Following the money in education
Education is an industry undergoing exciting and dramatic transformation. Some recent trends and developments in the space include: Common Core Standards, MOOCs (massive open online course), game-based learning, blended learning, marketing, recruitment, and a host of ancillary specialized services. These industry changes, along with advances in technology, have stimulated the growth of educational companies and have spurred the interest of private equity investors.
Over the last six months, we have reviewed hundreds of education companies, consulted publicly available databases, and studied numerous websites of private equity firms, in order to better understand the role of private equity and venture capital in the Eduspace – an industry sector which includes both organizations delivering instruction (in some cases, schools) and those providing services in support of schools, educational institutions and related enterprises. The outcome of this work is a landscape survey of, so far, 266 U.S. private equity firms which have made significant investments in over 500 education-related companies of all types. (For a list of the firms studied, visit http://equityforeducation.wordpress.com.)
For the purposes of our research, we define private equity firms as those that provide capital to private companies in exchange for equity ownership. In most cases, these firms are providing early- and middle-stage capital, and are not seeking to control the companies in which they invest. Most private equity firms identified in the eduspace have invested in several industries, e.g. education, health and technology. Only twelve (12) firms have been identified as specializing exclusively in education. This article focuses on what we have affectionately come to call The Twelve: who are they, and what are they doing?
Among these specialist firms, eight (8) take a broad approach to investment. For example, Education Growth Partners, Epic Partners and Leeds Equity are interested in a wide range of business models, from the more traditional enterprises such as education institutions to the fast growing technology-based solutions and services.
Three (3) exclusively invest in the educational technology sector– ImagineK12, Macmillan New Ventures, and Rethink Education. ImagineK12, an incubator for educational technology startups, has recently launched the Imagine K12 Start Fund to provide additional support to their investees. One firm, University Ventures, has chosen a niche investment approach focused exclusively on the higher education sector. Some of Univeristy Venture’s current investments include UniversityNow, which provides access to online collegecourses at accredited institutions, and Synergis Education, which partners with universities in the area of marketing and recruitment.
The Twelve are almost exclusively located in the Northeast, with a heavy concentration in New York City (7), along with Connecticut (2) and Pennsylvania (1). Only two are located in California. This pattern is probably a reflection of the coincident concentration of both higher education institutions and capital in the Northeast, particularly New York.
Although The Twelve are all U.S based, many do make investments abroad. Hart Capital has a very international focus, with investments in the China, India and other countries characterized by rapidly growing private education sectors; Kaplan Ventures has investments in both developed and emerging markets; Learn Capital has invested in the United Kingdom, and Kenya; Quad Partners in Canada; Epic Partners in the Caribbean and Netherlands; University Ventures worldwide; and Leeds Equity in the United Kingdom and Israel, with prior investments in the Caribbean. The remaining five (5) firms have a strong preference for U.S. investment, with some tending to prefer investments closer to their headquarters. Learn Capital, based in California, seems to be particularly focused on close-to-home investment, with nineteen (19) out of its thirty (30) investments in the Golden State.
What are the investment criteria The Twelve? Unfortunately, only a handful shares such information in the public domain. Education Growth Partners focuses on companies earning a minimum of $5 million annually, with investments of from $5 million to $30 million. Epic Partners looks for companies with an EBITDA greater than $2 million. Hart Capital invests from $5 million to $15 million per transaction. Kaplan Ventures will consider early stage companies, with investments from $200k to $5 million. Finally, Renovus Capital seeks companies with EBITDAs greater than $10 million, and commits $5 to $15 million per investment.
WhileThe Twelve have very different characteristics and investment parameters, they all serve as a critical source of capital for eduspace companies, and these firms have made significant contributions to the development of this sector in recent years. For example, Macmillan New Ventures, part of the global media powerhouse Macmillan, has invested over $100 million in educational technology startups. Imagine K12 has funded products that are used by more than 10 million students and more than 1 million teachers. Leeds Equity Partners has recently invested $100 million in INTO University Partnerships, a company which specializes in international pathway recruitment in partnership with public universities.
Private equity now sees education as a significant opportunity, one that transcends simplistic characterizations or geography. Understanding emerging patterns of equity investment is important not only for eduspace entrepreneurs, but also for not-for-profit institutions which are dependent on well-capitalized private sector partners for the provision of essential services. In the coming weeks, we will be delving more deeply into many eduspace equity firms, as well as particular industry subsectors, to uncover other patterns of interest.
Mitch Leventhal is the vice chancellor for Global Affairs at the State University of New York. Ina Tang specializes in research focused on economics and finance of education, as well as risk management. They can be reached at firstname.lastname@example.org.