Articles Posted in Economy & Education

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125x125This article is based on notes from a panel at the Ed Tech Industry Forum in New York that took place in December. The insights the panelists shared are no less relevant now that we are into the new administration and sorting out the economic stimulus.

The panel consisted of:

The panel members are operators which stood in contrast to most of the investor oriented agenda at the ETBF.

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865433_money_mattersWhat impact will the economic stimulus have on educational materials and technology? A front page New York Times article yesterday left no doubt that education will be a significant part of the legislation. The Times reports that the total education allocation could be as much as $75-$95* billion a year over current allocations for the next two years. In sector that accounts for about $530 billion in total expenditures, 92% of which has traditionally come from state and local taxes, this represents a seismic shift in the Federal Government’s influence on the market.

The questions executives in the industry have to wrestle with are how much of the total will be spent on instructional materials, when will funds flow, and what products will schools buy? The answers to these questions will drive investments, hiring, and M&A for the next couple of years.

I’ve talked to a few folks around the industry to see what people are thinking and the notes below represent a collective set of insights. It is still early days, the legislation probably won’t be in a final format until mid to late February, but many companies are making decisions now about their ’09 plans.

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highway-rainbow-nicklen-696533-xlWhat are the prospects for raising capital for education technology companies in the current financial meltdown? Last week at the SIIA Ed-Tech Business Forum a panel of investors tackled this question. The panelists presented some solid and detailed advice for investors and companies seeking capital during the recession.

Key Points:

  • Many investors are seeing Education as a safe harbor in a turbulent market, it is seen as relatively recession resistant. Education’s profile is rising as a marquee investment arena for the next 10 years – it is a good time right now for education.
  • Take in as little as possible at as light a valuation you can get because valuations are going to be low for a while.
  • The strong are going to win big in this downturn. Access to capital is going to be an important differentiator in this market.
  • Most venture firms are not looking at new deals, they are focused on down rounds and propping up existing investments. They are also all moving up the deal chain to safer investments than they make in normal times. If you are raising money be aware of this.
  • It is all about being profitable per customer in this market. Hope isn’t a strategy – go get paying customers and drive a lifetime revenue model
  • Focus down on the core of what you have to provide and strip the organization down to doing just that. Have a crystal clear picture of who your customers will be, how they will find the money, and what are the essential features.

The panelists were:

Chris began with an overview of the market trends. Many investors are seeing Education as a safe harbor in a turbulent market, it is seen as relatively recession resistant. He noted that there is a huge capital overhang – investors have lots of funds but are making few investments. In education fundraising is actually up this year but we are seeing deals that are over capitalized. Later on Frank made the case that this is a bad deal from the entrepreneur’s side.

Most investment groups are setting the bar higher for new deals. Investors are looking for $10m Revenue and $2m EBIDTA which leaves out most K-12 Ed-Tech companies. Companies at this size need capital to invest in Sales and Marketing to scale up. Lots of education companies with good products in the last 10 years have failed because they couldn’t get past this hurdle.

His slides include a list of the private equity investors in education and a list of 100 deals that have been done in the education space in the past two years.

Follow below the fold for details on each panelists comments and the audience Q&A.

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NFImageImportThis panel is made up of seasoned veterans of the M&A markets for Education Technology companies. They addressed the K12, Higher Education / Post-secondary, and general M&A climate.

The panelists are:

It is sponsored by Empirical Education.

Key insights:

  • Look to the UK market – it is an 18 month leading indicator of what is going to happen in the US market.
  • Professional Development is now mandatory for all solutions in the UK. Are publishers using this to hold open source at bay or is this a real switch taking place?
  • The US market is contracting – there are fewer strategic buyers because they have all merged and the Private Equity guys are sitting things out for a while.
  • Buyers don’t want to take any risk right now – only companies with proven business models, strong teams, and organic growth need apply.
  • For profit higher ed is growing – the economy is actually helping with this as people look to expand their skill base.
  • Expect to see many buyers looking for bargains over the next couple of years. Don’t expect to see much in the way of IPOs.
  • In K12 multiples are higher (almost double) for companies that have a strong technology component – but it has to be integrated well – it can’t be a bolt on.
  • Multiples are higher for Higher Ed than K12.

For my more free form notes follow below the fold.

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1071542_8_ball_3The global economic meltdown is going to affect education budgets. States and School Districts will react to a drop in tax receipts and a credit freeze. This entry is an attempt to map out some of the possibilities for how the slowdown will play out in schools.

First – some good news. No matter what happens in the economy kids still show up in school needing an education. The market is not recession proof but it is also a core service of civilization. Unless we end up in some Mad Max dystopia there will be a market.

Second – any market will have losers and winners. There are several market trends that will be accelerated by a budget crunch and companies that are poised to take advantage of them will do just fine. If your strategy isn’t focused clearly on core funded needs you will struggle (strategic focus is a service I provide).

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How are education publishers reacting to the economic downturn? Guest blogger and PR maven Charlene Blohm shares some concrete examples of steps companies are taking to trim expenses.

Part 1 – Education Spending & The Economy – Survey Results

Part 2 – Education Funding Market Dynamics – By Doug Stein

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Today a look at education funding in the current economic crisis from guest blogger Doug Stein. Doug details how the market will react over the next two years and then lays out an interesting theory about how districts will bifurcate into factory and craftsman models on the rebound. Doug is one of the smartest thinkers in the business. His consulting company is Memespark.

Link to Part 1 – Education Spending and the Economy

618869_glass_ballBy Doug Stein

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Globe w $$How will the economic downturn affect education budgets? How are executives at publishing houses and education technology firms planning for the recession?

Education Week noted a couple of weeks ago:

“…states across the country are confronting deteriorating budget conditions that have tied the hands of legislators and governors hoping to spare K-12 education…Altogether, the 2009 budget gaps—the difference between what states are expected to collect in revenue and what they’re expected to spend on services—will exceed $26 billion, the NCSL says.”

I recently conducted an informal poll of 30 Education Industry executives on this topic. They expect that the impact will be far more immediate than past downturns but generally they expect it be moderate.

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