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Hi, everybody, we are in back to school season. school supplies are in the air. It is turning a little bit cooler, maybe slightly cooler and some parts of America. I don't know Alex, you tell me but around the world, it depending on your hemisphere, you're probably you know about to send those kiddos back to school educators are getting geared up for the year universities are getting the campus mode and you know, preparing for freshmen
101. It's that exciting time of the school year where we get to restart and Rigo. And by the way, your product team is probably exhausted because they've been grinding it out. Ready for the back to school product release. So we're so excited to have you on the weekend ed tech. Before we dive in. Alex, what do we have going on with the pod newsletter events?
Yeah, so we are gearing up for New York ad tech week, which is at the beginning of October, and also starting to plan a very exciting AI and Education Conference more on that soon. But on the podcast, we just put out a really cool episode this week with Sam Walder, who is the CEO of challah, which does online music education seeking to become the Duolingo of music, online music education, which is actually a lot like language in some ways. Really cool interview, and he's an
interesting guy. And then next week we talk to Dr. SACHIN Nitta is one of my favorite people in the AI space. He's the CEO of Merlin mind, and they've been building, you know, specialized and tech MLMs and benchmarks and open source, you know, material for ed tech companies. It's a really interesting interview. And he knows a lot about this AI revolution. He was at Watson ran the Watson IBM Education Division for years. So cool stuff, definitely check those out.
We have a lot going on in the landscape. I think we'll start today with a big picture perspective on a tech industry. Go through our K 12, higher ed beats, talk about AI in education and wrap it up with some m&a and deals in the space. Let's start with the EdTech. Industry. Alex, we're coming out of the summer, a lot of people taking stock on the first half of the year. What's your take? And what's the perspective of those out there looking at our space?
Yeah, so the reporting is fully out now. And basically, it's showing that both the number of total rounds and the amount of total funding is lower than it has been in quite a while in the EdTech space. We all know we saw a huge boom in 2020 and 2021, and then a decrease in 2022. But so far, the decrease is even steeper, you know, arguably as steep now, so people are really hesitant in the EdTech space. We're definitely seeing you know, non specialist investors move away
and look for other things. As you know, the pandemic we're in our runway, and we are seeing edtech specialists investors sit on their money and not spend a huge amount quite yet. There's not a whole lot of rounds coming from some of the specialist investors. We have seen, I should say, you know, they make a note of there being no mega rounds, which they define as the 100 million dollar rounds in this space. But we have seen two back to back $95 million rounds in ed tech. So it's a little bit
of a splitting hairs there. But what do you think about this drop and it feels like I mean, is it really true that it's you know, Ed Tech is less investable than it was since 2017 or earlier?
Well, it's definitely a pendulum swing in far the other direction. And you know, you and I are long term bullish on edtech. So there's a way in which this is actually a great time to be an investor and invest. That said, investors are having a hard time raising funds from LPs, you know, limited partners are basically trying to allocate their money to the
highest probability returns. And when you can get 5% 7% with basically no risk on debt, why are you going and betting on venture capital, and then on top of it, you know, edtech, which is a niche that has really had a rise and fall. On top of that, you've got the publicly traded companies, which are really getting hammered in the stock market, overall, they have not recovered, you know, their value from their height. So most of
them are 20% of their peak. And then you look at the, you know, largest companies, companies like buy juice. And, you know, if you look at the Indian sector, where there's a variety of ad tech unicorns, many of them have not been able to demonstrate profitability, have had layoffs, and so on. So there's, you know, at basically every layer of the cake, there's some real headwinds for
investors. And then also for entrepreneurs, the best activity that I'm seeing is, you know, very early stage, it has to do with new models that we talked about in our newsletter with micro companies, but also new ways of building products, leveraging AI and using outsourced teams. So, you know, I think there's optimism on a 10 year trajectory. But for those investors who are looking to make their money in the next like three to five years, the outlook still seems pretty grim. Yeah, and,
