105,000,000

Context: That’s close to Brown University’s financial-aid budget for the 2015 fiscal year: $104,100,000.

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What it does: Knewton is an adaptive-learning platform that works with publishing companies.

How disruptive is it? “They will end up enabling a huge disruption in the content marketplace, as well as have a disruption potential for the learning-management-system space,” said Mr. Horn. “They could become the platform for learning. It’s fascinating because of their ability to get content publishers to sign on to them even though they might commoditize content publishers.”

5. 2U

Funding to date: $95,900,000 (before IPO on March 28)

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Context: That’s slightly less than Ohio State University allocated to pay graduate and professional students for services, such as teaching, in the 2014 fiscal year: $96,000,000.

What it does: 2U is a learning platform that works with traditional universities to create online courses.

How disruptive is it? “I don’t think 2U is disruptive,” said Mr. Horn. “I do think there’s a market for them, very clearly, in extending elite education online in a high-quality way. Investors have chased that opportunity because it’s felt like a really safe and high-quality route to online.”

6. Minerva

Funding to date: $95,000,000

Context: That’s the same amount of money the Education Department provided in 2006 to both the Louisiana Board of Regents and the Mississippi Institutions of Higher Learning in response to Hurricanes Katrina and Rita.

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What it does: Minerva is a new university that aims to provide an elite education at a reduced cost, with students living in different global campuses each semester.

How disruptive is it? “I’m not sure I would call it disruptive either, although it could commoditize elite higher education,” said Mr. Horn. “I think the opportunity to redefine what elite liberal-arts education is for the 21st century is exciting.”

7. Rafter

Funding to date: $86,000,000

Context: That’s the same amount it cost Williams College to build its new library.

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What it does: Rafter provides campus-bookstore services and also rents and sells textbooks directly to students.

How disruptive is it? Mr. Horn was not familiar with Rafter and so declined to comment. The Chronicle contacted several other experts, but none of them felt familiar enough to offer analysis.

8. Coursera

Funding to date: $85,000,000

Context: That’s the same value as the largest-ever in-kind gift to Florida A&M University: software from the Siemens Corporation in the spring of 2014.

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What it does: Coursera works with universities to offer free Internet courses known as MOOCs.

How disruptive is it? “They could be, but they’re not clearly disruptive yet,” said Mr. Horn. “If they really pursue this developing-world option, that could be quite disruptive relative to the very limited opportunities.”

9. Echo360

Funding to date: $67,300,000

Context: That’s almost the entire 2014-15 budget for Waubonsee Community College, in Illinois.

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What it does: Echo360 works with universities to help record lectures for flipped classroom courses and online-education programs.

How disruptive is it? “I don’t think of them as disruptive,” said Mr. Horn.

10. Udacity

Funding to date: $58,000,000

Context: That’s similar to the proposed 2015 budget for scholarships and fellowships at the University of Tennessee at Knoxville $58,032,268.

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What it does: Udacity offers tech education via online classes.

How disruptive is it? “It is disruptive to corporate training programs,” community colleges, and vocational schools, said Mr. Horn. Unlike other MOOC providers, “they smartly pivoted to being about lifelong learning and corporate training.”

Clarification (11/12/2014, 1:40 p.m.): The original list did not note that, on March 28, 2U had an initial public offering that raised an additional $119-million.

We welcome your thoughts and questions about this article. Please email the editors or submit a letter for publication.
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