Raising Money: Getting Investment in Education Startups

Great entrepreneurs are like great surfers.  In order to be the best they can be, they need a really big wave.

1) You’re not growing a business, you’re creating a scalable business model.  Many entrepreneurs just go out and try to get customers and bring in revenue.  However, because the investment community, and even the customer base can be skeptical of new market entrants, it’s more important to focus on measuring demand, calculating pricing, understanding the customer, understanding the market, pinpointing cost of goods sold, and other metrics that will define whether or not your business can “scale” to an emerging or existing market.

2) Find investors that buy into your vision of the future, educate and form alliances with those who almost do.  Don’t wait for those who don’t see it, even if you have a good meeting. Investors spend a lot of time thinking about markets, where they’re going and where they are not.  Each of them likes to think they have a coherent vision for the future.  If yours maps to theirs, it’s likely they’ll entertain investing.  If it doesn’t, there’s pretty much no way they will.  As an education entrepreneur, it’s important to find an investor that sees the world the same way you do.  Since education may be seen as complex or foreign, this may involve you helping to shape the vision of those who almost see the world the way you do, or enjoy thinking about the world from your angle.  While your seeking out those who align with your vision, build positive relationships with those who like you and want to support you by focusing on communication on progress that allows them to “root” for you.

3) Assemble a whole team, including people who understand the problem, the customer, and can design a solution, productize it, and market it.  Everyone got some kind of education.  As a result, lot’s of people think they can imagine a better way to do it.  However, naive claims to revolutionize the way education is delivered will likely fall on deaf ears (unless you can prove it through traction.)  Dave McClure once famously said a good founding team will have three roles: “designer, developer, and hustler.”  In education, you also need market expert, problem expert, and someone who can crack the revenue code.  Though possible, it’s not likely that this comes from a team with just a “hustler,” who would likely spin their wheels assuming sheer force of will result in growing the company

4) A good product is good, but good distribution advantages are great.  Education has a bad rap – people think it’s a hard industry to grow in.  This may be because what people think of as education is monopolized by what people think of as schools.  Or that credentialing is monopolized by degrees, which are in turn run by cartels called accreditation bodies.  It’s also because as an intact bureaucratic system, it doesn’t like to adopt new ways of doing things.  Decentralized decision making is the norm, and where centralized decision making does happen it becomes highly political.  This has led to a consumer and teacher first approach to distribution.

5) Find the weakest link in the fence around monetization.  While Education is a $1.4 Billion dollar a year market, finding easy paths to revenue can be tough.  While many people assume that teachers are willing to pay up to five dollars a month for something, teachers have limited discretionary money and most of that is already put to use.  Getting schools, districts, colleges, universities, or systems to pay for things can be notoriously hard, even if there’s a lot of evidence of wasteful spending in other directions.  Those who sign up for that life often describe dealing with sales and deals as their biggest business challenge and frustration.  Helicopter parents from well-to-do households can be notoriously demanding, even if they have money ion pockets, and children do not make financial decisions regarding their education.  Advertising can be a no no if done inappropriately.  All this to say, spending time on finding the weakest link in this fence for your business, and creating win-win opportunities within your revenue model, is a good move.  You may want to spend time on this up front, as revenue models that assume people will just be willing to pay or accept sponsors will need a more creative bow on that package to get anywhere.

Contributor: Michael Staton


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