With more than 30 years’ experience in the K-12 EdTech sector, Michael E. Spencer is CEO and Founder of Global Expansion Strategies, a Silicon Valley-based growth, advisory and investment firm that works with education companies to expand globally. He is also a sought-after investor, board member and advisor for innovative and high-growth EdTech ventures. Michael Spencer has a proven track record of creating and scaling successful EdTech businesses globally, as a CEO, founder, board member, advisor, mentor and executive. All have achieved 100%+ growth year-over-year since inception, received multiple awards for innovative education technology, and secured Series A and B rounds of funding as well as successful exits. He is a published author and speaker on topics such as international expansion, global market entry, international capital raise, large-scale blended learning implementations and exit strategy development.
The end of ESSER funds and a venture capital chill mean startups must look beyond the US for sustainable revenue, scalability and success.
We hear it again and again: the US K12 education system is in crisis. Spending per student has more than doubled over the past 40 years, but achievement has not. Covid-19 catch-up, which could take decades, is the latest blow. Many schools are now beset with budget cuts, teacher shortages and chronic absenteeism. It’s all bubbling up into an ‘epic crisis’. So it’s no surprise that edtech startups look at this – a massive market of 4 million teachers and 50 million kids attending elementary through high schools – and see a chance to make a difference.
But it’s not so straightforward. Unfortunately, K12 entrepreneurs too often fall into the trap of what I call a ‘build it and they will come’ mentality, where they focus on refining their pedagogical product and acquiring users at the expense of sales and distribution. These companies have strong solutions, but they frequently flounder in a dead sea of startups trying to actually sell to schools. As passionate as these entrepreneurs are about their users and the impact they are trying to create, they don’t spend enough time growing new users at scale in a cost-effective manner or implementing monetization strategies that will build a sustainable business. Put simply: they go bust before they can make that difference.
Strong headwinds ahead in the US
After twenty years in this sector, I still see startups implementing the same monetization strategies as the incumbent players that have dominated for decades: they pitch district administrators with a top-down sales approach. This means you’re either selling to the school (‘B2B’) or expect the school to push its use down to the end user – teachers and students (‘B2B2C’). While this model has been successful for some startups (notably BrightBytes, MasteryConnect and Canvas by Instructure), it has two problems. It is slow and it is expensive.
Sales cycles in US K12 are infamously bureaucratic, and seasonal; the majority of schools run on budgets and do not make year-round purchases. In such a fragmented landscape – around 13,000 public districts, 100,000 public schools and 30,000 private schools – it is challenging to reach your target users (students/teachers), who often differ from actual purchasers (parents/schools/districts). Even if a product does manage to catch the eye of the right person in the district administration, approval processes are long and cumbersome.
In the past, VC funding offered a decent chance to build up a cushion with some runway. Not anymore. Whether we look at data from HolonIQ or Oppenheimer or Pitchbook, total VC investments in 2024 are down sharply from a peak of $20 billion in 2021 to a projected $5 billion this year, an eight-year low. Valuations are down, round sizes are down and number of deals are down.
And now, the fateful day is drawing near. ESSER III – the last tranche of $190 billion in federal pandemic funds for K12 education – must be committed by the end of September. School leaders are already preparing the chopping block for tools and services that are nice to have but not a necessity, and those that fail to show usage and efficacy.
Every K12 entrepreneur should pay heed. How will edtech adjust now that we’ve returned to pre-pandemic levels of investment before the market was awash in relief funds and buoyed by record-low interest rates?
Selling to international schools
Most companies I meet are obsessively focused on products, believing they can figure out the business model later. This is short-sighted. Your product’s value is dependent on how many users you can impact, which is dependent on how cost-effective it is for you to acquire and retain users. So you need to start thinking about a selling strategy that can create scalable, recurring revenue from day one.
This means building a resilient business model that can withstand market fluctuations – unlike B2B, or even B2C. For many early- to mid-stage edtech companies, a more efficient path to strategic growth is adding an international B2B strategy, using strategic channel partners or school operators to facilitate sales into large international school networks, a model that I call B2O.
International schools move faster, have more streamlined procurement processes and are less price sensitive, which makes B2O a better route to scalable, stable and diversified revenue. It can supercharge your product by providing a route to paid large-scale pilots. And according to a recent report by Google for Education, 80% of the world’s demand for education over the next 30 years will be concentrated in Asia and Africa. But the best bit? The same tactics used to acquire US education decision-makers can be used to attract global education decision-makers as well as parents – faster.
Create channel partners
The challenge for companies eyeing entry into these markets is understanding local education needs and leveraging local expertise to get a foot in the door. Selling to schools requires strong relationships, and it’s tough for startups to hire a sales team that can build a rapport with decision-makers in multiple geographies simultaneously.
Teaming up with channel partners to accelerate the process can create a win-win situation: the channel partner can leverage their network, using local representatives with extensive experience in the specific education context, and startups can secure a pipeline of sales without incurring significant upfront investment.
At Global Expansion Strategies, I’ve seen companies supporting more than 15m students and 1.5m educators at 30,000 schools worldwide, with multiple large-scale pilots and school implementations throughout LATAM, SE Asia, the Middle East and the US. One company specializing in social-emotional learning, which generated around $500,000 in first-year revenue using a US-focused B2B strategy, saw a 5x increase in year 2 from adopting a B2O strategy, to $2.5m – and they’re on track to double that this year.
A tipping point
These are the kinds of metrics that will be required to survive now that the era of easy money and market-driven growth is ending. As a general rule, buyers and investors want to see:
- A diverse revenue base – too much concentration of revenue in any one customer (or through any one channel partner) may spook buyers since it only takes one relationship to sour for the company’s revenue streams to suffer;
- Attractive revenue growth – revenue growth rates are strongly correlated to valuation multiples;
- Transparency and predictability of revenue – clear visibility into revenue data and where future growth is coming from is critical for helping investors feel comfortable.
K12 edtech is at a tipping point. AI means companies can build products faster than ever and the barriers to entry are lower than ever, which makes go-to-market king. Startups with connections to the most students, teachers and schools have a significant advantage in terms of co-developing edtech products, getting early users to facilitate rapid iteration and, perhaps most importantly, gaining traction by reaching their target audience faster.