As we enter the third school year of the Covid era, a disturbing new normal is settling over the country. Students continue to be chronically absent; nearly 50,000 Los Angeles public school students failed to show up on the first day of school. Nine-year-olds’ math and reading levels have dropped to 20-year lows, and the dip in reading scores is the steepest decline in more than 30 years. Teacher vacancies are reaching crisis levels. Schools are even resorting to bringing back retirees and loosening basic teaching requirements to fill gaps.
Why is this so important? Education is a $1.8 trillion-dollar industry in the U.S. More importantly, our education system shapes who our future leaders and builders will be—more than 1 in 5 people in the U.S. are current K–12 and college students.
The pandemic catalyzed big shifts at all levels of education, in some cases upending what were previously slow, decade-long trends. Technology adoption in classrooms accelerated; parents pulled their kids out of public schools by the millions after seeing firsthand the inadequacies of our current education system; teens became study influencers on TikTok and made learning cool again (aka #studytok); and the government stepped in with hundreds of billions of dollars for public education. These shifts are driving an expansion of EdTech beyond lecture halls and classrooms, beyond K–12 schools and colleges, to lifelong learning and what we call the Learning Economy.
Naysayers may note that education venture funding returns have trailed the returns generated by other markets, or that only three companies (Coursera, Duolingo, and Udemy) have gone public in the last year. But we believe that the Learning Economy is a much broader sector—and one that spans a longer timeframe—than most people think. The Learning Economy doesn’t just refer to academic tools and student/teacher-facing technologies. Rather, it encompasses all the different ways we develop as human beings, be it picking up a hobby or learning to be a better boss, parent, or friend.
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It’s easier than ever to start a Learning Economy company. Given the current environment, record numbers of domain experts in education (disillusioned teachers, etc.) are available to team up with record numbers of product builders trained to build modern consumer experiences. Together, these partnerships can deliver the core of any education business: products that either aggregate and deliver content, or products and communities that establish behaviors key to learning such as accountability and consistency.
Second, the pandemic has created a once-in-a-lifetime economic opportunity for early stage companies to reach an eager customer base. The U.S. government’s Elementary and Secondary School Emergency Relief funds (ESSER funds) are the largest one-time infusion of funds in education from the federal government with almost no strings attached. Historically, figuring out who pays for learning products has been the largest challenge for companies. Between parents spending more out of pocket and ESSER funds, there is an influx of new and significant funding sources to pay for much-needed technology in U.S. schools. In total, the government has allocated ~$190B to schools across three packages. The first tranche of funds must be allocated by this month and the second by September 2023. Most critically, ESSER III, which focuses on academic support and is the largest of the three packages, must be allocated by September 2024. This is a huge amount of money that schools must spend (or lose!) over the next few years, and startups stand to benefit.
Third, Americans across all generations are seeking alternate educational routes. In K–12, teacher shortages are forcing schools to outsource curriculum and lesson development, as well as actual teaching, to third-party vendors. School choice, fueled by ESA governmental funding, is on the rise. In dozens of states, parents can apply for government funding and send their kids to private schools and other educational institutions of their choosing. There are even companies such as Merits and Odyssey that specialize in this: streamlining the application for and transfer of government funding to parents. In higher-ed, college students are complementing Zoom classes and traditional academic schoolwork with real-world learning opportunities, like contract/freelancing work, internships, side hustles, and content and business creation at higher rates. For those already in the workplace, thanks to “the Great Resignation,” millions of people changed careers. But they did this not by enrolling in graduate school to formally upskill their abilities, but instead by opting for more on-the-job forms of learning, such as using Buildspace to learn about building web3 apps, Reforge to meet like-minded mid-career growth and product managers, and Guild (through their companies) to uplevel their skills.
Finally, the past two years have brought huge advances in technological adoption, which has traditionally lagged in education, creating new opportunities. This trend will only continue to accelerate. It took many decades for TVs to become mainstream and one decade for cell phones, but only a few years for social media and smartphones to take over. Given the speed we now cycle through technology adoption cycles, we all need to learn and adapt to new tools and technologies more frequently and faster than ever. Lifelong learning is now a must have in the workplace. Take video conferencing for example. Because everyone is now comfortable on Zoom, video has become a standard for education, and startups now have access to a global pool of teachers, tutors, learning specialists, students, and peers that they can tap for their companies. Startups can also take advantage of the fact that VR has gone mass market, with education as one of its prime use cases. 2021 in particular was a banner year for VR. Oculus sold more VR headsets — 8.7 million—than Microsoft did Xboxes, roughly doubling sales from the previous year. Globally, VR users surpassed 171 million users. Prisms is already leveraging VR to teach STEM, serving hundreds of K–12 school districts.We all need to learn and adapt to new tools and technologies more frequently and faster than ever. Lifelong learning is now a must have in the workplace.
