Must Read Blog Private Equity October 7, 2020

Tyton Partners View: September 2020 Education Deals

With most students from K-20 still predominantly remote, this month we decided to focus on the hottest “learning” platform in education – Zoom. More specifically, we wonder to what extent the eponymous platform can become a durable presence in the market beyond this Covid period. It is a question we know many of you are facing as you evaluate deals marked by a Covid-catalyzed bump in performance.

September remained active, with nearly 50 new deals announced, and with the volume of deals percolating, it looks to be a very busy Fall in the education sector.

Have a great day, and we’ll hope to speak with you soon.

Adam Newman, Founder and Managing Partner

Trace Urdan, Managing Director

Who’s Zooming Who?

In some technology markets, software platforms become so dominant that entire cottage industries develop around them. Smaller companies build feature sets that the platform itself has simply not gotten around to developing. This form of entrepreneurship effectively functions as off-balance sheet R&D. If the feature set is compelling and achieves purchase in a market the platform values, and the entrepreneur is lucky, the platform will purchase the company. If the entrepreneur is unlucky, the platform company will build its own version of the feature, rendering the company effectively obsolete.

The most dramatic example of this phenomenon is surely Salesforce, which invented and defined the customer relationship management (CRM) category and functions as the central platform for hundreds, if not thousands of ancillary companies tailoring solutions for various vertical markets, including education. Its annual Dreamforce user conference at Moscone Center in San Francisco features 700,000 square feet of exhibit space filled with these derivative companies. In August 2019, when the behemoth converted its previously not-for-profit higher education offering into a new profit-seeking business line, it sent a jolt of electricity through dozens of education companies operating off its platform.

The closest historical analog to this phenomenon in edtech is Blackboard during its mid-2000’s heyday, when dozens of companies developed plug-ins for what was the dominant LMS solution. This form of entrepreneurship was naturally harrowing, for if Blackboard turned its attention to your niche, it could result in either a successful buyout or the dominant player’s build-out of its own competitive feature set.

This month, Blackboard founder and long-time CEO Michael Chasen announced the launch and successful $16 million seed funding of ClassEDU, dedicated to building out a feature set to better tailor the Zoom live video platform for the education market. Its initial “Class for Zoom” product promises “frictionless tools to take attendance, hand out assignments, give quizzes, grade items, or even talk with students one-on-one.” The seed round featured several prominent edtech investors and operators as well as a handful of early Zoom investors, presumably signaling to the market some assurance from the larger company that it does not intend to introduce its own competitive feature set in these areas.

That there is an immediate opportunity to improve the functionality of Zoom for classroom use beyond what Zoom itself has the capacity to build right now seems indisputable. More interesting, however, are questions around whether Zoom will maintain its current dominant position for classroom interaction. Or whether a technology specifically designed for instruction, rather than corporate conferencing, could take its place.

ClassEDU is currently marketing Class for Zoom with the tagline “Like a Real Classroom, on Zoom.” However, most experts in online pedagogy disdain the simplistic online analog to in-person classroom instruction that Zoom represents and insist that if schools and universities are going to take online instruction seriously for traditional undergraduate audiences, they are going to have to redesign the nature of instruction in a more fundamental way. In his blog for Inside Higher Ed, Dr. Josh Kim, Director of Online Programs and Strategy for the Dartmouth Center for the Advancement of Learning, writes:

The last thing we need nowadays is college students spending more time in Zoom. Synchronous online platforms should be used to complement robust asynchronously designed courses. Online meetings platforms such as Zoom can be great for coaching and conversations but should never be used to transmit information. (And never ever should be used for evaluative purposes).

Kim raises this point optimistically, with the hope that ClassEDU will bring the adjustments that the Zoom platform needs to be more effective in offering online instruction, but we are less convinced. A student-centered learning platform that supports a pedagogically sound approach to online instruction requires a more fundamental reorientation of the tool than an add-on can likely supply. From virtual charter school companies, to OPMs, to tutoring and language instruction platforms, there is a wealth of IP that does not currently serve this market but could step into this breach. Zoom is likely to play a dominant role in instruction in the near-term, but without a meaningful reconstruction for this market use, we don’t think that position can be sustained.

Blackboard was a phenomenal success in defining and dominating a market segment for many years; it reached a near monopoly market share of 70% in 2006 before dropping to 28% in 2018 as the market shifted its focus from buyer expedience to user experience. We can’t help but wonder whether Zoom’s use in schools and colleges may not be facing a similar trajectory with a solution that may not be perfect, but is perfectly fine for now.

Recent Deals

PreK-12

Byju’s Raises $500M

Zhangmen Raises $400M

Unacademy Raises $150M

BEGiN Raises $50M

Outschool Raises $45M

Lele Ketang Raises $40M

ClassEDU Rasies $16M

Carnegie Learning Acquires Scientific Learning Corp.

Strigo Raises $8M

Valenture Institute Raises $7M