The Full(er) Picture
After a month of collecting stories from EdTech founders, we’re ready to paint a fuller picture of the state of the Industry. If you missed our previous posts, they can be found here and here.
It’s been 30 days since we started collecting the stories of Education Technology entrepreneurs through our Questionnaire, and the numbers stopped moving very much after collecting responses from over 100 EdTech founders.
So. here’s a final look at what’s going in the EdTech industry in the month after school closures began:
73% Have discounted or offered their product for free
27% Have had to lay off employees (Commonly 1,2, or 3 but up to 50)
64% Reporting MoM growth of FREE offerings (41% of those reporting growth are doing so at over 200% MoM)
27% Reporting growth of PAID offerings (36% reporting demand for these offerings is down)
71% of respondents are projecting a decrease in sales (of those projecting decreases, the average reduction in their pipeline is 52%)
40% Have had a closed sale cancel
60% of respondents say their runway has been diminished
66% Reporting runway of 6 months or less
I’ve written throughout this crisis about different numbers that have worried me in one way or another — reductions in pipelines, remaining cash runways, layoffs to name a few. So, let me now attempt to give you a lay of the land by interpreting the numbers above and sharing several anonymous quotes from founders who participated in the survey.
The Full(er) Picture
COVID19-related School Closures are having indelible effects on Education, and the Education Technology industry is being affected in myriad complex ways. To try and simplify the story, let me break this crisis down by classifying the effects by type of EdTech companies: Those well-positioned for distance learning prior to COVID19 and those that are not.
There is no doubt that companies well-positioned for distance learning are seeing a huge increases in demand for their newly-free or discounted offerings. This has been a tremendous boon to their exposure, but comes with lots of associated costs. These rising costs fall in many buckets, but are mostly in hiring new customer support/onboarding personnel, software infrastructure costs (like AWS, Google Cloud, Heroku, and others), and development costs of creating new features as many pivot to serve parents-as-educators at home.
“Demand for our product has drastically increased, but we have made almost no sales during this time. Investment would be a huge help.”
Rising costs with no new revenue (because these products are likely free right now) is a huge challenge, compounded by the fact that little to no new investments are being made by philanthropic or private funders. This is creating a terrible cash position for those that are ostensibly the “winners” in the school closure scenario.
“The coronavirus emergency certainly helped with exposure and accelerated use by schools and parents at home, as well as an openness to new technologies. Our product receives very high reviews, so we benefit by exposure. We are using this opportunity (free for schools) to build a base for marketing this fall. Unfortunately, with no liquidity, funding sources dried up as did payments from schools, so our cash situation is extremely precarious”
The companies not well-positioned for distance learning are dealing with a totally separate set of challenges. These companies include those that depend on classroom interactions, school building operational support, STEM learning kits for classrooms, and others.
“We have a hiring-related product, which means districts have a small implementation window, typically August — December. That means that spring and summer is the only time when deals close. If we don’t close deals now, we won’t be growing again until next year. … It’s a huge problem that I expect to kill many companies like ours.”
This set of companies are making really hard decisions about their business, likely pivoting in this time to serve parents with no prospects of matching their revenues from schools, and needing to redevelop for an entirely new customer set.
No matter which of the categories you fit in, the truth is that 66% of our respondents reported a cash runway of 6 months or less.
“This is the time of year schools pick classes for next year. We’ve worked all year to get to this point and now our whole pipeline has gone cold. ”
A Lopsided Contraction
You’d be hard-pressed to find an industry that doesn’t see a contraction relating directly to shelter-in-place orders or the ever more likely impending recession. It’s the shape of the contraction in Education Technology that we should be paying attention to.
What does that mean? In order to answer that question, let’s first paint a picture of what we think is likely to happen over the next 6–12 months. We talked to lots of different folks in the space — funders, government representatives, EdTech founders, and educators — and here’s a set of the main points to consider when prognosticating about the near term future of education technology
- Will schools open in the fall? Everything will depend on your state and your district, but it is clear that schools will attempt to re-open in some way this coming fall. Some will open their doors wide, while others will operate in a more blended environment (less kids in the building at a time, reduced schedules, off-days, etc…). Some unlucky districts will likely need to close again if there’s a new outbreak in their area. The net effect will be that some districts will probably take a more blended approach to instruction, but this does not seem to portend a fundamental shift in the classroom model; especially not by Fall.
