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May 08, 2014

Hacking Education – Fracking Education

(today's blog post was co-authored with my partner, Matt Witheiler, with contributions from our colleague, Caitlin Strandberg).

When we make an investment decision at Flybridge, it is typically because of the intersection of two forces:  (1) a top-down thesis about a compelling market opportunity; and (2) a bottoms-up discovery of a compelling team that is pursuing something that rhymes with our top-down thesis.  We are not unique here, but we try to apply a fair amount of rigor to the process so that when we interact with entrepreneurs in our target market sectors, we can demonstrate to them that we understand their businesses and have insight into the opportunities they're pursuing.

Last week, we closed a new investment in an online education company, our second new investment in this space in a month.  Since these investments were the result of a few years of analyzing the market and working with a few other portfolio companies in online education, we decided we would “open source” our thinking in the spirit of “hacking education.”  Or perhaps more appropriately, “fracking education” in order to shake it up to release the energy needed to transform this ossified system.

Many others have observed that the $1 trillion education market is undergoing massive disruption.  Paying $500,000 for a four year college experience that does not prepare students for the job market is no longer a winning proposition.  Most K-12 schools are stuck in a silo mentality, implementing a rote learning model on a schedule that was designed for an agrarian society.  And flaws in vocational training and workforce development have led to a massive jobs mismatch – there are millions of unemployed yet also millions of unfilled, open jobs.  Many exciting initiatives are being created by entrepreneurs to address these issues – Khan Academy and EdX stand out in particular – but we are still very early in the process of the education revolution.

All the energy and enthusiasm for ed tech is translating into dollars.  CB Insights recently reported that early stage edtech investing has grown substantially from a few years ago.  As an investor, you never like to see a sector get overfunded.  But this one is so large, and has so much room for further disruption, that we feel as if there still remain many exciting new opportunities.


Jeff’s first foray in the education space was as an entrepreneur cofounding Upromise, a company dedicated to helping millions of families save money for college.  At Upromise, Jeff saw firsthand how the spiraling cost of college was harming the middle class.  Our investment in SimpleTuition (aka ValoreBooks) in 2006 was a derivation of this insight – to help millions of students engage in ways to save money by accessing less expensive textbooks and loans.  The company now works with over half of all college students in America and growing rapidly.  In 2010, we invested in Open English, a direct to consumer online English language learning service targeting the growing middle class of Latin and South America.  The company has built an enduring brand in the region and serves tens of thousands of students, providing access to a rigorous academic program and live instruction all from the comfort of home.

In the last few years, hundreds of entrepreneurs and startups have emerged to create companies to take advantage of all cracks and fissures in the market.  As part of our analysis of the space, we systematically mapped the sector (tracking 100’s of startups) and created a hierarchy to help categorize the various facets of the industry and hone in on what areas we find most exciting.

In the Prezi below, you’ll find an outline of our Ed Technology Market Map, broken into digestible chunks. Here is what the high-level framework looks like: 

Grid (2)

We found we could categorize various companies in the broader edtech theme based on two dimensions: who the customers are (consumers/students, teachers or schools/enterprises) and what age segment they sell into (K12, higher ed, adult + lifestyle and professional). In each cell you will see examples of the types of companies that fit the segment - these are broken out in much more detail with extensive competitive mapping in the Prezi

You will notice that four of the cells above are shaded light blue. This wasn’t by accident:  these are the areas that we, at Flybridge, believe represent interesting investment opportunities. That’s not to say great companies won’t be built in the grey-shaded cells, it’s just that, in our analysis, these sectors tend to be more difficult or more played out than those in the blue.

This thesis and map is not intended to be the be-all-end-all of edtech investing. Part of our goal in publishing this is to solicit feedback and help further refine our view of the landscape - something that we, as investors, must constantly do. We welcome feedback, thoughts and criticism of all sorts.  Most important, let’s figure out a way to hack – and frack – this broken system.


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