you know, in the absence of venture funded ad tech, which I mean, it won't be completely gone. But having fewer companies in the space, there may be some interesting room for incumbents to be scooping up companies, but also to be sort of moving into edgy spaces that usually startups would be sort of accelerating into, especially with all this AI technology, you can sort of afford to have a intrapreneurial, kind of inside moonshot labs, the kind of things and we're seeing a lot more of
that company. I mean, to a degree AI has also created a wait and see approach from investors, because they're not really sure how it's going to play out. And right now, I'd say the betting favorite is that it actually helps incumbents more than it helps newcomers just because incumbents have distribution. And the kind of cost to develop, you know, fast follower tools on top of platforms is relatively low, you know, it's pretty frictionless. And on the startup side, it's very hard to build
defensibility. So that's also a factor that's causing people to pause. One thing for our average listener to also pay attention to is when you look at these funding rounds, 95 million 90,000,040 50 million pay attention is this equity funders, so or venture funding and so on? Or is this debt funding, and that could be either a private equity firm, or it could be straight up a line of credit, a line of debt, debt is far more expensive now than
it was before. So you know, if you're in a healthy position, you don't want to have a lot of outstanding loans that you're taking out right now. And that can actually be so these big rounds, in some cases, can be a warning sign that people are going to more expensive forms of capital, because they either can't get the equity financing, or they they need it in a more
distressed situation. And like, how does that all play out in an ecosystem that is going through a correction, the more debt you have, the more likely it is that you default on that debt. And then either the debt holder takes over your company and sells it off, or you shut down. And so I just think the, you know, tea leaves here, even for some midsize and large companies aren't looking great in the near term.
Yeah, I'm still consistently surprised that the public ed tech stocks are sort of still hovering as low as they are, it really feels so odd to me. I mean, I know this is always a pendulum swing, and there's a sort of perception in the market, but And of course, we're long term bullish on Ed Tech, as you just said, but like, it feels to me like a lot of these big ed tech stocks are pretty meaningfully undervalued right now. And I think some people are sort of
betting on that as well. But obviously, we're, you know, we're at Tech fans. So we think it's gonna it's gonna go up but you know, some of these are hitting sort of bottom of the barrel prices and it just feels like a mismatch to the reach they have to the impact they're having to the number of partners to the amount of revenue. It's really it seems odd.
Yeah, it's interesting. We cover this in the deal section, but check is doing $200 million stock buyback, which basically confirms your point check thinks they're undervalued in the market, they're buying back stock with money from their balance sheet, because they are bullish about their long term future and bullish about the
value of their equity. You know, one thing that is interesting as like a sub bullet, though, of all these points is Europe, still going pretty strong, the amount of deals continuing to grow in Europe, and we might take away is that in like hard times, the government is still a
pretty good buyer. And so it's interesting, because I think there was a lot of investor concern about Europe in the past, where it's like, we're probably not going to go to Europe, because of the regulatory environment GDPR government as buyers, that's a slow sales cycle. And also, the fragmentation of Europe and UK is, you know, very hard to
scale. But a few companies have broken out and demonstrated the ability to kind of cross country lines, they're doing either consumer, but many times government funded or subsidized deals, it turns out, the government is like a pretty good payer and lean times. And that might bode well for b2b or B to G, SAS Type edtech companies over the next three to five years, US education funding, basically, historically has
never gone down. And there's still pretty incredible pockets of budget, around learning loss around attendance around mental health that, you know, up and coming companies are tapping into.
So one quick point on Europe. And then let's talk K 12. I totally agree. And I think you know, that micro companies model that we've been talking about, you know, about AI empowers these sort of smaller teams, I think we've seen it in action in Europe, you have, and in Latin America, actually, you have a lot of smaller companies making big impacts without, you know, growing a lot. And I think
that's really interesting. The bright eye report that came out, you know, a couple months ago from the venture capital firm in London, basically says the same thing. You were just saying that, you know, Europe has gone down, but I think not as much as any other sector in the world. So it's showing a little more resilience than you might expect. So then let's talk K 12. What is going on in the K 12? World, this politics this private school? Tell us what's going on?
