UK tutoring business MyTutor was recently taken over by, or in investor parlance, ‘made an exit to’, a mob called IXL. As an Australian kid who grew up eating IXL tinned fruit (like many working mothers, mine did not have the time or energy for ‘inspired cooking’) this headline kickstarted my dopamine reward system.
But the buyer is IXL Learning, a private US edu business founded by Paul Mishkin. What IXL paid for MyTutor hasn’t been disclosed but I doubt the investors will have had a big multiple exit. Since it was formed by Bertie Hubbard in 2013, it has raised £34.5m but racked up an accumulated loss of £32m. It has never been profitable, nor did it look like it was on such a trajectory. However, talk to any seasoned edtech investor (and by this I mean anyone who has personally lost £1m+) and you will soon find a lack of profitability is the norm, not the exception when looking at their investment portfolios. Some of the many high-profile UK edtechs may never be profitable, with several having racked up pretty astronomical losses, e.g. SPARX Maths -£60m+, CenturyTech -£24.6m (and still using the small companies accounting exception), etc.
To put it bluntly, most edtech companies don’t turn a profit (Twinkl being the most notable exception). Nowhere is this more true than in tutoring where many a scaled edtech is haemorrhaging money. Beyond MyTutor, even high-profile, listed tutor companies like Cluey Learning and Kip McGrath in Australia to Nerdy/Varsity Tutors in the US, are not profitable. One of the few exceptions is German Schülerhilfe, who make 13% EBITDA for their new US (2024) owners Levine Leichtman Capital Partners.
Why is tutoring such a financial mire? In B2C it’s mostly down to acquisition cost which in every company I have looked at is roughly equal to the margin on Long Term Customer Value (LTCV). In B2C the biggest issues are shrinking K12 budgets and over reliance on old analyses that claimed high dose, one-to-one tutoring had the biggest ‘impact effect’.
No more so was this fallacy more evident and eventually crushed than with the disastrous implementation of the post-Covid National Tutoring Programme (NTP). The government were rushed into delivering a service on bad data from their favourite quango, the Education Endowment Foundation, who abandoned their previous requirement for rigorous research to run a multi-billion pound project to ‘save our kids’. Describing the rush of ‘tutoring’ suppliers approved by the NTP is a scandal I have previously covered. The inclusion of so many who had zero experience in actual delivery is something that deserved a serious investigation both in Whitehall and also by the Competition and Markets Authority.
One of the few suppliers who did a good job before, during and after the NTP, was Third Space Learning, founded (in 2013) and run by Tom Hooper. I have known Tom since the TES acquired his first tutoring startup, BrightSparks. From the start, TSL has tried to break the nexis between the traditional and expensive ‘warm body’ model of tutoring prevalent in the B2C market by supplying affordable tutoring at scale to students in schools. They did this by outsourcing labour Sri Lanka which is a high-skill lower cost country. For Tom, his team and investors it has been a long and tough 12 years with them failing the core test (profit) that bedevils the sector.
In my view TSL was probably the best scaled supplier to the defunct NTP, but even that was line ball when the EEF were replaced by Randstadt, who kept TSL off the NTP V2 for almost a year for spurious reasons that were an early indicator of their total incompetence. Since then TSL has grafted along despite a failed expansion to B2C. That they have survived this is testament to the skilled senior management team and Tom’s disarming modesty and honesty, that kept investors supportive.
Since then TSL has expanded to the US K12 schools market, a financial disaster for almost all UK edtechs (including MyTutor) who have crossed the pond (a notable exception being Satchel). From what I can see, it was their US experience that led Tom and the TSL team to start a radical restructuring of their offer for the incipient AI age. With over 10 years of data about their original offer, TSL have been able to build an AI tutoring product called Skye. A limited pilot has shown (so far) that delivering AI tutoring alongside their existing model of working closely with schools and teachers, is almost as good as their previous model of using highly-trained maths specialists in Sri Lanka. It’s early days, but in the B2B K12 sector, where every country is experiencing huge cost pressures, TSL’s Skye, delivered in partnership with schools and class teachers, is looking like a potential corporate success and a model of where good (evidence-based) edtech can make a real difference. TSL now have radically restructured closing their Sri Lankan operations and slimming down the UK team who now have a tight focus on just Skye. Selling AI in K12 is probably an even greater challenges than in the edtech sector generally, but if my sources are correct, so far the response TSL has been getting from UK and US schools so far see buying it as a “no brainer”, both educationally and financially.
In my 30 years in the business of education I have heard a lot of hype from founders, but never from Tom or the people I have met from TSL. They have been on the complete edtech startup rollercoaster, but I believe their new model is one that might just deliver the profitability that eludes so many edtech companies and the K12 tutoring sector in particular.
Disclaimer: I have no investment or involvement with Third Space Learning.
