2011 will be remembered as the year that the ed tech sector got hot. Venture capital firms will be making lots of small investments, and some large investments, in start-ups in the educational technology space.
Kaltura, the media management and online video platform company, recently announced a third round of funding worth $20 million. This round was much bigger than previous venture investments of $2 million and $5.5 million.
Intel Capital was only one of the investors (others included Nexus Ventures Partners and existing investors .406 Ventures, Avalon Ventures and Silicon Valley Bank), but to my mind the most noteworthy.
Up until now, the big technology players (and their investment arms) have not been particularly active in investing in ed tech start-ups or purchasing small ed tech companies. Intel has over $21 billion cash on hand, Microsoft $41 billion, Apple $27 billion, Google $35 billion, Cisco $40 billion, Oracle $25 billion and Amazon almost $9 billion. These companies are about to begin aggressively buying up, and investing in, ed tech start-ups.
A Little Money Goes A Long Way: $20 million for Kaltura (only some of which came from Intel Capital) is a big investment for an ed tech firm, but relatively small change in relationship to investments in other sectors such as energy, biotech or even other enterprise or consumer technology related sectors. The educational technology market is small today compared to the enterprise or consumer market, meaning that relatively small investments end up being proportionaly more significant.
Long Bets: The sales cycle for institutional ed tech purchases are long. It takes a long time for Kaltura or other companies to close a purchase deal with a university. But once the sale is made, these relationships tend to be sticky and long-term. Switching costs for ed tech platforms are high educational institutions, as any large change requires buy-in from a large number of stakeholders (faculty, students, staff, administration etc.). Customer acquisition costs might be high in higher ed, but the upside is high profit margins on license renewals, maintenance and integration for many years to come.
Consumer/Enterprise Connections: Technology companies (and media / publishing companies) need to develop brand loyalty and relationships with future consumer and enterprise buyers. Today's college students will be tomorrow's consumer and enterprise buyers. It makes sense to develop brand awareness and brand loyalty among future managers and higher income consumers as early as possible. College students are a very important market to connect with.
Up-Sell Potential: Higher education buyers like to deal with as few vendors as possible. We like our platforms to be integrated. Investing in an adjacent or complementary technology can drive both integration and higher ed adoption.
International Growth Potential: Worldwide spending on post-secondary education is set to explode. The rising consumer class of India, China, Brazil, Indonesia and in other emerging economies will spending in postsecondary education at levels never before witnessed. This spending growth will come on the both the public and private sides, as governments invest in post-secondary education for strategic, economic and competitiveness reasons - and families invest a rising share of their own incomes in their children's pos-secondary schooling. Urbanization, lower fertility, and an increased willingness to pay for the education of girls will contribute to these trends. The smartest thing a technology or publishing company can do now is to figure out an international education strategy.
What other investments are we seeing in ed tech companies?
Who are the big venture capital players in higher ed?
What ed tech companies do you expect that the big cash rich technology companies will invest in (or buy) next?
What are the most promising ed tech start-ups?