In recent years, there’s been a significant surge in the level of investment flowing into educational technology companies. And with no signs of this letting up in the near future, it’s an investment niche that’s critical to the market for lifelong learning.
In this episode of the Leading Learning podcast, Jeff talks with Ian Chiu, managing director at Owl Ventures, one of the firms leading a wave of investment in educational technology companies. They talk about everything from the basics of venture capital, to successful business models in the current learning landscape. They also discuss trends that Ian sees shaping the future of edtech and lifelong learning.
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[02:40] – A preview of what will be covered in this episode where Jeff interviews Ian Chiu, managing director at Owl Ventures.
[04:24] – Introduction to Ian and some additional background about his work and Owl Ventures.
Venture Capital 101
[06:19] – I suspect that most Leading Learning listeners have only a vague idea about how venture capital works. Could you give us a brief primer, a sort of “VC 101?”
Ian explains that venture capital as an industry is essentially investing behind companies that they believe are going to transform a particular sector. So for Owl Ventures, that’s education. For them, as an industry and as a firm, they are investing on behalf of their own investors, which include the likes of pensions and university endowments. And they’re looking for these companies to invest in that they can support, not only by providing them with capital, but also with sector focus, experience, and relationships—so all the things necessary for building a business.
At Owl Ventures, they’ll invest anywhere from $5 – $35 million and they will also hold reserves for follow-on investments to support the company as it grows. For venture capital, their investment period is generally going to be in years so these are long-term investments and relationships they are establishing. Eventually, as the companies grow and hopefully achieve success, they will either be bought, taken public, etc. and they in turn return that money to their investors.
Sponsor: Community Brands
[09:12] – If you’re ready to invest in educational technology to help drive the growth and success of your learning business, we suggest you check out our sponsor for this quarter.
Community Brands provides a suite of cloud-based software for organizations to engage and grow relationships with the individuals they serve, including association management software, learning management software, job board software, and event management software. Community Brands’ award-winning Crowd Wisdom learning platform is among the world’s best LMSes for corporate extended enterprise and is a leading LMS for association-driven professional education programs. Award-winning Freestone, Community Brands’ live event learning platform, is a leading platform for live learning event capture, Webinars, Webcasts, and on-demand streaming.
The Rise of Investment in EdTech
[10:17] – We’ve seen a significant rise in edtech investment over the past several years – from less than half a billion in 2011 to nearly $1.5 billion in 2018. What’s driving the investment this time and what’s different from when we saw so much money thrown at it back in the dotcom days?
Ian points out that the $1.5 billion is likely US only and if you zoom out, 2018 saw north of $8 billion when you take into account some of the global markets as well. He says there is a lot of interest right now in education and if you look at the global expenditure for it as a whole, it’s measured in trillions of dollars—$6 trillion today, 5-20 years ago, it was probably about $3 trillion, and in 2030 it’s forecasted to be $10 trillion.
The other factor underneath this is the digital adoption is growing so as a sector, education has generally lagged other industries. There are a variety of reasons for this, including infrastructure. For example, K-12 didn’t have broadband Internet access for many years and in higher ed, career learners have only recently began the adoption of mobile learning. So if you think about those trends (more spending, more digital penetration), they are what’s fueling a lot of the interest right now in the sector and within education technology, specifically. Ian says that generally, what you find in technology is that oftentimes it takes a little bit longer than folks imagine for things to get going but when it finally does, the adoption is actually much faster.
The classic example of this involves the adoption of smart phones, iPads, etc. These types of behavioral changes as well as technology changes are what’s fueling a lot of the interest in investing and a lot of company growth in the sector as well.
[14:27] – Does this mean we’re going to see a wave of edtech IPOs some time in the next few years?
Ian talks about how they’ve actually seen a number of edtech companies go public in the last couple of years. As a sector matures, he thinks we’ll continue to see this happen. And there are a number of companies internationally as well that have gone public.
[16:07] – When is VC most appropriate – as opposed to, for example, bootstrapping, taking on debt, etc. Where and how do you feel it is particularly helpful in the world of education – particularly the adult lifelong learning market?
Ian discusses how VC is appropriate for certain companies and for others, bootstrapping is a wonderful way to go. But it really depends on the entrepreneur, their goals and objectives, and how they think those will be best served. For example, if a particular entrepreneur is looking for something that’s a lifestyle business, where they maintain 100% control, invest their profits into the growth of the company, to build a nice business to support a family, that’s a nice way to go. More often than not, he says bootstrapped companies either take a longer period of time because you have less capital to invest every given year, or they just stay as lifestyle businesses until the entrepreneur retires.
For venture money/venture-backed companies, the goal is slightly different—there is a large market opportunity and you as an entrepreneur want to pursue that. The competitive dynamics also play a factor because if in a given sector other companies start to aggressively take market share, you may not have the luxury of simply bootstrapping and growing step by step.
So the market dynamics are important, the entrepreneur and their goals are important, but in areas where the entrepreneur is looking to grown in scale where the market is competitive and growing quickly (and large), having VC investors behind you can offer support, not only in capital but in network, relationships, experience, etc. Of course, as investors, they are taking an ownership stake in the company so it depends on whether the entrepreneur wants that.
