Welcome to Season 2 of This Week in Edtech!
Guest: Matthew Tower, Principal @ Workshop Venture Partners
Topics This Week:
Also check out our weekly newsletter @ https://edtechinsiders.substack.com/
Welcome to Season 2 of This Week in Edtech!
Guest: Matthew Tower, Principal @ Workshop Venture Partners
Topics This Week:
Also check out our weekly newsletter @ https://edtechinsiders.substack.com/
Alexander Sarlin 0:04
Welcome to Ed Tech insiders. In this podcast, we talk to educators and educational technology investors, thought leaders, founders and operators about the most interesting and exciting trends in the field. I'm your host, Alex Sarlin, an educational technology veteran with over a decade of work at leading edtech companies.
Ben Kornell 0:28
Hello, everybody, and welcome back to week in ed tech. It is August 2, it is season number two, if we can add tech, and we've had a great summer break in July. And we're excited to bring you this special episode with our guest, Matt tower, who writes ed tech thoughts, you can find them at sub stack to do a full review of everything that's happened over the summer, all the hot trends and what we're looking forward to in the fall. As always with we can edtech we try to bring the relevant news to you that's going on in education, technology, investing, etc. And I'm joined by my amazing co host, who also added a member to his family team. Alex Sarlin. Great to have you back. Alex, it's so exciting to be back in, you know, the heart of Ed Tech sprint time, it's back to school, it's exciting times,
Alexander Sarlin 1:22
it really is been and you know, it feels like we've only been away for a few weeks. But a whole bunch of big headlines have sort of come through the ed tech world, even in the usually quiet month of July. So let's jump right into it. Matt, can you kick us off? What is some of the big news that's happened this summer?
Matt Tower 1:41
The big thing that I've been tracking that a lot of the tech world has been tracking is, is our most valuable tech company by Jews. And it's a little bit hard to tell what's going on over there right now. I wrote a couple of weeks ago, I kind of had this feeling, you know, you read the daily headlines, and over time patterns emerge. And I finally kind of collated 13 Headlines between March and early July, which in itself was something of a record for an a tech company. And it's just kind of a unbelievable back and forth of, hey, this is happening where 5g has raised a bunch of money, but then actually they raise half as much as they said and the founder put in half, then there was a investor that hadn't paid up yet, and then they were going to acquire to you and then they had some layoffs, then there was something that their financials were not submitted to the government. And finally, just last week, we had a scenario where one of the Indian parliament members called for a review of their finances. So you know, there are some specific things that are interesting. But my takeaway is actually, it's hard to draw any conclusions, because there's just so much noise going on. So I'd be curious to hear from you guys. Which of the headlines kind of stuck out the most, and whether you believe them, which, you know, my head is kind of swimming trying to figure out what's true and what's not.
Ben Kornell 3:14
Yeah, man, I've been watching by Jews, you know, all year. And of course, Alex and I, in our predictions section in January of this year, last season, we predicted by juice was going to be the next big ad tech firm to go public. And clearly these news headlines suggest that things aren't as much of a straight shot. There's also what's going on the market. I would say one thing to keep in mind is why is this important for everyone in edtech when you have the largest privately valued edtech company and potentially the largest edtech company period, you know, when it goes up or down, it affects investors view on the space of edtech. In general, it helps them think about valuations. And what is a reasonable multiple, helps them understand what does the IPO path look like for ed tech companies. And prior to the pandemic. It was a tough slog to be an ed tech or education, company and IPO because you get under a lot more scrutiny and education tends to be something that's viewed as a public good. So for many reasons by Jews is a pacesetter for many of us in the tech space. And that's why it's so important that they pull this thing off in a good way for all of us in the space. And I think the thing that was most concerning that headline that stood out to me was the 400 million of the $800 million round that by juice himself finance that raised a lot of eyebrows in January, February. It turns out that that was a loan against equity that he already owned, which seems like some sort of circular self dealing. It also you know, combined with the other headlines that some of the money hasn't come through, makes you wonder are they really In trouble, and is this to you deal with the 2 billion in debt to acquire to you actually a cash play, to fill up their balance sheet with more cash to help the rest of the business. So all in all, whether they're doing well, or whether they're not doing well, which remains unclear, they haven't managed the PR around this very well. And it is going to have reverberations for large and small ad tech companies that are trying to get private or public funding. Alex, what do you think and what stands out to you?
