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Exits in edtech are complicated. and vary widely from intra-investor share sales (often before Series A), share swaps (generally a bad idea), trade sales, listing (high unlikely) and occasionally there might even be some cash (normally tied to impossible earnout targets).
Characteristics
- It’s generally a very illiquid market
- Changing priorities for investors (portfolios, time horizons , potential tax losses change, etc)
- Imbalance of experience – most buyers have more experience and power than sellers, particularly when it comes to during due diligence and valuations
What do investors want?
- We come in all shapes and sizes and so our requirements vary enormously. Few companies put much effort into trying to really understand us
- Confidence and maturity not to be blinded by experts who seem to think edtech investors are all rapacious cowboys or idiots. I think Rohan Silva the former tech advisor to David Cameron is an example when in a story about the UK start up funding scene said, that early-stage funding (up to £100k) as doing well because of the tax breaks for ‘friends, family and fools’
- In reality edtech is more gambling than investing. The later is what larger funds do in listed and more mature entities; the former what we most early stage edtech investors really do (it’s like a horse race that takes 7 years and most horses get put down before the year 3 fence)
- That which isn’t gambling are those businesses which have a strong proposition from the very start and by this I mean real customers and income. If your company is going to take 2 or more years to build their product and to be cash flow positive then it’s increasingly unlikely I will invest
- Most companies edtech companies exaggerate! My pitch vault has gems like:
– ‘we are unique and have no competitors in the UK or internationally’
– ‘the addressable market is £10bn’
– ‘our product is so simple students don’t even need a teacher’
– ‘our product is going to revolutionise a,b,c,d,e,f,g,h,I,j,k,l,m,n,o,p,q,r,s,t,u,v,w,x,uy & z in education’
– ‘we have X (a high-profile exam board) as our confirmed lead investor’ (I had just had dinner with their Chairman and this was an out and out lie) - We want a business not just a product; loads of edtech companies are like publishers with one book they keep saying is the next Harry Potter
- Products that deliver educationally. If it doesn’t help a student learn, a teacher teach or the system to run better then it’s very very unlikely to succeed
- Real evidence not the crap that passes of ‘research’ with most edtech products. I think 95% of classroom-focused edtech doesn’t work (in the Alternative Edu Market, it’s probably higher but less important)
A few thoughts
- Investors bring pain and complexity
- You really can raise too much too soon
- Bootstrap as long as you can as having a second job is often a far better strategy than spending loads of time chasing investors
- Have a fund raising strategy; most companies don’t and end up stuck in a seemingly endless cycle of fundraising that damages their growth and development
- It’s about what investors can do beyond the money. In my experience very few really listen or take your advice as they are locked in an endless dance which is very like Tinder. Once they find you and ‘consummate’ the relationship they move on and at best you become a fondly remembered old flame who they recall on their Tinder quest for new, bigger and ‘better’ investors
- Expense – VCs and funds have sophisticated and complex due diligence processes they have honed. They are incredibly complex, time consuming and expensive to negotiate and I have seen many fall over due to minor insignificant issues (often at the last minute)
- Investors and funds are not your friends (generally) and we are not not philanthropists; we want you to make us money. Yes in edtech it may take 7 years but it’s still about money at every level
- Forget social enterprise; it’s a fools paradise. My yardstick of a real social enterprise is one that has a solid viable business that doesn’t need to keep raising money or ‘social funds’. It also pays its staff fairly, pays taxes and makes money for it’s investors by building and selling educationally useful products and services. It’s not a feel good love-in, it’s a business that doesn’t try to break the basic compact between enterprise and the state (you operate and pay a fair amount of tax while doing so). This is very different from those tech giants and companies whose complex tax affairs see them paying little if any tax in countries where they obviously make significant profits (you know who I mean).
A few deals (don’t quote me on the numbers and dates as it’s from my own files). It may also be impossible to read so email me if you want a copy.
Company | Acquirer | Terms |
Fronteer (UK)
Higher One Nivel Siete Remote Learner (UK) SchoolWires (USA) ParentLink (USA) MyEdu MoodleRooms & NetSpot Angel Learning (USA) |
Blackboard | Undisclosed Oct. 2016
£209.3 (cash) July 2016 Undisclosed Aug. 2015 Undisclosed April 2015 Undisclosed Feb. 2015 Undisclosed Nov. 2014 Undisclosed Feb. 2014 Undisclosed April 2012 £76.5 June 2009 |
Learnosity | 3P Learning
(to 40%) |
16.93% for £12.5m Jan. 2016
23.07% for £12m Sept. 2015 |
Think Through Learning (USA) | Imagine Learning | Undisclosed Oct 2016 |
RedBird Advanced Learning | McGraw Hill | Undisclosed Oct 2016
McGraw Hill also acquired: ALEKS Corp 7 Area9 Apps |
Minecradt Edu (Teacher Gaming LLC Finland) | Microsoft | Undisclosed Jan. 2016 |
Digital Assess (previously Sherston Publishing Group) | Vocational Training Charitable Trust (VTCT) | Undisclosed July 2016 |
Web Assign (USA) | Cengage | Undisclosed Oct 2016 |
SMART Technologies | FoxConn Group | £161m (estimate) Oct 2016 |
TouchPress | Amplify Games (USA) & Story Toys (Ireland) | Undisclosed Funded by Lauren Powell Jobs & the Emerson Collective Oct 2016 |
Promethean World | NetDragon (Hong Kong) | £84.8 Nov. 2015 |
LawRoom (USA) | EverFi | Undisclosed June 2016 |
Zaption | Workday | Undisclosed June 2016 |
DigitalMe (roll up of Makewaves & Digital Me) | City & Guilds | Undisclosed June 2016 |
Espresso | Discovery Communications USA | £20m Nov. 2013 |
LINE Communications
Preloaded Eukleia Rustici (USA) |
Learning Technology Group | Undisclosed April 2014
Undisclosed May 2014 Undisclosed July 2015 £19m Jan. 2016 |
ASX Listing | 3P Learning | £174.7m (A$282.7m) £1.43 x 80% of shares July 2014
Current £0.74 = Mkt Cap £93.3m |
ASX Listing | IDP Education | £203.9m (A$331m) £1.63 X 50% of shares held by SEEK Pty Ltd
Other 50% held by consortia of Australian Universities) Nov. 2015 Current £2.71 = Mkt Cap £680m |
ClipBoard | Scientia | Initial investment of £900k Nov 2012 from Scientia
Sold for £7.8m in June |
Just Ask Services | Scientia | Undisclosed June 2011 disposed March 2012 |
MindCandy (UK/USA) | Valuation(s)
Acquired Tutpup (UK) in Feb. 2009 for share swap (1% of capital) 2011 value approx. £1m |
2011 £127m valuation
2012 revenue £47m 2014 <£16 valuation 2015 revenue £7.2m & £10.9m loss 2016 ‘difficult to remain in business if we can’t renegotiate loans & increase sales’ |
Education City | Archipelago Learning
PLATO Learning (now Edmentum) |
£70m June 2010
14x EDITDA |
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