Oh, man, it is a little bit of a mess in K 12. You know, I say that with love, love my K 12 peeps, and, you know, getting prepped for the school board meeting next week. And that one will be an interesting one. You know, three main headlines. One, definitely not new is teacher shortage is, you know, I've talked to many school leaders. And now it is part of the plan to essentially go into the school year expecting year long vacancies, you know, 10 to 20% vacancies.
And in Florida, we're seeing this play out in a very political way. DeSantis and the kind of Republican wing, which is really touting Florida's teacher training, staffing program, and education, basically as a lynchpin for the national campaign is under relentless attack from the teachers union, which is basically saying, We've never had so many openings, we are in crisis, and teachers are fearing for their jobs, because of the restrictions on what to teach.
And I know in like ed tech channels, a lot of entrepreneurs are really concerned, do we have to make a red state product and a blue state product? How do we avoid getting banned, there's people showing up to school board meetings, that click on a link of a link of a link of a link. And if they don't like where that's landing, they're protesting the EdTech company.
So the fight from school libraries into classrooms now into ed tech is full on the other two big ones, you know, private school choice, and E essays. These are Educational Savings accounts. These are ways in which government funds are essentially put into a wallet
for parents to spend. And some states The essays are smaller, and it's really around extracurricular and, you know, after school activities, and others like Florida, it is a full replacement for school and essentially pays for private schools at between 10 and $12,000 per student, what you were seeing and there's some really great coverage of this in
market brief by Ed Week. It's basically becoming an equity issue, not just around like the funding, but also around parents awareness and which choices are available in their space. So you have both the kind of school choice shouldn't be on the docket at all, folks. where it's like, everyone should go to the public school, then you have people that are on the other extreme, which are saying, there's not enough choices. And we need more innovation, we need
more private schools. And what it's creating ultimately is basically a hodgepodge of federated systems that are really hard to navigate for any tech company, let alone a parent who lives there. And then finally, just to wrap it up, there's a big shake up at Scholastic. If you want to look at one of the publicly traded education companies, that keeps you know, slow and steady, it's Scholastic, you know, they've been public for over 50 years.
And they continue to make a good profit selling through schools, selling the families, you know, publishing etc. But rose Ellis Mitchell, who was also at Pearson, before, kind of a superstar, many people thought she was the future CEO. She's moving on, and replaced by their Head of International. So it's just a very interesting time for, you know, on the ground in K 12, all the way up to the boardroom of some of our biggest education, K 12 companies.
I worked with results Mitchell was its classic. She's an amazing, you know, figure in in ed tech. I always think of her as like the Anna Wintour of Ed Tech. She's Australian and very glamorous and sort of very, we got to
get her on the pod. We gotta get, we got to get the behind the scenes story, what really happened?
I'd really liked it. I mean, obviously there, you know, we know that there's been this sort of salacious scandal and Scholastic where the founder, you know, handed the company to his
mistress, basically. And I would imagine that I mean, you know, I'm speculating here, but I would imagine the Rose, who has been there for years and getting, you know, moving up and up and up has replaced Marjorie, my heir, as the head of the entire Education Solutions Division, I would imagine that you know, that succession path might have changed, you know, her opinion on things, but who knows what happened inside there, but she's a real
powerhouse. The only thing I would add to K 12 is a clever put out a really nice report this week, a survey of teachers that basically said, you know, in relationship to the teacher shortage, two thirds of teachers are reporting that Ed Tech has been key enlightening their workloads, which is really cool. 68% of teachers say efficiency gains are the main advantage of edtech. They make things easier
and easier. Almost 70% of teachers are asking for more ad tech support for students with IEP s or five oh fours in the special ed world. And this was really exciting. A 79% of teachers report sustained or more positive student attitudes towards edtech over the last year. So they're, you know, teachers are saying students are more engaged, they're more excited about edtech than they have been in the past. That's
all great news. And the efficiency gains, obviously, could have ideally some downstream effect on teacher burnout. And then teacher shortage, especially as these AI tools come in, which sort of supercharge the efficiency for teachers. So I'm hoping that you know, at tech world, we can really make a dent in this teacher shortage and help people get in. I also talked to Mark faiella, this week, who runs Perl, tutoring Perl is a
platform for tutoring. And he made an interesting point about there all of these interesting state programs right now, bringing college students and education majors, but also just college students of all kinds into tutoring platforms, basically as tutors, and that that is being seen as more and more of a pipeline to teachers, because people are getting experience like really positive experience doing tutoring while
they're in college. So just an interesting, maybe hopefully glimpse of a positive future for the teacher shortage.
