Sramana Mitra: How long has Edgenuity been around?
Sari Factor: Since 1998. It was called Education 2020 until the beginning of 2013 when we changed the name.
Sramana Mitra: How is your company funded?
Sari Factor: We were owned by an investment firm called Weld North. It’s a partnership between Jonathan Grayer, the former CEO of Kaplan, and KKR.
Sramana Mitra: How big is the company?
Sari Factor: We’re between $100 million and $5 million, but we’re closer to the $100 million than we are to the $5 million.
Sramana Mitra: The question I’m going to ask you may or may not be in your range of experience. We are seeing a bit of renewed interest in educational technology startups getting some funding. For a long time, educational startups were not getting any funding. Recently, there’s been a bit more funding. But K-12 continues to be a problem area because selling through schools is a very slow process.
Companies just don’t seem to grow at a venture pace. Capitalists want their businesses to be growing at an exponential space. It’s very hard to build companies to grow at an exponential pace selling into the school districts. It’s a slow buying cycle.
Sari Factor: I know that well. This is not a get-rich-quick market. It never will be.
Sramana Mitra: As a result, the segment of the market is not attracting a lot of capital. What is your perspective? Are there anomalies you’re seeing or glimmers of hope you’re seeing in this market in terms of capital?
Sari Factor: The point you make is a good one because there are some structural barriers. You’ve got complicated procurement policies. It’s difficult to get to the schools. But there’s a lot of capital that’s come in recent years. Some of it has come into companies who have tried the freemium model. They get a lot of teachers to use one platform and somehow that’s going to motivate the school or school district to adopt a certain platform. I haven’t seen that work. I’d be skeptical, but they could work.
Sramana Mitra: The venture capital industry does work in hype cycles. Yes, there is a bit of a hype going on in trying to do the freemium model, and hoping that something miraculous is going to happen. I don’t buy it. It doesn’t sound that you buy it either.
Sari Factor: I don’t buy it either.
Sramana Mitra: All that capital that has come in with that assumption is then going to fall flat on its face, and all the capital again will flee from the segment.
Sari Factor: That’s not good for innovation and moving the market forward, which is a challenge.
Sramana Mitra: Typically, these high-driven experiments that are doomed to fail are not my favorite kinds of experiments. I have talked to a lot of companies that have built smaller but bootstrapped businesses. They have built $5 to $20 million revenue, but they’re bootstrapped companies. They don’t have the pressure to grow so fast. They’re fine businesses. They are steady businesses. They are okay with a slower growth curve as far as the company is concerned. That, I think, is a more promising way to build businesses that can actually innovate and cater to the K-12 education technology space.
Sari Factor: Yes, and there has to be a focus on efficacy. That’s the other thing that I would say has held some companies back. Again, it goes back to the student learning. I’ve heard far too many pitches myself without somebody having really sat in a classroom and knowing how the teacher is involved, how the parents are involved, or how the students are involved. What are the expectations here? Ultimately, it’s those results that will drive financial results. Solutions that work for schools get funded and drive value for schools. Schools are willing to pay for that. It’s almost as if things that are free, people see through that and say, “There’s not much value there.”