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Arcadia Partners, a Boston venture capital firm focused on investing in education-related companies, has learned some hard lessons on that particular investment approach. The firm is winding down operations and is focused on its last two portfolio companies.
Arcadia’s co-founders say education is a complicated sector, making it difficult to attract limited partners.
Founded in 1998 by Liam Donahue and Andrew Hollowell, Arcadia plans to wrap up operations following exits from investments in Mzinga Inc. of Burlington and Business Intelligence Advisors Inc. of Boston. Launched with a $50 million fund, the firm decided in 2005 to forgo raising a second fund, said Donahue, who is now a managing director at .406 Ventures in Boston.
The education market is enormous, second only to health care, but it’s a tough sell to investors, especially after the promise of e-learning fell flat along with the dot-com bubble in 2001, he said. However, Donahue expects the education industry to eventually rebound as a popular investment sector.
“There’s this massive need, and the use of technology is going to be part of that equation,” he said. “A totally (education) focused fund someday will find its place.”
Arcadia invested in about 20 portfolio companies, including Wayland’s Knowledge Impact Inc. and Watertown’s HighWired.com Inc. The firm’s most successful investment was Boston’s Health Dialog Services Corp., which in 2007 was acquired for $775 million by London-based BUPA, its largest shareholder and one of its first investors. That deal enabled Arcadia to pay off most of its limited partners, Donahue said.
Burlington-based Mzinga was formed after a 2007 stealth merger of Woburn’s Shared Insights US LLC and Pennsylvania’s KnowledgePlanet Inc., an Arcadia portfolio company. Mzinga builds online communities and social networks within companies, opening corporate intranets and wikis to the larger web.
Shared Insights founder and Mzinga chairman Barry Libert said investments in traditional education business models isn’t enough. Venture capitalists need to balance conventional models with investments in social learning that’s made possible by the Internet.
Several local tech firms have recently launched in the education sector, though none have announced private equity investments. In June, North Andover-based Omnisharp Inc. completed an eight-month beta test of its Socrato.com test-prep website. In February, Cambridge-based uProdigy Inc., which provides tutors in South Asia to students via chat and voice-over-Internet-protocol, won its track in MIT’s $100K Executive Summary Contest.
Last year, Cambridge-based Lumina Prep LLC, launched an online college prep-test tutoring service, and Worcester’s Lingro Inc. launched its Web-based language training product. Stoughton’s GlobaLinguist Inc., which was founded in 2003, and Cambridge-based My Happy Planet Inc., which launched in January, also provide language-learning products via the Internet.
New York-based Quad Partners, a Mzinga investor that was founded in 2000, is one of the few firms nationally to go against the trend with an education-focused fund. “It’s a space I continue to look at,” Donohue said. “Like health care, the day will come, and it will find its critical mass.”
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