Areas for Collaboration with EdTech Companies
[20:01] – What do you see as the most promising areas for collaboration between edtech companies and traditional educational players like colleges and universities or trade and professional associations?
Ian says that colleges, universities, and associations have been around for hundreds of years and are at the center as learners go through their career journey—and this is where they excel. He talks about how annual conferences are where everybody goes every year to connect, be seen and be heard. And Ian thinks this has an extremely valuable place in this ecosystem in a world that is becoming a bit more fragmented.
Where he sees edtech stepping in is helping the digitization and processes. So if you can digitize some of the learning and increase access and reduce costs while improving outcomes, that’s something that serves all stakeholders well. He shares an example involving BenchPrep, an organization they’ve invested with.
Another interesting area Ian finds that continues to provide value for universities and associations is around benchmarking and data. This is because once you have things that are digital and once you have learners or other stakeholders involved in a digital fashion, you really have what he calls “exhaust data” that gets produced. So what are people engaging with, how are people using, and what are they learning when they engage with your learning content?
If you have folks that are taking certification exams for example, where are they coming from? Ian points out a lot of this information can be hard to get at and now that you have digital solutions, there’s a lot more benchmarking, data, and insights that you can glean from that. You can then translate it into how you make your decisions and where you as an organization are starting to invest in growth, for example.
\Noodle Partners is another company they’ve invested with in the past that provides a digital platform to take degree programs online—and they just signed an agreement with University of Michigan Ross School of Business so you can take an MBA program 100 percent online. So universities and associations have the approved certifications and degrees and then overlaying and incorporating technology/digital into all of these only makes those more accessible and scalable for those organizations.
Sponsor: WBT Systems
[25:31] – If you are looking for a technology partner to help you make your learning offerings more scalable and accessible, we encourage you to check out our sponsor for this quarter.
WBT Systems develops the industry-leading TopClass LMS, which delivers transformative professional development experiences for education and certification programs. With a single point of support from in-house integration experts, TopClass LMS easily integrates with a wide variety of systems to provide efficient administration and a unified learning experience. WBT supports organizations in using learning technology to help drive growth in membership, increase revenues, and enhance the learning experience. WBT believes in truly understanding your challenges and partnering with you to ensure the success of your education programs.
[26:37] – Regardless of whether outside investment is involved, what business models do you see working in education right now – particularly in the market for adult lifelong learning, continuing education, and professional development?
Ian explains that the business models can still largely be the same and he discusses how taking a certification isn’t really that much different than it was ten years ago. But what technology has been able to do is to continue to amplify it. For a lot of associations, he says the certification exams and everything around them are a large revenue generator.
The one thing they saw and as they backed a company like BenchPrep, is the opportunity to stand up new revenue lines around learning and preparation. One of the things they’ve started to see is that for certification it isn’t always true that folks that register for it even end up completing it.
There’s certainly leakage involved in that so how do you improve that and the yield you get out of that. Ian shares that they think that learning and preparation is a big part of that so not only does it enable organizations to create a new revenue line, it actually improves the outcomes and yield for your learners as well. So to them it feels like a win-win and it also increases the ease and scale of access.
Key Trends Impacting Education
[29:39] – What are some of the key trends you are tracking right now – not necessarily in education, but possibly related to and having an impact on education?
Ian shares they are tracking a number of key themes and at the highest levels, digital and technology adoption broadly, which in other sectors is in the 20-30% range, as opposed to the education sector where it’s still in single digits. So they believe there’s an opportunity for 10x growth and digital penetration within education.
This means anything from content delivery to process automation as well. As investors they aren’t only looking at companies digitizing content, they’re also looking at companies providing technology software solutions to institutions of learning. They’ve also invested in Degreed (see our interview with Kelly Palmer, CLO of Degreed), which tracks skills. They are also tracking simulation learning, which involves interactive, simulation training.
They’ve recently invested in a company called Labster who is working with a number of higher ed institutions to provide biology and chemistry lab simulation learning. So simulation is increasing the access, increasing the scalable nature of the training, and reducing the costs all at the same time. Another trend they’re tracking is around AI and Ian notes a lot of their companies are incorporating it into their products and into the ability to glean and draw from all the data they’re gathering in terms of the usage of the products—and then turning around incorporating those insights to make the experience even better or adapted to individual learners (and this is a consistent theme they are seeing in the sector).
Lastly, Ian talks about how they are tracking international growth.
[35:43] – A further discussion about simulation-based learning and how it’s evolved so rapidly.
Ian says not only is it going to get better and better but he talks about the potential impact of it once you start to incorporate the use of virtual reality.
[38:50] – What is one of the most powerful learning experiences you’ve been involved in, as an adult, since finishing your formal education?
Ian shares it has actually been with his job and investing because it’s a career path where you are learning every single day (and he shares examples of this).
[42:58] – How to connect with Ian and/or learn more about Owl Ventures:
- Website: https://www.owlvc.com
- Email: ian@owlvc.com
- LinkedIn: Owl Ventures
- Twitter: @OwlVC
[47:30] – Wrap-Up
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And we would be grateful if you check out our sponsors for this quarter. Find out more about Community Brands and WBT Systems.
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[45:39] – Sign off
See Also:
6 Paths for Leading Your Learning Business to Blue Ocean
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