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In an economic freefall that appears to have no bottom, a cluster of education IT companies based in Massachusetts are hoping to take advantage of renewed interest in education. Laid-off workers are going back to school and education is a stated priority in government stimulus spending — but fast growth is hard to achieve in the schooling business.
In January, traffic nearly doubled on StudentLoanNetwork.com, a financial aid information site operated by Edvisors Network Inc. “A lot of people who in better times didn’t need financial aid are now knocking on the door with hammers,” said chief media officer Chris Penn.
But the company, which charges a fee for each loan it refers, predicts modest growth in 2009. Banks are only writing so many loans, Penn said.
North Andover-based Omnisharp Inc. would love to take advantage of the flood of laid-off workers going back to school. So far, the test prep company’s Socrato.com website is used exclusively by public school districts. In order to maintain cash flow while developing new products for graduate-level tests and professional certifications, the boot-strapped company needs a large customer contract, said co-founder and president Raju Gupta.
“We have a pipeline,” he said. “But we are trying to generate revenue and keep our expenses low.”
Liam Donohue, managing director at Boston-based .406 Ventures, said he’s getting more pitches from education startups, but most business models don’t show the inflection point a venture capital investment needs to succeed.
Donohue’s former firm, Arcadia Partners, specialized in education-related companies. Arcadia started winding down operations in 2008, saying it had decided not to raise a new fund. Education, though a difficult area in which to fundraise and invest, remains attractive, Donohue said.
“The siren song is so appealing,” he said. “It’s literally the second biggest industry in the U.S., and it’s such a compelling need to educate our population.”
But at the kindergarten-through-12th-grade level, business models are problematic, Donohue said. Any business that calls the government its main customer is at risk of seeing its profits wiped out with the stroke of a pen — sometimes for reasons that have nothing to do with business.
Startups aiming for university customers will face other hurdles, said OutStart Inc. CEO Massood Zarrabian. Universities should be a ripe environment for one of Boston-based OutStart’s most recent innovations, an extension of e-learning to mobile devices, Zarrabian said. However, the company has limited itself to enterprise and government markets.
“The bigger schools that have engineering and computer science students actually can use them to develop the platforms that other people want to sell to them,” he said. “You’re actually competing with the computer science school.”
Nonetheless, tight-budgeted universities will be in the market for e-learning, Penn predicted. Edvisors also refers students to distance learning courses, and the company is seeing growing activity in the area, he said. “A lot of schools are just starting to figure out if you want additional enrollment, but you don’t want to build additional buildings, you need an online program.”
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