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Online education is an increasingly hot sector for private investment, driven by government studies, vast potential customer bases and promises of solid exits. And whether the learning flavor is virtual world-based training, online tutor sessions or web-based full colleges, the online education space can be broken into two basic approaches — one-to-one versus one-to-many.
At Boston’s Spark Capital, partner Alex Finkelstein likes both approaches he said, although he is most bullish on the one-to-many approach. Three of Finkelstein’s four investments for Spark have been in online education or training. Altius Education Inc. of San Francisco is a post-secondary school that partners with established brick-and-mortar colleges, 5min of New York is a repository of short-form video tutorials on all sorts of subjects, and Woburn’s 8D World Inc. provides an online virtual world for English-as-a-foreign-language (EFL) learners, mostly in Asia.
The size of the market and the lure of a real exit make Finkelstein bullish on e-learning.
“Education is the second biggest industry in the United States,” he said. “You have a number of big companies, like the Pearsons of the world, who are large acquirers.”
U.K.-based media conglomerate Pearson plc, which sold its stake in market data firm Interactive Data Corp. in May, has had a large presence in Boston. Its New Jersey-based division, Pearson Education Inc., owns Boston’s Family Education Network, among other businesses here.
Finkelstein touted a 2009 report done by the U.S. Department of Education that looked at the 12-year span comparing the ranking of students using online education versus classroom education. That report found that web learners would score nine points higher in class ranking over classroom learners. Pairing that kind of outcome with the “generational shift” that has younger learners more accepting of everything being served online, is helping move online learning from the pariah status it once had among VCs, Finkelstein said.
“Historically, a lot of VCs have shied away from education because they have lost a lot of money there,” he said.
Carl Stjernfeldt, general partner at Waltham-based Castile Ventures, thinks that monetization has been a problem with online-learning, and that is why he is most excited about the one-to-one model, such as online tutoring.
“That’s a very good business for everyone involved,” Stjernfeldt said. “It’s a very good business for the teacher — you go online for two or three hours each night and you make a good paycheck.” Stjernfeldt said that mirrors another growing sector, the online customer service space, in which the direct connection between troubled user and helpful tech happens over the web.
One such tutoring play is Lexington’s EnglishCentral Inc., which in October took in $3.5 million in equity financing from investors Google Ventures and Atlas Venture. The company provides 24/7 English-language practice for native Japanese speakers.
Asia as a whole is the hot growth area for e-learning companies, particularly those focused on teaching English. Finkelstein said that 8D World has gained traction as the “homework” provider for some of the 50,000 English as a second language training schools in China, along with the public school system there. Not that such a channel strategy was in CEO Alex Wang’s sights when Spark first talked to them, according to Finkelstein. “The CEO said, ‘I don’t think public schools will ever pay for this product,’ but public schools were our first customers,” he said.
Editor's note: An earlier version of this article incorrectly identified Pearson's current stake in Interactive Data Corp. In May, Pearson sold its 61 percent stake in Interactive Data.
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