Alexander Sarlin 5:34
Yeah, so what you have invited us is a company that is not only arguably and probably the biggest private edtech in the world, it's also according to this most recent TechCrunch article, the biggest startup in India, which is pretty insane to think about. So this is a company that's grown so fast, has made so many acquisitions in the last year, or two, that it's really almost gone beyond its scope as a traditional startup. And it's almost being seen as an incumbent as an enormous tech company that's actually eating up smaller companies really moving in some very big semi corporate directions. And I think that's really put a target on its back. And, you know, the lawmaker in India, who's addressing by juice finances, that's also coming on the heels of Baidu is having a lot of trouble with some of their sales tactics, they've actually gotten a bit pinged as being a really overly aggressive sales company and some of their products not being worth the money and parents not being able to get refunds and all sorts of things. So I think 5g is is a little bit of a scary example of a company in edtech, getting big enough to actually create a pretty significant backlash against it, even though it has, as you said, bended never actually went public, it didn't actually become a true public company. But even in its current state, it's really received a pretty significant negative press and backlash. And as you say, Matt, those headlines, every other headline was something extremely, you know, positive and exciting, and about how they're growing. And then layoffs, then something about how they're going to acquire, you know, $2 billion acquisition of to you, which I think is still very much, you know, in the works, or at least a possibility, and then something about how their, their finances don't even add up. It's a little unnerving. And I think, you know, we all probably agree to some extent that if budget is really did sort of go somewhat belly up or become something that was really a toxic company and had a really negative impact on the space, it would be enormously chilling for some of the biggest edtech investors, many of whom See, bite us, as, you know, the crown jewel in their portfolio, because it's been an incredibly successful company. So I think everybody in the space should be watching very carefully about which of these sets of headlines prevails, and whether Bhaiji sort of pulls through this odd period. And it's all this blip about, hey, they just didn't get some financing, or whether this is truly hitting the rocks.
Matt Tower 7:59
I think that's a great take Alex, and like I said, the message for me is it's it's just hard to discern what's true and what's not. And then I think you put it well that like, at the very least, it's bad PR, because it's like hard to figure out what they're telegraphing, you know, you read about a multi billion dollar acquisition, usually there's something there. But it's hard to tell here, whether that's to deflect criticism from other areas or not. So I think like, that leaves us with a question, which is kind of a fun question prediction for the two of you. And then maybe I'll use your answers to guide mine to which company do you think is going to be the most valuable ad tech company in the world at the end of 2022, we ended 2021. With 5g is pretty securely up top at about 22 billion, and its closest competitor was probably like Pearson or Coursera, which were in the realm of about 8 billion at the end of last year. So any strong opinions on what a tech company is going to be most valuable at the end of the year? Well, I
Ben Kornell 8:59
have three takes on that. One is Google is the largest tech company in the world and most valuable in the world, if you really look at it from like, who's playing in that to everybody's actually experiencing some market valuation decline? So there's a way in which the question is really is buy juice deceleration going to be the same as others? And how will investors or the markets react to that. And when you are venture backed, you don't have to raise another round and you don't have to adjust your value whereas like a publicly traded company, like Pearson, or Scholastic, or were others might go up and down. So my view is that actually by Jews, given the debt financing path that they're going, I think it's going to be a private equity pickup. And I think there's a lot of powder in private equity markets. And this is a really good example of when private equity can come in. then take all this m&a activity and some like good businesses that may be saddled with complexity, and really squeeze it down into what's most valuable. So thinking about something in the range of like 10, or 12 billion, realistically, which is like half of what they were before, still puts them like really, really high up. But I'm actually going to go with Pearson. And we're going to laugh later, because without some segments with Pearson, but the public funded school systems and b2b sales are still really strong in education. And that's partly because of government money. It's partly because in downtimes, the counter cyclical bet is on institutional education spending. And Pearson has higher ed, it has K 12, it has buyers who rain, snow, sleet, shine, like keep coming back. And that's the staying power of some of these, like legacy companies. So if it's not by views, I'm gonna go with Pearson. But I would be surprised if we actually get a piece of paper that tells you by juices value is is significantly lower. How's that? Alex, what's your take? Who do you think is going to be the most valuable?
Alexander Sarlin 11:17
That's a good analysis, I mean, I'm going to be a little contrarian here. And actually say, I think by Jesus is going to keep the crown. And I think that the companies that are going to be knocking on its door are Pearson as it already is, unfortunately, I think Coursera, which I love for a million reasons, is not going to be in that running, it just dropped 20% In this last earnings call, they just lowered their financial outlook for the future, I think could and multiverse are both going to be in the running, especially Kahoot. I think it's valued at somewhere between three and 5 billion right now. But it's working with Disney. It's getting very professionalized. And it's growing very, very quickly. I think it's very quickly becoming sort of almost like a necessity, like a piece of the K 12. You know, world. And if they can pull it off, they're going to continue to grow really fast. That said, I'm not giving up on by Jews quite yet. I think the headlines are concerning, and they're very strange. But I think that it is very possible that it's sort of I mean, remember, but it was was started by two tutors and teachers, it is very likely that inside the walls there, there's a lot of sort of corporate chaos. At the same time, they have done some very smart moves to become an enormous, enormous powerhouse in India, which still has an enormous amount of education spending. So I think Biden's is going to pull it out. I think near the end of the year, we'll look back at the summertime and say, Wow, this was a really weird time and bite us might have gone over a cliff. But instead, they pulled back up, I think they still are going to buy to you, which includes edX, and they're trying to become this enormous education conglomerate, I think they have a chance to pull it off. I'm going to say it's still going to be bad use of the end of 2022. But I think Kahoot is in the running as well. And Pearson you know, Pearson has done done well, this year, it's possible that it will be good movie Pearson as well. You can never give up on Pearson. It's been punching for decades, never quite Yeah, 100 years, and never quite going under. So it's a little bit of a cop out answer. But I don't think it is going to implode quite as quickly as it might seem from some of these headlines.
