What We’re Learning from Three Years of Ed Tech Investing

By Cameron White, Senior Associate Partner

In 2015, we began using a “challenge” model for ed tech investing at NewSchools. Between 2015 and 2018, we launched six ed tech challenges — in science, middle and high school math, English language learning, special education, early learning and the future of work.

Although each challenge focused on a different area of ed tech, there were some consistent patterns we observed across all our ed tech investments:

• The best ed tech is designed for student differences.
• It’s important to get into classrooms early and often to build a great product.
• Big data is not always the right data.

My colleagues and I are excited to share more about our experiences with these ed tech investments in a new Insight Brief we’re releasing today: What We’re Learning From Our Investments in Ed Tech. This brief highlights trends and insights that may be useful to both investors and entrepreneurs, to help them navigate the current investment landscape. We also invite you to join us on June 5 at the online Ed Tech Leadership Innovation Summit, where we and three of our ventures will discuss the insights in greater detail.

Although we have decided to use a challenge model, we believe the insights are broadly applicable.

At NewSchools, we like the challenge model because it helps us find new products and new players that we might not otherwise discover. It also allows us to invest in areas that are important to students and teachers but might be ignored by for-profit investors because they show less potential for hyper-growth in the short term. We also like investing in this way because it helps us focus on particular areas of market need identified by teachers, students and researchers.

The investment landscape for the U.S. education technology market in PreK-12 is changing. While overall ed tech funding is seeing a slight uptick, fewer deals are being made. And those deals tend to favor larger investments in later-stage companies. This trend has been noted by many, including EdSurge and Reach Capital, and we at NewSchools agree.

We’ve seen it in our own portfolio. It is challenging for early-stage companies to find capital, and it’s also tough for ed tech entrepreneurs to find capital for the next rung of growth. So, what’s the secret to success? We think our three major insights are useful guideposts. And, while not explicitly stated in these insights, research is the thread that runs through all three.

At NewSchools, we have such a strong belief in the value of research that we pay for each company in our portfolio to engage in a small-scale study of their product’s usability, feasibility and learning potential with best-in-class external research partners. We integrate research services into our investment strategy to help entrepreneurs generate data that can inform their product and business strategies.

Through our ed tech challenges, we’ve funded 84 small-scale research studies. This support provided early-stage products with foundational research, and also supplemented the later-stage evaluation of more mature products. Among the ventures in our portfolio of investments from 2015–2018, 41 percent of early-stage companies had some evidence of learning outcomes. Fifty percent of mid-stage companies and 87 percent of later-stage companies also showed evidence of learning. Perhaps most impressive, 22 percent of NewSchools’ ed tech ventures have rigorous evidence of positive student impact, and our investments have catalyzed 17x in follow-on funding.

We view those follow-on investments as a positive proof point for the importance of research. Even in this environment there are still tremendous opportunities. However, it’s important for entrepreneurs at every stage of their journey to keep an eye to changes in the landscape and to use research to show the viability and impact of their products.

The demand for innovation in the PreK-12 education technology market remains strong. Stubborn achievement gaps persist — and are widening — as the U.S. student population grows increasingly diverse. Many educators agree that ed tech can play an important role in increasing learning opportunities for all students. In addition, the world of work is changing dramatically, and ed tech holds great promise for a new generation of young people.

To summarize, ed tech is as important and relevant as ever. But, even early-stage innovators will likely be asked to demonstrate that their products are making a meaningful difference. To do that, they will need to design products for student differences, get into classrooms early and often, and remember that big data is not always the right data. As an early-stage investor, NewSchools is excited to share what we’re learning from our ventures.

And, just in case you missed it, our guide, Is My Ed Tech Tool Making a Difference? An Entrepreneur’s Guide to Using Research to Improve Products and Measure Impact is another important resource. Designed for entrepreneurs at any stage of their research journey, this guide examines a range of research types, from usability studies to outcomes on student learning, that may be more or less appropriate at various stages of development, on small or large budgets, and within varying timeframes. It highlights the value research can create while taking into account the realities of resource-constrained startup environments.