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We first began tracking these changes two years ago and made some predictions about the future of K–12 education. As we expected, teachers continued to leave existing school systems in droves. 6% of all K–12 teachers have quit their jobs in the last two years, and 55% plan to leave the profession earlier than expected because of the pandemic. We also correctly predicted more engaging and retentive formats for learning beyond MOOCs (massive open online courses, think: Coursera, Udemy) would emerge, such as creator-led, cohort-based courses and gamified learning. Even though Zoom school has given way to classrooms again, we still see many opportunities for innovation. When we look beyond K–12 to higher and continuing education, along with changing labor markets, there is yet more room for innovation as professionals seek new skills and careers. Only 35% of those who quit in the past two years took a new job in the same industry. When we look at the current landscape, here are some areas we are most excited about:
Companies leveraging ESSER and Title 1 funding as a wedge for K–12 school sales. Due to increasing teacher shortages, schools are looking to third-party solutions to outsource and supplement their own resources. There’s ~$190B in ESSER governmental funding for schools to adopt and innovate using technology and tens of billions more in Title 1 funding per year. Leading players in this category include Paper, which provides 24/7 chat-based academic tutoring and support for learning loss and acceleration, and Subject, which offers a large, ever-expanding and high quality accredited learning catalog to supplement schools’ own offerings. Several states also announced dedicated budgets and regulations specifically for computer science and mental health programs (California, Illinois). The latter is especially timely, as ER visits for suspected suicide attempts increased by 51% for teen girls and 4% for boys during the pandemic.
Products that link learning to promotions, new careers, and other direct outcomes. Today’s non-vocational colleges and graduate schools don’t always prepare their students for industry roles. In fact, surveys show that 1 in 5 college grads find that college did not adequately prepare them for their first jobs. That’s why supplemental learning to full-time employment has become the new, best “university” for many college students, early and mid-career professionals, and beyond. At the same time, employers have become more open to candidates with alternative and non-traditional career paths. Since the beginning of the pandemic, job postings for entry-level positions that require a bachelor’s degree fell by 45%. Handshake has changed how top employers and students connect and engage in interview processes, and Reforge up-levels mid-career product, growth, and engineering talent. We are eager to see more companies facilitate similar changes for non-traditional candidates.
Smart software that saves parents from reinventing the wheel or admin drudgery to focus on what’s meaningful. Learning to be a parent for the first (or second, or third) time is hard enough. It’s even more difficult when you’re also sleep deprived or putting in long hours at the office. Startups can make it much easier for parents at large to access specialist help at a fraction of the traditional cost. They can do this by building automated product features, and leveraging right-sized forms of communication for the specific need (e.g., chats, synchronous or asynchronous video or audio), and a global supply pool of experts. For example, Strongsuit is a subscription product that helps parents proactively manage and automatically execute “life errands” and kids’ developmental milestones. These tasks include everything from finding specialist educational experts and scheduling medical check-ups, to planning a birthday party or scheduling home maintenance.
Startups taking advantage of increasingly underutilized supply ranging from teachers to homeschooling parents to top students. Tens of thousands of teachers lost supplemental incomes after China clamped down on the country’s ubiquitous online tutoring industry. As we mentioned, many more public school teachers quit their full-time roles during the pandemic. Parents also became full-time educators in their own right, creating and curating educational content and resources as the pandemic kept schools closed and homeschooling boomed. And student influencers on TikTok teaching everything from STEM to law to studying, productivity and standardized testing tips grew their own followings and community. We’re interested in platforms leveraging this influx of teaching talent providing them part-time gigs. Flock, for example, is a marketplace and community for parents to monetize the homeschooling lesson plans they’ve created. And Tract and Knowunity are both building communities that allow top students to monetize their projects and/or expertise and time.
Other trends we are watching include: college admissions products for the standardized testing-optional era; products for students with learning differences; new-age “YPOs” (Young Presidents’ Organization) that form community around like-minded peer groups (e.g., Chief for executive women, Medley for emerging leaders, and Ondeck for aspiring and new founders); group-tutoring solutions as effective as 1:1 instruction (solving the well-known Bloom’s 2 sigma problem); edutainment platforms; and language and accent coaching. And so much more—especially when you consider the Learning Economy can span a lifetime!
If you’d like to share your perspectives on education or discuss what you’re building, feel free to reach out directly to Anne at [email protected]. We are also building a community to bring together founders building in the Learning Economy; let us know if you’re interested in learning more.
Anne Lee Skates is a partner on the consumer investing team, where her interests include gen-Z consumer trends, retail and commerce infrastructure, and the future of cities.