Matt Tower 13:21
I don't think it's a cop out at all. And you know, we can move on to our next topic. And the second, one of the articles said they're doing $300 million in revenue. And, you know, I think if you if you look across the rest of the startup crop, I don't think there are too many folks that are close to them. My fun party fact about Kahoot is they actually make most of their money selling the corporates, not schools. And I think they're still south of $100 million as our run rate revenue. So from a pure, like, how much revenue do you make, I think by Jews is still far and away, the leader guild is one that probably deserves to be at least mentioned, but I don't think they're close to 300 million in revenue either. So I actually think bidros is a good bet. Even if they could have a rough ride back to a more kind of earthly valuation.
Alexander Sarlin 14:08
They definitely buy one outside chances that Disney buys could outright they already own 4% of it and sort of makes it a big part of their education play. In that case, who knows. But yeah, I hear I hear you're mad,
Ben Kornell 14:21
that clever acquisition from Kahoot. With time most of these acquisitions aren't looking good. But that one looks really good because of their ability to be really at the integral intersection of Ed Tech and school systems.
Alexander Sarlin 14:37
Totally agree with that. That is a really good call. I think that's one of these things that we overlook, but cover is such a smart acquisition for a company like Kahoot in terms of growth. But to your point, Matt, even if they do get in every k 12. It's not exactly where their revenue is coming. They'd have to do some interesting changes to their business model to truly get there but they're trying they're trying they're working with Star Wars. They're working with NASA. They're trying Need to do all sorts of upselling. And I think you know, if they can pull it off, we shouldn't count them out. So we've talked a little bit in this segment about veggies buying to you about Coursera. And one of the other big headlines of this summer has been, it's been a really, really rough ride for kind of the entire OPM sector. That's the online program management world, where there was a really fantastic article from Ed Tech journalist, extraordinaire, Phil Hill, about some of the things that have been happening this summer for OPM and MOOCs. You know, we saw zavio, which had an big OPM business. So it's OPM business directly to University of Arizona and basically exit the OPM world, we've seen to you announcing that they're laying off 20% of their staff, which just started this week, a lot of the people I know a to you are on LinkedIn saying, okay, you know, it's a bloodbath. And then, you know, Coursera, stock just dropped 20%. And Phil also mentions how FutureLearn, which is sort of the British MOOC world, out of the Open University in the UK, is basically having enormous financial difficulty and is basically underwater. So Oh, PMS, and MOOCs, which are to have sort of what has happened, some of the hottest sectors in edtech, are both really hemorrhaging money in the public ones are their stocks are hovering even lower than they had been this year hanging around, you know, $10. So I'm curious what you all think about this OPM MOOC problem that we're all seeing in the space? Matt, what do you think? I think
Matt Tower 16:29
the maybe interesting place to start is how the media is perceiving this. And Phil Hill is kind of half media half analyst, maybe more than half analyst and that he really kind of understands what's going on in the industry. But if you look at the more mainstream, like Wall Street Journal, New York Times coverage, it's basically all I cut a line in my last newsletter about, you know, they've made chip Hasek, the to use CEO, basically an effigy for the whole industry, where it's just all anti to you. And basically, all the other companies are like, well, we're just not gonna say anything, we're gonna stand off to the side here and let the two year ship go down, which feels a little bit unfair, that, you know, there's, there's a lot more to the industry than to you. So I think on some level, the conversation is kind of over indexed on how their business is doing. But you know, it definitely, definitely doesn't look good when you look at future learns problems. Coursera I think that the headliner there was their degree program is actually it was kind of floundering. That was where they had kind of promised investors, they would make money, and it lost a bunch of students. So that's never a kind of sign of success. And then to you, you know, they just have a large debt load, and it was fine to lose money for the past 10 years, and you know, the tide turned and the economy and now you're supposed to make money. So they certainly have pivoted quickly. I'm sure they've been preparing for this for the past couple of months. I'm not surprised to see the last news, like sad, obviously, but unfortunately, not surprised. So, yeah, it's maybe a longer story. But
Ben Kornell 18:10
then what do you think the whole space is going through a realignment and reassessment, and universities are rethinking their role in that space. So if you imagine like, the sun or the ecosystem, like the center of gravity is the university space, and there's all these other people that revolve around it. When there's these major shifts in how universities are thinking of playing, then it has all these externalities. And what you're seeing with the Zovko acquisition, what you're seeing with ASU and others is, they're trying to take their brand back and be online players themselves. And that creates competition challenge. And then you also see the OPM models, which were really predicated on some sort of core user experience, then connected with a brand, you find that value proposition kind of wearing thin with users. But to me, what I'm really looking for is actually, when do these bigger companies start to break up into their component parts pieces again. So if you look at the bootcamp business, that's actually going quite well, it was surprising to me to see a bunch of the Trinity folks in the layoff and to you, given that the read that they've given in other market updates is that that's actually a growing business. And, you know, as Alex says, often like, the degree or the credential is losing from value and the practical capability is gaining. I also think that comes back to edX, like two years ago, edX is like a nonprofit at MIT. And now it's the entire name of to you the company is edX. So how are those people processing it and if edX is the future of the company, then it's less than OPN. And it's more More of a course marketplace like Coursera is and it's a direct competition between those two models. So that's really how I'm thinking about the space, the, the natural progression of things is that it's fragmented, it starts conglomerating into bigger players, and they get bigger and bigger and bigger, and so on, so forth. But we might be actually looking at an ecosystem that did have conglomeration that might actually have disaggregation. Or it might pivot where, oh, PMS aren't really the core business. It's all these horse marketplaces. And that's actually the future of where the space is going in OPM, is the rounding error. So very, very interesting. I wish I had a president of a university to help me read this, because, like I said, at the beginning, that center of gravity is fundamentally changing. And so there's all of these externalities that are hard to predict, given that every university is going to respond differently to those challenges.
