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Mila Semeshkina is Founder and CEO at Lectera.com, Expert in Fast Education
Edtech (education technology) is booming, and venture capitalists are investing at an unprecedented rate. Even though there aren’t hundreds of billions of dollars available yet like with other trends, top edtech startups will likely have access to plenty of capital as VCs look for prime investments.
As a result, edtech competition is tightening. As the founder of an edtech company, I’ve noticed that the market is overheated with startups and venture capital. More than $20 billion were invested in edtech companies in 2021, in search of the next big thing in education. But what happens to the little guy? How can a small edtech company compete?
The truth is that competition is not all bad; in fact, it pushes us to be creative and innovative. To be chosen over your competitors, you have to provide value to your users. You can be more agile as a smaller player, responding quickly to changing trends and user demand. However, if you’re not careful, it’s easy to get lost in the shuffle—too many startups compete in the same space without adding anything new.
Investor money does not always benefit startups.
In this day and age, investor money does not always benefit a startup. There are many reasons why this is the case and it seems to be true for many startups.
First of all, investor money can limit the freedom of a startup. For example, if a company receives an investment from a very well-known venture capital firm, there may be certain limitations put upon the company by that venture capital firm. In other words, the company may not be able to act as they see fit because there are investors who want their money back with interest. This can be stifling for some companies because they may want to do something differently.
Secondly, I’ve observed that investor money can lead to layoffs if things are not going well or if a startup is forced to pivot often. This happens quite frequently in Silicon Valley where companies receive millions of dollars and then just end up laying off employees or shutting down altogether. Investors typically do not like when this happens, and they may pull out of a company before they lose too much money.
Finally, investor money can lead to pressure to grow too quickly, which is not always good for companies in the long run. Many startup founders feel pressure from investors to grow their companies quickly so that they can have returns on their investment within a short period of time, such as in five years. Data from 2008 found that only half of the founders (registration required) of startups were still in the role more than three years after attracting outside investors.
Startups need to balance competing interests.
There is no way to make a lot of money while pleasing everyone. That’s not how the world works. If you want to make money, you will have to do things people dislike, or at least things that make some people dislike you.
You can’t please investors and customers at once, because those two groups want opposite things. Investors often want you to spend as little money as possible before reaching escape velocity. Customers often want access for free forever, but it isn’t possible to please both groups at the same time. This is true for any business, but for startups it can have extreme consequences.
What does the customer want?
Identify what your customers are looking for. For example, at my company, Lectera, we divide edtech customers in two main categories. The first group comprises of people who are looking for a specific course on a specific topic, such as learning to code or marketing their business or becoming a better public speaker.
The second group wants general continuous education to grow their skills and knowledge, but they don’t know what to learn yet. They just want access to affordable education that will provide value and guarantee business success.
The first group of people is easy to cater for—there are plenty of courses that cover most of the topics they are looking for. The second group is more difficult, because they require us to go further in our efforts to help them succeed. What unites the two groups is their search for value, courses that are up-to-date and that provide the best price to result quality.
What will it take to ultimately win the race?
I think the companies that will be successful with online education will be the ones that come up with a business model that allow them to grow, provide the best educational content and be financially viable. The cost of creating high-quality educational content, like the cost of creating high-quality entertainment content, will likely continue to fall. At the same time, I think competition will push education providers to provide an ever wider choice of courses. And remember, free education can get you ahead faster.
Currently, edtech companies raise money through a number of ways, such as venture capital investment and crowdfunding. However, I think there’s one more way the industry could explore—blockchain technology. Blockchain technology could reduce the cost of funding, thus increasing access to capital for startups. Moreover, it can facilitate the funding of education without an investor getting too involved in the day-to-day activities of the startup and without restricting the creative freedom of the management team.
So in my view, an edtech company—no matter the size—that can find ways to finance its growth and provide free or near-free access to its educational content will win. The most successful platform, in other words, will be the one that finds a way to subsidize its own growth without compromising the quality of educational content and creativity of startups.
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