Where We Are Investing Now: Market-Based Education

When it comes to education, two things stand clear to us.

Millions of people of every age and situation require education. It might be to improve college entrance potential or to better one’s job prospects, to acquire a skill or to belong to a community. The need is manifest. At the same time, it is equally clear to us that traditional education is not the vehicle for delivering these services. To some degree, this is because of bureaucracy and bad budgets and the host of ills an old-fashioned public infrastructure bears. But it also reflects the changing way the rising generation worldwide approaches every aspect of life. They no more look to schools for education than they do to cable networks for TV programming or traditional stores for things to buy. The rising generation wants key experiences delivered on mobile phones, in a way that causes them to feel like they are part of the process of their own change.

These two truths describe the innate tension in our focus on market-based education.

We say “market-based education” to make clear (to ourselves, companies and the broader market) that we aren’t thinking about traditional schools, colleges or other ed businesses. Rather, we are responding to the fundamentals. For us, these have three components:

·       A group with a need to learn.
·       A group who finds benefits from that learning.
·       A vector who benefits from connecting those two groups.

The group that learns is quite diverse. It could be grade school kids who want music education that their primary school can’t afford. Or, high school students who want to get an edge up for college by deep diving into a key subject. Or, workers seeking to learn higher wage skills. Or, hobbyists who want to increase their influence among their equally obsessed peers. The learning may be in a formal topic or something entirely new age. The key is that it is valued greatly by the participant.

The group that benefits is equally diverse. It could be teachers who have topics they want to teach and the need for more income. It might be parents who want the best for their young children and are willing to pay for it. Or companies who desperately need computer programmers as a benefit to their bottom line. Or the military who want to have fewer washouts among recruits. Or sales managers who need to keep those phone lines humming. Or suicide hotlines who want to know they have empaths on the phone. On this side of the education marketplace, the key is a specific, measurable benefit. In the best cases, that benefit can be measured in immediate dollars, but in some cases, the payoff can be softer and more long term.

Essential for this two-sided market to meet is a vector who needs/wants them to meet. At a grammar school, this could be the PTA. For work skills, the vector could be a startup. The Army could be the vector. Or the church. Or a halfway house. The role of the vector is the willingness to expend great energy to get those that need the learning (the needers) and those that can offer the learning (the offerers) together.

When all three of these elements are present, remarkable things can happen and big value can be created.

Take our portfolio company Epic!, our gateway into this arena. Epic’s needers are school age children and their attentive, managerial parents. They want to maximize reading skills to help Suzy or Johnny get ahead in school. The offerer is Epic! itself, which developed a platform for structured reading with elements of game theory and AI that recommends the right books to the child and lets the parent know where their child stands against local and worldwide peers.

Essential to Epic’s success was the development of its vector: classroom teachers. Those teachers often don’t have the time and resources to reach out to reading laggards in their classroom. Nor might they always know where each student stands. All formal school programs can provide is the median for the most. Epic! found that these teachers were ready, even eager, to promote a platform that helped their children read more and better outside of school, and that brought the teacher insights into the reading abilities of students and their interaction with one another on reading.

Now Epic! is represented in virtually every American elementary school and has produced a company with millions of customers and hundreds of millions in value – all outside of a traditional school program.

Another strong example is Lambda School, which teaches computer coding to aspirant programmers at no charge. Like other recent startups, Lambda provides its education against a fixed percentage of the coding income a student gets when hired. They, essentially, take some of the students’ upside for providing the skills that get them there. But most of these schools face a big business model problem: When and how do they get paid by students? Do they have to wait months or years to get paid? Do they have to become rapacious bill collectors against the students they profess to help?

Lambda produced a breakthrough here by recognizing a new vector: hedge funds. Lambda has built relationships with hedge funds who securitize the future value of the students. The hedge funds pay Lambda a base value immediately for access to the future value of the students. So, Lambda doesn’t have to wait to get paid or chase students. It lets someone else, better equipped with an analysis and risk assessment, do that.

This three-way connection, we feel, makes for more targeted, rich and effective educational connections. This is something many people seek, something many societies need. As such, it represents a new business model. And that is where the greatest value from startups derives.

Reprinted by permission.