Alexander Sarlin 20:59
Yeah, and I just jump in with just a quick note on what you're both saying, because I think it's dead on. I mean, I agree that first, you know, to Matt's point to you has very much been the poster child for the OPM space. And they made themselves that on purpose, let's be fair, they were actively the sort of showiest company in the space. You know, there's this famous background, where John Katzman from the Princeton Review, who had started the company with Chip Pasek, you know, broke off to start noodle partners, you have, you know, wildly academic March boxes, there's actually a lot of different OPM companies that are much deeper under the radar that are just watching to you from the side. The thing that I think is really, really interesting, and I'm a little biased here, I have pretty strong opinions about all this, but is that I think what you're seeing in both the to you news, and the Coursera news is that as you're saying, Ben, it's really about the degree right now, it's the idea that the unit of education being a university degree, I think the Bloom is starting to really come off the rows on that now. And you know, some of us in this space have seen that coming or thought that was going to come for many years, and it kept not happening. But I think, you know, when you look at Coursera, is earning reports. And you see that the degree segment is not growing that fast. But the ones with the certificates with IBM and Google and Facebook are growing incredibly fast. That's a sign of the times when you see to you, you know, trying to hedge their OPM business by purchasing short course providers by purchasing edX as a course platform and then pivoting everything into it, I think there's a sort of understanding that selling online degrees is just not the same thing as it was five years ago, you have competitors with, you know, low cost competitors coming in, you have schools themselves, as you say, Ben trying to sort of run their own programs, and in some cases, doing it very effectively. And I think the opium world is just sort of in a little bit of a strange space that said, the cross platform world is not necessarily taking off the way we maybe all thought it would either. So you see Coursera, edX, and FutureLearn, and Udacity, and Udemy, and a number of the different course platforms out there, you know, none of them have quite broken out to become the superstars, at least right now. And partially, this is probably snapped back from the pandemic. There's lots of reasons for this. But my take away from all this news is that the idea of companies getting really big like to you did, by selling online degrees as their main business line, I just think we're past that in the history of edtech. And I'm not sure we're gonna go back to it. And I frankly, think that's a positive thing. I think it's going to make learning much more student centered, much lower cost, and I think it's a good thing, but I don't know it's gonna be interesting. So, Ben, you have been following this recession news, you know, recession question mark, and inflation really closely. Where are we at?
Ben Kornell 23:52
Yeah, so headline one, bite us headline two, what's going on with OPM and two, you really dominating and we wanted to step back for the little and midsize guys like companies that the three of us have worked with, you know, what's going on in that macro environment? And how's that playing out in edtech space. And generally speaking, we're seeing a big pullback, in funding, venture capital firms, as well as private equity firms are still doing deals and the deal, you know, some reports have actually shown that the volume of dollars is holding steady. But the quantity, the sheer number of deals that they're doing is lower. And many of those deals are actually within their existing portfolio companies to provide a bridge or a sustaining growth. Interesting report that came out of Europe is that actually, given these dynamics and changes, Europe has taken a huge leap forward accounting for close to a quarter of investments here at the beginning of the year, and Europe continues to kind of at Riot high in edtech. And, you know, a couple of the factors that are going on there is there's been an unlock in how people can grow from country to country that's through both the investor community, the EdTech. Alliance, as well as governments being far more open to adopting generalized platforms rather than homegrown. And it's also the fact that India has really cooled off in terms of deal volume, and then the US has also cooled off. I'd also say, in addition to total dollars, the funding rounds are much lower. And so the valuation that you might have gotten, which would be 10 to 20x of revenue, people are really looking at EBIT da and trying to find that path to profitability. I was just having coffee with a venture capital investor this morning. And they were telling me that the next 12 months don't look any better. In fact, they look much worse, as most investors are kind of licking the wounds from the investments they made over the past 24 months, given that those valuations have now come crashing down. Matt, you work with a lot of entrepreneurs, and you've seen a lot of going on. And also you cover this in your newsletter. How are you interpreting this? And what does this mean for the fall? Yeah,
Matt Tower 26:23
it was a little bit funny this weekend that I was like, Oh, wait, there are only three fundings. I was struggling before that July break, that I had so many fundings that I was cutting them, and my newsletter was still too long. Like, it's really kind of a stark difference. And I think like to put a fine point on what you were just saying, then there's kind of two things at play, that are pretty big unknowns for venture investors. And the first is how do we save our portfolio companies, the ones we've already spent money on, and this gets a little bit to venture capital firms are businesses, that's important to keep in mind. And they have invested in these companies and their eventual business profits come from those companies continuing to increase in value. So regardless of the valuation they ascribe to the company's, you know, earlier in the year, and last year, they now have to figure out how to kind of salvage value or continue growing value, depending on how the company is doing. So