Yeah, it's that's the bright news in ed tech in K 12. How about in higher ed, what's going on in your higher ed beat?
Yes. So speaking of the growth of Ed Tech, the annual Chloe, I guess we call it that a ch l e survey came out this week, basically saying that, you know, online, continues to grow in a higher ed world, you're seeing, you know, over two thirds of colleges report reexamining their strategies to adapt to growing demand for online learning 40%, saying their priorities are already consistent with this
shift. So I think this is good news for the world and also for Ed Tech is that even post pandemic, schools are not fully snapping back, they are still seeing increased demand for online or hybrid learning. And they're really trying to strategize around it. So that's
good news for us. The other thing that is, you know, in the news for higher ed, it's not entirely ed tech is more and more and more, there is just pressure on all from all fronts for these higher ed institutions to start ending legacy admissions or admissions related to donors or, you know, all of these sorts of prioritized admissions that are in the wake of affirmative action decision from the Supreme Court. It just feels like there's a drumbeat and we're already seeing some
schools you know, ended. This may be a passing fad. This may be something we're just all talking about in the wake of decision. But I am actually, you know, hopeful. And I think that the combination of all the, you know, exposure of these admissions at Harvard had to give a whole lot of admissions data, which was analyzed recently. And they just found that like, read out, wealth is a
huge factor. It's just it's more important than almost anything, which is just, I shouldn't be really embarrassing for that whole space, I think there hopefully will be some sustained pressure. And we will actually see some real movement in ending some of these legacy admissions. I'm curious, you know, we don't talk about this that often. But what is your take on sort of higher ed and missions world?
There's an interesting article on from Inside Higher Ed about the inequity in higher ed. And what I'm seeing and kind of what this article alludes to is there's some interesting donut holes in higher ed. So first, there's the elite universities. And then there's the free public's, you know, community colleges, high volume, high access, and the in between schools are really stuck with a high cost, relatively low
ROI model. And the Wall Street Journal had a article about basically how, you know, higher education institutions are spending, like there's no tomorrow, the majority of those kind of mid tier schools do not have a donor base that's really supporting that accelerated costs, it's really getting passed on to students and parents in the form of bigger
student loans. And so there's this big question, I think, not what will the elite schools do and not well, the kind of community college or free public admissions schools do, it's about this big middle, and how they will react. And then on top of that, there's the kind of doughnut hole around middle class admission. So if you are extremely wealthy, the kind of opportunities available to you remain consistently great. And the kind of cost to you is not like the ROI calculation doesn't
come into play. And then for very, very low income students that are high achieving, there's ample scholarship opportunities, even without, you know, support for affirmative action, there are still many pathways to elite schools or good schools. But for those in the middle, they're kind of stuck with, you know, the same kind of loan burden caused by the inflationary
costs. And what really struck me in all of this, and, you know, we're talking about admissions process is just when you stack up the US education system with Canada system, and you look at the outcomes and the costs, and the admissions processes, and so forth. Canada is just far more equitable in terms of their admissions, it's far more affordable, and their outcomes
are high. So clearly, Canadians have figured out something that we have either not figured out or we've forgotten, and I think it does, burly, for those stuck in the middle middle class consumers, and middle tier colleges and universities. And this kind of market correction is playing out, as we see it heading up this fall. Over the summer. One of the other articles that I read was about college and university m&a. And
it's really incredible. When you think about the campus infrastructure and overhead that many schools have built, it's very hard to fold that into a combined university to have essentially dual campuses with dual overhead. So I think there's also a question of what do we do with this kind of Country Club infrastructure that we've built around academic institutions? And will that have a profound effect on the communities that have hosted these schools for decades, if
not centuries? So that's what I'm watching?
