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1/25/2013
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Education Tech Investments Surpassed $1 Billion In 2012

As venture capitalists pour money into educational technology companies, some wonder whether they are just building a new bubble.

On Jan. 15, Lynda.com announced a $103 million investment led by Accel Partners and Spectrum Equity.

The 17-year-old service, which offers online tutorials in Web design, photography and business, has trained more than two million people worldwide. The company plans to use the outside funding, its first, to support Lynda.com as it expands internationally.

"It will also add value to our membership with broadened content areas and accelerated scaling of our Web and video platform," said Eric Robison, CEO of Lynda.com, in a statement.

Two massive open online course (MOOC) companies, Coursera and Udacity, have each reportedly received around $23 in investments in the last 18 months.

While MOOCs have received the bulk of the attention in the past 36 months, "they're just one part of a continuum in online education," Kenneth C. Green, founding director of the Campus Computing Project, told InformationWeek in a phone call. The Campus Computing Project is the largest continuing study of the role of computing, e-learning and IT in American higher education.

[ Where should education tech investors put their money? Here's one clue: Why Tablets Will Kill Smart Boards In Classrooms. ]

MOOCs haven't been the sole target of venture capital. One of the largest investment recipients last year was Desire2Learn, maker of an online learning management system (LMS), which received $80 million in September.

"I've never seen so much interest in ed tech," company CEO John Baker told InformationWeek in a phone call.

Baker, who founded the Canadian company in 1999, has already found a use for some of the money. This week, Desire2Learn announced the acquisition of Degree Compass, a predictive analytics technology that helps students select the courses to take that will drive completion of their degree program, according to a press release. Desire2Learn said its Degree Compass product will be generally available in spring 2013. Financial terms of the acquisition were not disclosed.

Investments in education technology companies nationwide tripled in the last decade, ballooning to $429 million in 2011 from $146 million in 2002, according to the National Venture Capital Association.

Earlier this month, venture capital database CB Insights reported ed tech companies received a total of $1.1 billion in 2012 from venture capitalists, angel investors, corporations and private equity shops.

But the Campus Computing Project's Green noted this isn't the first time ed tech has caught the attention of enthusiastic investors; this also happened in the first dotcom boom in the late '90s. Green said some of these efforts survived, while others, including heralded efforts by Columbia University and Princeton University, failed.

Seemingly anxious to blunt worries that the current VC interest in education technology was another bubble, CB Insights headlined its report: "There is no ed tech bubble."

Audrey Watters, a journalist specializing in education topics, believes one of forces behind the VC investment in ed tech is the Common Core Standards, the U.S. education initiative to standardize curriculum across the states.

The CCS don't just specify math and language arts requirements, Watters wrote in a email to InformationWeek. "[They] also demand schools move towards computer-based assessment."

"Schools will have to make sure their educational content (textbooks, software, etc.) is aligned with these new standards -- and that's an opportunity, I think for ed tech companies to flag their apps, e-books, software and so on as compliant, in addition to helping schools move towards digital assessment tools."

Watters also disputed the characterization that investors were "breathless" about ed tech. "I think there's still a fair amount of uncertainty about whether or not any of these edu startups will actually be profitable," she wrote.

Watters is also concerned that a lot of VCs, "particularly those who do not have a lot of experience in enterprise ed tech," were basing their investment choices on consumer tech metrics, such as number of sign-ups.

Mike Feerick, CEO of MOOC Alison, agreed. "VCs don't understand what's happening, don't know where it's going," he told InformationWeek in a phone call. Ireland-headquartered Alison has served 1.5 million learners and 250,000 graduates worldwide since its 2007 founding.

Alison, which concentrates on introductory courses, is "cash-flow positive" and hasn't taken VC money to date, Feerick said, who was in New York this week attending two conferences on ed tech financing. "It's most my own funding, with two angel investors," he said.

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ChrisMurphy
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ChrisMurphy,
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1/25/2013 | 8:44:01 PM
re: Education Tech Investments Surpassed $1 Billion In 2012
Wow, that didn't take long for "bubble" talk to start? There's zero doubt that mobile devices, digital content and remote learning on the one side and underperforming schools and high costs on the other will drive change. But healthcare offers a warning -- the potential and the need are there, too, but there hasn't been a lot of venture-backed glory in that market. Tough business models, fragmented markets, complicated sales cycles.

PandoDaily.com has an interesting take on this this week: "Education startups: The bottom-up approach doesn't work here"
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