I think that's like, especially right now, probably where some of the quietness is coming from is they're saying, Well, look, we got to take care of the portfolio. First, you know, that we have dry powder, and most of the funds, I think, do have a decent amount of dry powder on hand. But that only goes so far, if you've already kind of deployed to companies that are struggling. So that's one and then two, I think there's kind of an existential question of where are the profits in education, you know, we just talked about to you their track record is, they've lost hundreds of millions of dollars over the past 10 years, which makes it a little bit funny that universities are so eager to bring everything in house, but also speaks to OPM businesses don't seem like the most likely candidate to be immediately profitable. So what are the other models and ecosystem that are more inherently profitable, that don't require the same type of scale up period that investors tend to be more comfortable with just last year, but in the beginning of this year? So that's kind of an existential question I'm wrestling with what business models do I like, in addition to the entrepreneurs and products that I look at? Alex, do you have any thoughts? Yeah,
Alexander Sarlin 28:28
I mean, the two models that I have seen, sort of still keep a lot of momentum during this time are b2b, especially, you know, skills training and professional development, and especially sort of cutting edge skills training, I still think that some of the companies in that space have sort of done just fine during this time without sort of suffering from the ad tech turn that we were starting to see. And b2c supplemental education, things that are really completely outside of the traditional education system as well. I mean, we've talked on this podcast a lot about the different business models and selling to schools, selling to universities, you know, OPM model or rev share or manipulative dimension. The last piece how to you is one of their announcements in going to edX is that they're changing their revenue share structure in a pretty serious way that they haven't done in a long time. So I think you know, what you're seeing some models still sort of continue to grow. And to your point, Ben, about Europe, I think part of the reason we're seeing the European ad tech world grow, as you say, it's cross border selling, it's, you know, places that started in one country, being able to immediately go Europe wide, and then even, you know, leave Europe and come to the US or go to India, go to, you know, other parts of the world. But it's also that a lot of the companies that are blowing up in Europe are tutoring companies or companies that are professional development or companies that are looking to sort of be, you know, alternatives to traditional education. And that's a trend that I think we're going to keep seeing I think, you know, to your question about, you know, where are the profits in education right now, Matt? I agree. In that it's sort of a little bit hard to see where they are for the new companies, because the incumbents still, you know, the Pearson's and Wiley's and some of the big traditional textbook companies still dominate the K 12. Market. Not that many companies can break in at a big scale. And there's so many different models as so many different people sort of biting the big education spend worldwide that everybody puts in all their pitch decks. But I think what we're seeing now, you know, the last hole and IQ prediction is basically that they think that there's going to be, you know, $17.4 billion of investment for the full year of 2022, which is a whole lot more than there was a few years ago, but it's down from over 20 in over 20 billion in 2021. And the question that everybody has to ask, and it sounds like the VCs are a little bit, you know, bearish on this is, is that mean that 2021 was sort of the peak of investment for a while and post pandemic and post all of these business models not necessarily panning out? Is it going to sort of crest back down?
Ben Kornell 31:03
Yeah, Alex, you're, you're stealing my thunder on my prediction? Oh, yeah. I'm gonna jump in there. So I'm going to ask, do you think that we're going to be up, down or flat when we kind of take stock on 2022? Based on the whole on IQ, and I'm talking worldwide, ed tech investment? And before you answer, you know, a couple things to on this business model, question, Matt, which I think is such a good insight. Because ultimately, you either have a good business or you don't have a good business, I think the defining factor of education versus other industries is customer acquisition costs is high. Like that is the defining factor, whether it's consumer or b2b, whether it's higher ed, lifelong, corporate, k 12, early childhood, it's that it's really expensive to acquire and retain customers, especially acquiring them. And so I tend to look at the high LTV businesses, who's got high lifetime value. And, you know, it does raise the question of these platform plays, which tend to have high churn, relatively low quality, those have been kind of the catalyzing models over the last five to 10 years. And now we're also seeing questions around content. If people have really great individual content, can they get high LTVs? Or can they not, and you know, the whole what's going on at Netflix with them struggling, makes you wonder about people who continually to pour money into really great content. But I look at like a business like Pearson, or Scholastic, which are these sometimes appear to be these dinosaurs, and the way that they continue to turn profit, and the way they continue to milk the LTV out of their existing customer base. Those are the enduring models that have been successful. So it makes me wonder whether we're going to go back to in K 12, school operators, and whether we're going to look at innovative university operators that are actually going to be able to grab share from others. Those are high LTV businesses that can afford the CAC.
Matt Tower 33:17
It's a little funny you say that then, if outside of by Jews, if you think about that, I think that two biggest rounds of the year, actually sorry, I was gonna say amplify and greater minds, but amplifiers last year, but two, you know, 100 million dollar plus investments in exactly what you're saying.
