By Estelle Shumann*
Venture capital and other forms of seed funding have been crucial for the development of the best online colleges. Many third-party educational organizations exist to maintain online schooling ventures, and these organizations typically receive most of their funding from venture capital firms. The same is true of educational technology developers. Many smaller development firms receive seed funding to develop technologies used by public and private schools across America.
Venture capital for online schooling is so important because success usually hinges on the ability to make high-quality educational resources widely available for little money. One such service is Coursera, an online educational program developed by two computer science professors from Stanford University. Coursera makes college courses from elite universities, including Princeton University and the University of Michigan, available online for free. A Wall Street Journal piece from April 2012 reports on the impact of $16 million in venture capital awarded to Coursera to increase the scope of the program. “Elite education is too expensive, and it’s available to too few,” said John Doerr, one of the venture capitalist partners backing Coursera.
Online educational programs do best when they attract a large number of applicants. Many companies, such as Coursera, make their services available for free. They feel that gaining many thousands of regular users is more important than earning an immediate cash flow. Later, services could be marketed to members or favorable advertising rates might be negotiated. But the choice to make quality services available for free is part of the reason why startup funding is so crucial.
The use of venture capital for developing educational technologies is increasing rapidly. This includes technologies used to support online educational programs. A Bloomberg Business Week article reported that $177 million in venture capital funding was released to American educational technology companies in 2010. This figure was triple the total investment made in 2007. Venture capital can make an immediate impact on an online schooling company’s bottom line. A $125 million grant made in 2011 to K12, a company developing educational software for online schooling and testing, led that week to the company’s highest stock price in an entire year.
Still, venture capital used to be much more fond of educational technology and online educational programs. The largest total amount of venture capital released to educational technology companies within one year is $534 million, reached in the year 2000. Many of these companies started strong with venture capital backing, but failed to secure enough clients to make their products profitable. Now, with the Internet and wireless networking more available than ever, it has become much cheaper to build integrated technologies and easier to attract students or schools.
In the past few years, more online schooling program startups have been developing than ever before. There’s 2tor (aka tutor), a 2008 startup working to develop high-quality online courses with accredited universities. An SFGate article reports that the venture has raised more than $90 million in seed capital, as of April 2012. In the same month, educational video developer Craftsy reported raising $15 million in venture funding to help program operations, including the search for high-quality educators to develop video lessons. Lore (formerly Coursekit), a small startup trying to break into the online classroom market already dominated by Blackboard, raised $6 million.
Without venture capital funding, these educational startups wouldn’t have the ability to get started. Knowledge and expertise in an area is one thing, but developing the online tools to disseminate information to a wide audience takes time and money. When those services and products are being distributed for free, it makes paying the bills even harder. The rising trend in venture capital funding for online schooling is encouraging, but making sure that students find the services that are right for them is still a major concern.
* Estelle is a writer interested in a wide range of educational methods. Having played several instruments and been exposed to many art forms in her childhood, she finds that solving the education puzzle today requires more than simply a large budget. She currently writes and researches about online education.
I'm a former general partner at google ventures, head of Google for Entrepreneurs in Europe and founding head of Campus London, Google's first physical hub for startups.
I'm also the founder of Techbikers, a non-profit bringing together the startup ecosystem on cycling challenges in support of Room to Read. Since inception in 2012 we've built 11 schools and 50 libraries in the developing world.
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