Yeah, I mean, a little pipe dream that I've had for years around this is that maybe some of these cities like Madison, Wisconsin, you know, Chapel Hill that are really based around these
colleges? What if the colleges instead of being run by a single university became basically, you know, learning centers for people and many universities, put people in community college people who are learning online, it's like, they could be places that people come together, they keep that high level of academic and sort of intellectual engagement and they keep their being students and ideally, some professors around so it doesn't, you know, the college town
doesn't disappear. But, you know, why should it be that there are these enormous campuses for these small groups? It's nice, you know, you see Amherst, you know, ended legacy admissions last year and this year, they just announced they have 19% of their incoming student body is first generation college students. And it just feels like there's hopeful and Amherst you know what One of the top three liberal arts schools
in the country. You know, we're getting into this moment where I think the schools and even to the president level are starting to say like, maybe this thing that we thought was gonna last forever, this same model of higher ed, maybe there really is some other way to do this. And I think this change admissions is a sort of harbinger of change to come. I hope it is. It's a really fun thing to think about. I think it was the future of college campuses. Let's talk a little bit about AI.
Yeah, it's a strange episode. We didn't lead with AI in education. I mean, in some ways, it's like, so embedded in every topic. Now, it's, you know, just thinking about a year ago versus now. I mean, it's kind of amazing. Yeah, on the AI and education front. The stories that I'm following are really about the back to school season, and around implementation of AI in education contexts, including schools and universities, but also with students and learners
at home. We saw Khan and Instructure, forging a partnership, con, of course, with conmigo, and we had Kristin to cerbo on the pot. This is really a power couple here in terms of distribution, access, tooling, all of that. And the kind of embedded AI in an LMS, I think speaks to where things are headed. Interesting, the instructor decided to go with a partner strategy versus build
their own or buy one. And we're also seeing that code.org is the con as well all launch free AI professional learning for teachers. There's a couple of new kind of startup nonprofits that are doing PD for teachers and schools and AI ones called AI edu. Another one is called education, and AI and catchy name. And I think everyone's understanding that there are no really good rules or guidelines around you know, how to implement both for teachers and their efficiency, as well as
student learning supports. So lots of AI in education activity, the product release that I was most impressed by was
quizlets. They just launched a huge suite of services that kind of transformed the company from you know, flashcards to a kind of complete learning set that's personalized to each learner, you can basically upload any course materials and an audit autogenerate, study tools, quizzes, study guides, practice sets, and also now connects with basically any textbook and can create lessons that augment the classroom lessons. So some really cool releases, coming out quizzes, had some new releases.
Kahoot had some cool releases. So you know, this is one where listeners we'd love to hear which new AI releases are kind of blowing your mind as you're headed through back to school. On the AI and education front. What are you following? What's kind of peeking your interest?