Ben Kornell 33:35
And by the way, when recession comes crashing down, you don't see those companies doing huge layoffs, because their revenue stream is pretty stable. Their business is pretty solid. Alright, so up, down or flat, the 2022 cumulative investing versus 2021. Matt, you go first, I'm gonna go down
Matt Tower 33:58
just because last year was so crazy. Yeah, I don't think that's reflective of the overall trend. I think we'll be fine, long term. And I think, hopefully, the seed stage and the early stages will still be on forward progress. But I don't think we'll see as many kind of large middle rounds, if that makes sense. Alex, what's
Ben Kornell 34:19
your take?
Alexander Sarlin 34:20
I agree. I mean, I'd be I'd be really surprised if it isn't down from 2021. We're, you know, we're trending that way. And I think VCs are spooked right now. I think both because of the economy at large. And because of these particular earthquakes in edtech. You have you know, by Jews, the poster child for Indian Ed Tech, having some weird stuff happen to you one of the big poster children for public ed tech, having some really weird stuff happen. And then all of these valuations for small and mid tier, or mid maturity companies crashing Coursera crashing I just don't it'd be very surprising if the investment pops back up in the last four months of the year.
Ben Kornell 35:00
Uh, yeah, I'm a little bit more optimistic I'm gonna go flat to up, in part because I think this is a really interesting roll up moment for people. And Matt, you mentioned like shoring up, those businesses that might be struggling might be a move that venture capitalists or private equity folks make. But I could also see them kind of clearing the field and saying, Whoa, we've got a really good business here. Let's double down on that and buy some cheap assets. And let's pump these guys up, because now's a chance to consolidate market share. So I actually think some of this is also dynamics of inflation. So this is dynamics of people have money that they need to put to work and they've raised lots of, there's way more powder than there was just two or three years ago. So I think that we're gonna win hold on IQ does the report in February, I think they're going to show that it was flat to slightly higher in terms of total global investment. All right, well, we're gonna keep the party rolling with Topic number four. We've been talking a lot about what's happened this summer and where we are. Metaverse is always a great conversation about where we're going. Alex, you follow that? The what's going on in the metaverse and how do we catch everybody up on? What's been happening in July?
Alexander Sarlin 36:16
Yeah, so the quick version is that the metaverse is becoming something everybody's talking about. And nobody quite knows exactly how it's gonna pan out in education. But people are very excited about it. And some very big companies are jumping in, in some really interesting ways. So we saw a lot of things happen this summer. We've seen meta Facebook put out some really big ads about basically how they want to own the universe of Metaverse education and what it will look like and they're obviously really doubling and tripling down on it. We saw Class Dojo get a large $125 million round, basically predicated on them trying to build an educational Metaverse quote unquote, or at least an educational virtual world. You know, we talked to the head of immerse, which is a language learning Metaverse program. And we've seen other VR education launches, you know, throughout the summer. What this all adds up to is still a little bit unclear. And one thing that's been really strange is all of these digital campuses and Matt, I know you've been following the digital campuses. So I'd love to hear your take on that this digital twins stuff. What do you make of that?
Matt Tower 37:22
The way I think about the metaverse is, in the words of the great Will Ferrell have, nobody knows what it is, but it's provocative. plays a glory. On some level. I'm excited because when I grew up, I really loved playing video games. And I really did not love playing educational video games because they were terrible. And I think what we're seeing now is the tooling to create experiences and video games has gotten much better so that even in an educational game, it's not 2d graphics, it's not weird voiceovers, it's like really full featured games. It's really full featured universes like in Roblox and I think that's potentially one of the reasons you see like a Class Dojo, which isn't kind of traditionally thought of as like a gaming or Metaverse company willing to take a swing at building a Metaverse because you have companies like unity that can power a lot of the backend infrastructure. So I think that's kind of something to keep an eye on is it actually could be possible for a smaller company to take on the big tech giants who obviously I'll have a lot of money invested in in the metaverse and as far as the like, digital canvases go, I find the concept like I'm glad they're building an accessible place for students. And I'm glad they are investing at the university level and doing it. You know, I think universities are where a lot of innovation happens you both directly via science funding and also indirectly, like, that's where social networks are, were born, etc. And so I think that part's cool. I think replicating a physical campus online is like the most unoriginal thought I've kind of ever heard. Let's do something interesting, right? You have this money to spend, let's build a different world than the one we inhabit on a regular basis.
