K-12 Marketplace Sees Major Flow of Venture Capital

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The flow of venture capital into the K-12 education market has exploded over the past year, reaching its highest transaction values in a decade in 2011, industry observers say.

They attribute that rise to such factors as a heightened interest in educational technology; the decreasing cost of electronic devices such as tablet computers, laptops, netbooks, and mobile devices; and the movement toward standardization of curriculum through the Common Core State Standards.

"Having been in this space, covering it for more than a decade, I've not seen this level of interest or supply of early-stage K-12 businesses in the last decade by any stretch of the imagination," said Adam J. Newman, a founding and managing partner of Education Growth Advisors, an education business advisory firm in Stamford, Conn.

"What you have right now in K-12 education is an ecosystem of really dynamic entrepreneurs and emergent companies and a very diverse set of organizations that have become interested in the education space," he said.

Betting on Education
The flow of venture capital funds into the K-12 market dropped precipitously in 2001, following two years of huge investments of about $500 million annually before the dot-com bubble burst. Investments leveled off between 2001 and 2006, before rising again, and taking off last year, surpassing venture capital investments in higher education for the first time since 2006.

Venture capital transaction values in the K-12 field, which include both public and private schools, increased from roughly $130 million in 2010 to $334 million last year, according to data from the Chicago-based GSV Advisors.

Precollegiate education historically has not been an easy market for venture capitalists to break into, analysts say, but certain factors are contributing to a higher awareness of this market for investors.

Venture capitalists generally look for "high-growth opportunities" and rely on the ability to scale up new enterprises quickly, said Mr. Newman. So the common standards in English/language arts and math, for instance, which have been adopted by all but four states, are contributing to companies' perception of a potential for fast growth in standards-related ventures across a larger market, he said.

"[The common core] is breaking down some of those state-level barriers that made it challenging for folks [to achieve scale]," said Mr. Newman. (His firm's other founding and managing partner, Christopher L. Curran, is a trustee of Editorial Projects in Education, the nonprofit publisher of Education Week.)

For instance, MasteryConnect is an educational technology startup that aims to help teachers transition to the common-core standards. The platform allows teachers to find, administer, score, and track student data through formative assessments.