In this EdTech Outlook 2016 interview, Frank Bonsal III shares his thoughts on edtech investments, the Instructure IPO, virtual reality and the edtech bubble.
Edtech investments surged to record levels in 2015. Do you think that e will we see similar interest in 2016, or do you expect a cool down (fewer later stage rounds etc)?
Yes, I do expect a cool down across all stages, but I believe we will see continued trends toward larger deals at later stages and higher volumes at very early stages. Those in the middle better be prepared for long haul closings and better have worked on syndication relations well prior to needing institutional capital.
You say that startups in the middle need to be financially prepared. Do you expect a shake out this year of those that burn too quickly through their investment or haven’t raised enough in their first round? Will we see more M&As / acqui-hires between edtech startups?
Yes, there will be shake out between first 'institutional' financing and later stages. We are likely to see increased numbers of acqui-hires and early stage M&A activity but the flame outs should not significantly increase.
In your opinion, what was the most exciting edtech deal (funding, acquisition, IPO) in 2015? Why is it significant? What potential impact do you expect in the respective vertical?
My answer is twofold, one locally and one globally. The $5 million Series A funding of Baltimore-based Allovue by Rethink Education signals that a well differentiated, high value proposition edtech startup can find a way and be given 2-3 sales cycles to prove its merit nationally. On the macro front, I would place the Instructure IPO of primary importance to the industry and to the belief that quality education SaaS can scale and achieve social and financial returns for all involved.
There is NO BUBBLE in edtech only some valuations that will not hold up. - Frank Bonsal III
Do you think the Instructure IPO will also have an impact on smaller edtech companies that create products that live in the Canvas ecosystem? Do you expect a move from current Blackboard partners to Instructure similar to what we see with institutions that use the Bb platform?
Not sure of the product strategy nor partner ecosystem business model at Instructure but certainly increased interoperability will avail opportunity for feature solutions, whether currently integrated or in the future. Much of this will happen at K-12 level versus postsecondary.
Do you see a bubble in edtech, and if so will it pop in 2016? Why / why not.
There is NO BUBBLE in edtech only some valuations that will not hold up. Education investors are largely rational but not all understand the complexity and patience required to grow, scale, and sustain a business in education.
As you say, we saw an increased interest from investors outside of education who probably are not used to the specific market conditions. Will they lose interest and will this lead to a shortage in investments?
The best investors see the industry's long term opportunity and will stick. The followers and momentum players might not. New investors into education should merely pick the right syndicate partners, and take a portfolio approach versus one-off. You invest through the down cycles and want plenty of dry powder when the followers take a back seat.
What region(s) do you find especially exciting to invest in?
I believe the northeast corridor of the US (Washington, DC to Boston) to be the best place in the world to start, grow, scale and sustain an education business. I also think east Asia is a high growth geography, but I am not currently investing there.
What vertical(s) do you consider the most promising for investors (lifelong learning, higher ed, K-12, …)
I invest in, advise, and mentor unique entrepreneurs, teams, solutions, and opportunities versus sectors. Alternative schooling and methodologies are growth areas, as are authentic assessment and data-driven solutions. I stick to B-to-B (or B-to-B-to-C) opportunities but there will be breakthroughs on the pure consumer side in lifelong learning.
What is your take on virtual reality and education? Game changer, hype, or something else.
VR in education is real but not something that will scale in 2016. Stick to military or corporate application if you want near-term scale. VR is disruptive but with too many pedagogical and technological bugs to be mainstream in the next 2-3 years.
Are there other new technologies that you find particularly promising for educational use?
Technologies that increase ease of use and are simply implemented by a teacher, administrator, or parent will gain some level of traction, but they might never scale. The keys are value proposition, behavior readiness, and a proven or easily adopted business model. Nothing specific comes to mind ;-)
Picture by Dave Lawler via Flickr