A breakdown of investor questions
Fundraising is a question and answer process. Investors and entrepreneurs quiz each other until, ideally, we are both satisfied that our visions align. Though there’s been a ton written on this subject, we thought it might be helpful to break down some of the questions we ask as edtech focused investors, what is the same (101) and what deserves more attention in the context of education (102).
The key attributes of an edtech startup are the same as startups in other sectors: a problem of sufficient scale, a differentiated solution and a team capable of executing iteratively.
What is the problem you’re solving?
On a macro level, what part of the $6 trillion education market are you targeting, how fast is your segment growing? On a micro level, what qualitative data (eg user feedback) and quantitative data (eg price, cost, usage) can you use to estimate the value of solving the problem?
How is your product/approach different?
Edtech startups differentiate themselves via: technology, distribution model, pedagogical impact, customer segmentation, design, business model, UX/UI, etc. As a general rule the greater the differentiation, and the harder it is to imitate (often referred to as a competitive moat), the better.
How good is your team?
Beyond competence, we look for an ability to learn (what do you measure? what have you changed?), execute, persist and recruit talented personnel.
A few things require more scrutiny in the context of edtech investing, namely:
How do you know it works?
Like healthcare, educational outcomes have a meaningful impact on people’s lives. Unlike healthcare, educational products can achieve commercial success without third party verification. Educational outcomes also take a long time to manifest themselves, and are commensurately expensive and difficult to track. At scale, however, evidence-based solutions tend to win and consequently we look for solutions with a real ability to move the needle on learning, and, post-investment, help portfolio companies demonstrate impact.
Brighteye Tip 1: From the outset, define measurable learning goals and set up evaluations - alongside key partners such as Educate in the U.K. or Leap Innovations in the US - to assess outcomes
Brighteye Tip 2: Think about not just how you deliver value to users, but how third parties will ascertain that value, whether it be via a degree, a digital portfolio or other means
How do you motivate users?
Educational outcomes often take a long time, but most people find it hard to make progress towards long term goals without short term validation and rewards. You can see this dynamic reflected in the student drop out rate from both traditional universities (41% in US) and MOOCs (75%-95%). Strategies for motivation range from: (1) providing shorter educational experiences like bootcamps (IronHack, LambdaSchool) and micro-credentials (BloomBoard, Degreed) (2) leveraging best practices from consumer internet, gaming and neuropsychology to enhance motivation and provide short term payoffs on the way to longer term outcomes (Epic!, Aula) to (3) Guaranteeing employment upon completion (OpenClassrooms, Depauw University). We don’t have a preference for a particular strategy, but we do favor a strategic approach and look for continuously renewed motivation to be reflected in user behavior.
How viable is your distribution strategy?
In many ways, this is a 101 question - every investor asks about distribution/go-to-market. In education, however, though, a big chunk of the market is in highly regulated educational institutions with up to five different stakeholders-- municipalities/districts, schools, teachers, parents and students-- making sales cycles potentially long and painful. What has unlocked a big part of the edtech market in the US and parts of Europe has been the increase of broadband penetration and device availability in schools allowingwhich has allowed for more bottom-up business models, with teachers or students adopting free solutions and entrepreneurs upselling other stakeholders. This echoes SAAS strategies in other industries and has helped make edtech companies acquisition targets for software oriented PE funds like Thoma Bravo, Insight Venture Partners and Vista.
Brighteye Tip 3: The best way to address questions about distribution is to really understand the unit economics of the business. Cost of customer acquisition and lifetime value of customers are a critical piece to estimating whether or not companies are able to scale successfully