Ben Kornell 39:12
The fact that we have a Will Ferrell quote in the weekend tech show, is the first and also should be celebrated. That was great. You know, one of the questions that I often asked about these things, is this an ed tech thing versus a tech tech thing? And when we look at the metaverse, the big opportunity is for people to live their digital lives in meta versus consuming goods and advertising and all of that kind of stuff. That's the big business opportunity. And so for good or for bad. I think the big tech players being so present in the metaverse ultimately means that education is really a customer acquisition strategy and customer engagement strategy rather than its own business and outcome. And so I think the odds that we are in a Metaverse environment that was built for education is pretty low. But the odds that one of these big tech players builds a Metaverse where they understand that education is a really great entry point for younger users that then can be lifelong, dedicated members of their metaverse. I think that's really high. And so if you look at Google and all of its plays, or Apple or you know, even Amazon to a degree, Microsoft, their plays in education, are often a loss leader that ends up imprinting themselves on like a user group that is critical to their future growth. So my hope is that those folks will be smart enough to partner and not try to do it alone. And that's what gives me some hope that Facebook and their Metaverse team Mehta, their team is partnering with schools and universities. But often when you partner with the old guard people, you end up doing exactly that you will recreate the digital campus, which is the same as the physical campus, rather than reimagining what that experience will be like. So I think there'll be a bunch of trial and error. And I applaud ClassDojo for really going for it. My take on it is that they didn't really have like a sexy thing to take them to the next level. So I don't know what their exit path was. So they kind of took the leap here. But it could be, you know, maybe there's an exit with one of the big players taking on ClassDojo as part of their customer acquisition strategy. Yeah,
Matt Tower 41:34
I think that's a very great take for a lot of reasons. And, you know, at the very least they are hooked in with all the customers that other Metaverse players would want to be with. And I think also they can think about the types of experiences that really kind of with with such a blank slate, they can kind of reimagined the experiences that students would want. I appreciate it. There was a quote from one of the founders of ClassDojo that he's like, I'm paraphrasing, math games with robots are kind of lame. Let's be a little bit more creative here than than that.
Ben Kornell 42:06
Yeah. And if anybody can pull it off, I think it's the Class Dojo team. They have not been sucked into the whims or fads. They've been, you know, running the marathon. Matt, let's take us to Topic number five, crypto and web three is the bloom off the rose. So, of course, we're talking about Metaverse, we've also been talking about the financial situation. A year ago, we were talking about crypto web three. And you know, even in January, February, we had some guests on talking about how blockchain would fundamentally changed the way education is done. Same kind of Will Ferrell analogy, though, you know, wasn't clear, what's your view?
Matt Tower 42:49
So I'll give an example of a web three thing I like and web three thing I don't like and then circle back to that question, they have to get some new ones. So web three thing I don't like which was just announced, I think yesterday is that Pearson is going to sell their digital textbooks as NF T's.
Ben Kornell 43:06
Oh, my gosh, that's hilarious.
Matt Tower 43:08
It's it. It's hilarious. But it's also frustrating. It's like, clearly just a bandwagon play. And from a business model perspective, it doesn't even make sense. Like one of the big positives from a business standpoint, and to some extent, from a consumer standpoint of switching from print to digital, is it allowed publishers to lower prices, you had to charge $300 upfront for a textbook because that textbook would then trade hands three or four times and Pearson saw none of that revenue. So the trade effectively that publishers made was that we will sell our textbooks digitally for, you know, anywhere from you know, as high as $100 to as low as $40 in exchange for every student buying every textbook every year, and that's largely how it's worked out. You know, the economics of being a publisher are still pretty great. It's better ish for students because they're getting the right textbook at the right time and not paying quite as much money if they're buying new. But like, you can't resell a digital textbook, like there is no resale problem with digital at base level. Like there's no NFT needed here. It makes no sense. In fact, if Pearson is saying like now you can resell your digital textbook, which I don't really understand why I would want to use digital textbook versus a new it's the same file like there's literally no difference. Pearson would be losing money. Like if they're sharing any of that money and the new revenue from this resale with the NFT holder, they lose out.
Ben Kornell 44:43
One thing that may be going on though is they may be thinking about a services layer on top of the NFT that you know like one of the things that I've been following is like annotation services on top of digital books because you can get digital copies of almost anything, you know, pirated or secondhand. But if you make the digital interface more interactive and to be fully participate in your class or in the learning, you need to own the verified things so that you can participate. That might be how publishers are thinking about the next generation of digital publishing.
Matt Tower 45:27
Yes, I think that's a reasonable comeback, I guess I don't really understand why you need an NFT. For that, like, if you're just buying the textbook, new digitally, I guess you could charge on top, but it just feels like a convoluted way to either keep status quo or lose money.
Ben Kornell 45:45
Or another way to look at this is this was really a marketing move. That actually doesn't mean anything different than what they're already doing. But they're getting us to talk about and others to pay attention to them as a quote unquote, innovative company. And maybe this is something that the marketing department has cooked up to say, how do we kind of reskin, our same exact offering that we've always had before, they're probably frustrated when they see all this, like digital ownership, stuff going up? I think the funny thing, and we talked about this a little pre show is they're like six months too late, because like NF T's have totally crashed. And so now it's almost like a negative association, rather than it could have been a net positive had it been 12 months ago.
Matt Tower 46:31
100%. I'll do my positive example quickly here, I think. And to be clear, they haven't done this yet as a web three option, but there's a woman, I think she's Miss Excel on tick tock, and she has like millions of followers that watch her short Excel videos. And I think in our prior world, it would have been hard both to understand whether she has credibility or not, is she actually teaching Excel or not, and hard for her to figure out, like how to monetize that. But she has built up this kind of one course infrastructure. So she's taking her Tiktok videos and deploying them in courses, not on Maven, but you know, on a similar platform, and I think she can really turn herself into a brand, via, you know, a web three like option, whether that's, you know, some sort of badge or credential that you've taken our course, or being able to buy into courses. I think it allows her as a creator, and as a brand, a lot more optionality than has been available in other environments. So I think that's like one positive. And you can extrapolate that to a million different creator instructors that I could see, I don't know that we've we've seen kind of a new digital first brand, emerge yet. But that's, I think, the kind of use case I'm waiting for on the Ed Tech web three front.