- What will district budgets look like? If/when we see a recession, with its resulting decrease in income, sales, and property tax revenues for states, we can expect school district budgets to be constrained (this will, of course, depend on what state you’re in as states have differing levels of dependency on these tax revenues for their budgets). In fact, we’ve already heard stories of districts cancelling contracts across the board this year in an attempt to carry as much cash into next year as possible.
- What will schools spend their budgets on in this “new normal”? One of the most salient facts that these school closures is exposing is the severe lack of equity in access to technology in our student populations. Schools are scrambling to assign Chromebooks and iPads to their students, and industry is subsidizing the cost of access to the internet, but the equity gap is vast. Many folks I talked to predict that a lion’s share of 2020/2021 (and any new federal) money will go towards attempting to close this gap.
So, keeping in mind that most EdTech companies have less than 6 months of runway available to them, let’s look again at our two categories of companies:
The only products seeing increased demand were already well-positioned for distance learning. Their bet was to discount their products now, to gain market share and hope that they “stick” and make it onto district budgets in the summer/fall. I am sure this will happen for some, but given the the three points from above it would not be hard to see a world where districts have more pressing places to put their money.
Those companies not well-positioned for distance learning are looking at a pretty dire situation. Those best able to navigate a pivot and are scrappy in their resource allocation might make it, while many others go dormant or close their doors entirely.
“We risk having a tail-wags-the-dog situation where a bunch of cash gets thrown at schools to support online learning which pressures them to make a move they wouldn’t otherwise make…that they don’t want to make …Instead, we should think steps ahead about investment in catchup using the most effective inschool resources available, extended instructional time, offering summer programing, etc.”
So what do I mean by a “lopsided contraction”? I mean that those companies that survive until the coming Fall might not be the best set of companies to help schools and their students in this “new normal”. There is a good chance that when districts start to make buying decisions to help them alleviate learning loss, create effective learning environments, and support teachers in this transition, the tech they need for these shifts won’t be there.
No Bad Actors
It is my fundamental (albeit potentially naive) belief that there are no bad actors in this crisis.
- Philanthropy is taking care of their grantees and stepping up to help with access, food, and financial security.
- Private capital is helping their own portfolios navigate their way through this crisis.
- Teachers are doing their best in a new and unfamiliar situation.
- Government is trying to support districts with more money and more flexibility to spend it.
Everyone is taking care of their slice of the pie, but no one is working holding up a mirror to industry to ensure that we are doing out best to act in concert to ensure equitable learning outcomes for all students. In this moment of turbulence, we need to band together as an industry to ensure that when the “new normal” comes, we are ready with the technology that can inflect the learning curve and position our students for successful lives.
It will mean answering lots of hard questions and making uncomfortable decisions but if we do nothing two things are sure to happen:
- We accelerate handing the industry back over to the incumbents that are well-capitalized and able to weather this storm
- We accelerate the rate of consolidation in this industry. This is relates to the first point and is already starting to happen
“Emerging companies who don’t have the financial runway to weather this storm, assuming they aren’t forced to shut down, will be thrust into prematurely considering strategic alternatives, such as selling their assets at a depressed value or anxiously aligning with other players in service of finding safe harbor. We’ve already seen signs of this happening.”
The above quote from our friends at Tucker Capital
Whatever the outcome, doing nothing will wipe out years worth of innovation in Education Technology.
What Do We Do?
Like I mentioned in our last update, our work in this time breaks down into two different streams:
- Shining a Light. We want to create the organization that holds up a mirror to our industry and ensures that we are doing out best to act in concert and ensure equitable learning outcomes for all students. If you’re interested in helping us create a broader community for EdTech founders that helps to ensure the success of this industry and the students it serves, let us know.
- Convening a Response. We are but a small piece of the EdTech sector, but our passion for it is huge. Several of our conversations in this time have revolved around potential fixes/bandaids for this moment. If you are a funder, large education technology firm, corporate CSR person, government official, or are otherwise passionate about creating a solution for this crisis, please reach out to us.
Above all: stay safe and stay sane. I’ll leave you with a final quote from an EdTech founder responding to our questionnaire.
“Help us create a better world”
