Why So Many EdTech Startups Are Changing Their Ideas

With a typical startup investment you can only build products for low stakes learning. Then, to get a venture scale exit you have to move to high stakes education.

High stakes and low stakes

Roughly speaking, there are two types of learning motivations.

Low stakes. You learn because of inner motivation, not external pressure.

Personal hobbies and interests.
Cross-functional learning to understand your colleagues better.
Compensating for things you wish you’ve learned many years ago.
Trendy things everyone is talking about.

High stakes. Outcomes of your learning can seriously affect your life.

Career. Qualifications for better jobs.
Functional learning at work. KPIs, promotions, compliance.
Success for self-employed. Surviving as a business, better work for freelancers.
Colleges and schools. Help with exams.

Low stakes have low business potential

Any solution for people who are just curious is in direct competition with Facebook, Netflix, and games. Most of online entertainment is free or near-free. To get a venture scale exit you need an (1) extremely addictive product (2) 100M+ userbase, (3) being sticky for decades. Only TED is coming close to this standard.

High stakes aren’t open for startups

To build a working solution for high stakes problem you need a lot of time and money. It takes ~5 years to validate a promise like “in one year we can reliably teach you to get a 100k$ job.” It is almost impossible to validate your approach before raising money. Also, there is a common belief that this type of education “does not scale”. How can one scale Stanford without losing its promise?

Notable exception: Minerva Project. They raised 25M$ to start a next generation college having only a nice presentation and a proven team.

From low stakes to high stakes

You can only solve low stakes problems at the start. Serious money are only around high stakes. So, it is natural to prove yourself in the easier market, then move to the harder, but more financially attractive one. Your focus shifts from “being popular” to “teaching effectively”.

General Assembly: from lectures in coworking space to get-a-great-job programs.
Udemy: from hobby classes to corporate training.
Udacity: from massive open courses to portfolio-building “nanodegrees”.

Step one: teach consumers and get popular.
Step two: teach organizations and make money.

Another entry strategy is to start as a tool for other educators. Clever started as a universal login for school apps, but can transition into creating its own learning apps in the future.

Implications for startups and investors

Typically, investors ask for a business model and financial projections. It does not work for edtech startups! You are building an initial product with a plan that in 2 years you will build a second product on top of it. The first product is to build an audience, brand and technology. The second is to make money in a new market. So you can’t really validate and plan the second product before you build the first one.

Early investment in edtech companies should be based on a technology promise, not a business promise. The key metrics for early stage edtech startup are addictiveness, virality, and userbase potential.

Yury Lifshits is a CEO of Blended Labs Inc., an education startup in San Francisco. He is always happy to discuss the future of education on Twitter @yurylifshits.