Ben Kornell 47:59
Yeah, it's interesting, you bring up that kind of creator space, I was talking to Sal Khan, like six or seven months ago, and he was relaying a story, like, if he were to start today, YouTube is just so crowded, no one would have ever watched his tutorial videos. And while Khan Academy is a nonprofit, it's really been an incredible platform for him to make an impact. And if it were a for profit business, one could imagine it being incredibly valuable. And so there is a world in which I think the ownership of a digital asset might be less important in the education context. But this slight credentialing or certification could be more valuable. And Alex refer to this at the beginning of the show is that maybe we're at the end of the degree, it doesn't mean that you're at the end of certified credits, it doesn't mean that there's not a need for some sort of validation of learning or completion or something like that. And so, six, seven years ago, we were talking about badges and how they might take off. And what we really needed is the ecosystem to shift from, I need a four year degree or I need a two year program, to fractionalize using the learning and I actually think that's an area where not only is it important to have the digital ownership of your credential, but it's also important that there's some sort of lecture that someone you know, it's like the registrar's office of the university. It's just like a virtual digital registrar. I also am still bullish on Dallas, because I do think educators tend to work in decentralized way on particular projects. And what I think has been challenging for the space is how do you create an enduring community that's going to kind of continue to iterate without someone coming in and just taking full advantage of the rules or without like an engaged minority lording over the unengaged majority. And so what I I'm looking for and when I'm watching art dowels that are created for specific purposes or movements or activities. And then that dissolve. And like, you know, the concept I've been talking about is like an exploding bow. I think that just like a political movement, or an initiative, there's an energy you can create through a Dow that's decentralized, and you can accomplish something. But the idea that that Dow, then can move on to phase two, phase three, actually can get better. If it dissolves, then you learn from what you did, and you start a new Dow for the next phase. And so this idea of perpetual dowels versus temporary Dows. I think that that will be something to watch. It does remain to be seen whether investors can really make any money if it's something like that. But it's probably more like the Dow service industry that ends up becoming, you know, few players in there, become credible with as tech firms. And then the last, you know, when people talk about web three, they also are talking about Metaverse, and it is interesting to see unity at the ISTE conference in June, in New Orleans. I think the people that make tools that enable virtual engagement become natural platforms for people also to be exchanging digital goods and services. So I'm actually more bearish on web three in education than I am on Metaverse in general, partly because I think big tech is interested in Metaverse in education. And big tech is probably not as much interested in web three for education, because of the customer acquisition component. But I think things have really shifted now that the fad and the enthusiasm has gone away. And now you actually have the hardcore believers engage.
Matt Tower 51:50
I totally agree. And I would double down on your your point about doubts specifically, I actually think it might be an opportunity that investors can't figure out how to make money on on Dows. And it'll open up that world to some different types of creativity and investment in things that investors have turned their nose up at, you know, we talked earlier about, well, you got to look for the right business models and Dows don't have that same incumbrance. And they don't have the same kind of return profile that venture investors and other private equity investors have. So my hope is it creates more optionality. But it may not have the same kind of headline amounts of funding that we see in that kind of traditional venture industry.
Ben Kornell 52:34
Well, Alex, we're excited to get you in here. As we wrap up this show on Metaverse, and crypto, what's your take? And how do you view the future? And then you can take a stand?
Alexander Sarlin 52:46
Yeah, absolutely. So I think that the metaverse is going to be real. I think that the size of the companies that are leaning into it. And the combination of as you say bad tech and ad tech, both heading towards the I won't say the same. But I think a related vision of a persistent educational network is is going to be real. As for the web three, it is, you know, I think web three is maybe even less to find in the metaverse, which is saying a lot. But web three and cryptocurrency in that whole world, I think is going to have to really sort of pull itself back up by its bootstraps after this big crash. I think a lot of people lost a lot of both money and credibility in the last couple of months. And there really needs to be a there there, especially for the educational use cases for web three. Before we're going to see the sort of same level of interest in investment. That would be my take. So at the moment, a little more bullish on educational Metaverse, depending on what that looks like. You've heard me say this on the show, Ben, I think it's going to be one of the big companies, I think it's probably going to be you know, Unity Mehta, maybe some of the other tech companies and other countries that actually lead the way on this. And because it's going to be them. It's going to happen in one way or another. So we'll see if that all comes true. This has been a really awesome August catch up on some of the biggest issues in education tech and and regular tech over the summer. We're so happy to be back on the air. And we'll be back with you all next week on the next week in ed tech. If it happens in ed tech. You can hear about it here. Thanks for listening to this episode of the EdTech insiders podcast. If you liked the episode, remember to subscribe on Spotify, Stitcher or wherever you get your podcasts. And if you're listening on Apple please leave a rating and review so others can find the podcast. For more ed tech insiders content subscribe to the ad tech insiders newsletter at edtech insiders.substack.com