The ubiquity and glamour of wine does a good job of hiding it, but vineyards—where the grapes are grown and any wine gets its start—are actually a pretty precarious investment.
It isn’t enough to know that people are passionate about wine, that demand is high, or that wineries have a need for large volumes of grapes—to make it as a vineyard, you need a strong reputation. You need winemakers to have confidence and trust in your ability to produce reliable quantities of grapes at a consistent level of quality, and with a consistent character. Their pride of process means high expectations for those they do business with.
It takes an extraordinary amount of salesmanship, craftsmanship, and building strong relationships, for a new vineyard to successfully contract with a winery to produce their grapes. And in the few years it takes for a vineyard to cultivate a mature crop, they are vulnerable all the time to shifts in weather or climate that could easily undo, or render obsolete, everything accomplished right up to that point.
What this all means is that there is a lot of expensive, upfront investment followed by a period of long, elevated vulnerability before any measurable return is possible. And if you are very fortunate, talented, and committed, you might face the challenge of scaling up your operation, which may require you to repeat the process all over again to accommodate the new demand.
If this leaves you wondering why anyone in would want to even attempt to operate a vineyard, then you might have an inkling of what it is like to work in a startup in the edtech sector.
Like wine, education enjoys very reliable demand, has more than its share of “experts” and analysts looking to have the final word on what works and what doesn’t, and is perpetually subject to the changing winds of policy, economics, and supply.
That kind of upfront risk and expense makes it unconventional and uncommonly difficult for startups in the education sector to prove themselves and eventually make inroads with the broader educational system. Mark Oronzio, CEO of the edtech startup Ideaphora, knows these challenges all too well.
“In education, something that takes place which can be a barrier to entry for someone wanting to create an education tool, is the sales cycles have become so long, because there’s this whole new pilot process in the middle now,” he explains. “You sort of have to have pilots; you have to have an extend pilot and an extended trial, to give them some time to really check it out.”
Winemakers don’t just want any grapes, they want the best. Likewise, teachers and especially administrators, want to stake their careers only on technology with some track record. That distinguishes edtech startups significantly from that other darling of the consumer markets, Silicon Valley, and its abundant startup population.
Silicon Valley’s model of disruption is to introduce an unfinished product high atop a mountain of promises and potential, then Iterate, Iterate, iterate. Not only does this give them earlier access to that pie in the sky of the startup, venture capital, but it allows products to stay relevant and resilient: social media platforms evolve as user behavior evolves, online search improves as more people depend on it, and so on.
In terms of supporting innovation, venture capital is something of a necessity, in Silicon Valley or anywhere else.
“Venture capital is responsible for only 3% of corporate research and development, but responsible for 10% of innovation,” observes Robert Mooridian, researcher and professor of finance through Northeastern University. “Startups don’t have a lot of assets—their assets are intellectual capital in most cases, so they don’t have the kind of assets a bank would look for to do lending, and they aren’t earning money yet, so again, a bank wouldn’t necessarily be interested in making them a loan. So this is where venture capital comes in.”
Except for those startups targeting the education market with their ideas and innovations. For those aspirational companies and individuals, the proving process can prove deadly to ambitions of attracting such “angel” investors as those that create the unicorns that captivated the financial markets throughout 2015.
“There’s this gap that investors have mentioned to me, and I know because we were sort of in it for a while, where you’ll get friends and family funding, and you’ll get some early believers that believe in the concept before you have a product…and then the real angel community—Silicon Valley—comes in once you’re proven.” Oronzio says. “Well, there’s a pretty big gap in between those two things, and a lot of companies become what they call ‘orphans’.”
So while consumer-facing unicorns enjoy lucrative valuation on the promise of often unproven services or technology (consider the trajectory of the troubled blood-testing company Theranos) the edtech sector faces scrutiny from the very first iteration—at least, where investment is concerned.
“One cool thing about educators, is they want to know the theory,” Oronzio says. “You can do the groundswell thing. Teachers can have a gut feeling that it is working, they don’t need to see the hard evidence. But when they start raising it up into their organizations, then they need a little bit more of that data backing it up.”
When it comes to piloting a new service or product, that is relatively good news—if the idea is solid enough to go to work in the classroom, and enough funding exists to cover an extended period of upfront iterations to firmly prove the product. That may be part of the reason why, even though the market for edtech is lucrative and plenty of investors are lining up to hitch a ride on the right product, it is far from the bubble market you see in other sectors.
The promise of big money down the road, by the way, may help answer the question as to why vineyards and edtech startups alike still manage to emerge in the face of substantial obstacles and barriers to entry. If you can make it through the grueling, uncertain early stages of putting in upfront money, time, and effort, as well as cultivating non-financial support from early adopters and industry insiders, there is a very healthy market waiting to reward you.
Until risk meets reward, the only fuel available is that heady combination of pride and passion.
Picture by Viña Caliterra via Flickr