I think you've covered a lot of what I've been saying. I guess the only thing I would add is that I think we're in this really fun slash scary moment in AI on education, where basically, you have these evangelists and some are the sort of individual evangelists. I talked to Amanda Bickerstaff from AI for education, former teacher, amazing PD, for higher ed and K 12. And then some are the sort of company evangelists. So the training you're saying it's a combination between Khan
code.org, ETs and ISTE. Such an interesting group, you know, I think all nonprofits and basically saying, let's put together like the absolute mega stars of the space, they have Khan, they have the CTO of open AI, they have you know, the CEO of runway like these are people who are the top of the field period, not just education, and designing materials for teachers and for people to understand how to use it. I think there's a lot of excitement about how this
could be used in education. But for now, it's like Philip a Hardman does amazing work with this. Ethan Maalik does amazing work with this, as they are now putting out a lot of videos from his stance at Wharton, like you have these handful of people. It just reminded me so much of the beginning of the internet, where you had these handful of professors and these small groups who were saying, Guys, this is the future like, please get on board. And nobody knew what to do with them. But they
were way ahead of the curve. And I'm hoping it's that kind of moment, because I think there's so much we could learn from it. So that's my only take. It's just a neat moment where it's like about to peek and some people are seeing around the curve, which I think is just really exciting. Then let's talk we have a couple of funding rounds we really want to dig into. Tell us about the school status class tag acquisition.
Yeah. So class tag basically is a communication platform for parents and families and basically competing directly with companies like remind. And there's also ways in which they can essentially rate and review different classes and different courses in schools. What this basically does is combines school status and class tag to reach over 5 million families. And they're basically able to do this in 100 plus
languages. So this creates a formidable opponent for remind, and is kind of, I think, the maturing of the school comps, and you know, home to school connection space. And that's also a space where I think LMS is have basically consolidated around a few of these providers like class tag and remind the other funding round that caught my eye was class wallet, which is basically a form of ESA
enablement. They closed a funding round of $95 million guidepost growth, equity and education Growth Partners led the round, not our typical
funders in this space. But it is interesting because basically, there needs to be infrastructure that allows for the distribution of public funds through to parents and then into private companies that you know, people are purchasing from so this positions class wallet at a really high leverage point in the buying ecosystem and how they navigate that how do they stay neutral? How do they stay compliant, that will be a really
interesting story to come. And with $95 million, you've got to think they're in a strong leading position.
I think this relates to your point about Canada, which is uh, you know, one of the things that makes the US system so Byzantine and difficult and slow moving at times is it's hyper federated, it's you have local groups and school boards and so many different systems that are on
top of each other. I want to read a quote that I thought that it resonated a lot with me from the CEO of class wallet in the, in the sort of discussion of this funding round, he says, this is Jamie Rosenberg, Founder CEO of class wallet, governors and policymakers fund programs based on upon perception of demand, yet find themselves months or even years later, with unspent funds. Because of the enormous amount of friction associated with compliance
related bureaucracy. I can sort of feel the wind of listeners nodding their heads at that, because it is just such a pie, especially in K 12. Such a big problem in education that, you know, we don't even think about that often. But it's exciting that you have a big ad tech firm really focusing on it directly. So I was excited to see this big round.
Yeah, it's so funny, because the headline was no mega rounds in the year. And then just following that article, there were a couple big rounds. The other one that caught my eye was go student raising more money to fund VR based tutoring. Yeah, you know, I'm an optimist. And by the way, also, like, those who throw shade and edtech always lived to regret it. I will say it feels like we hear different messages from NGO students message one is, we're going to grow digital tutoring around the world.
Message two is we're now basically opening physical tutoring centers. Message three, we're now creating VR spaces for tutoring. It feels a little bit straw grasping to me. And I'm not saying that that's not a great like three prong strategy. But it does feel like the headline messaging is a little confusing.
That's fair, I forgot about that a whole push for in person centers, all of these different online tutoring companies at the same time, started pushing back into in person. But now yeah, this seems like a pivot to go from in person to virtual but I have faith in go student, I think you know, I wouldn't be early and only so far European and tech companies to really bust out of their local region, although, you know, they're still focused there in a lot of ways. And I'm
still bullish on them. I think there's still a lot of runway for them to go. But you're right, that it is a pretty confusing message to see all the different, these different strategies that don't feel particularly related.
Awesome. Well, I think that wraps our show, Alex, it's so great to get back into the swing of things and so great to have you, our listeners with us. If it happens in ed tech. You're going to hear about it here in ed tech insiders. Thanks for joining our show. Talk to you soon.
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