As school officials shutter campuses and focus on transitioning to remote education, one major concern for businesses is a potential disruption to the school purchasing season, which typically happens during the spring and summer, when officials set budgets for the upcoming school year. School budgets may well soon dip too, as they did following the last recession in 2008.
“This is a tough time to be a startup,” says Trace Urdan, a managing director at Tyton Partners, a strategy consulting firm and investment bank. “Even if you feel like you’ve been winning market share in the past, will you be able to survive missing out on a selling season now?”
Anticipating financial difficulties, more education companies have been reaching out to industry-specific investors like New Markets Venture Partners, according to its general partner Jason Palmer. He says his team usually fields about 100 inquiries each month. In the past couple weeks, the rate has doubled.
Education technology investors say they have no plans to slow down their dealmaking activities. But they expect the volume of pitches to outpace that from previous years. In other words, there will be more competition for the same capital.
Startups that have already raised capital may find it easier to secure additional funding from existing backers, Palmer suggests. “Smart investors will support their companies through this tough time, because they will recognize that this is a systemic difficulty for their entire economy, and not a company-specific problem,” he says.
On the other hand, Palmer notes, “it will be harder for companies to get new investors who are not familiar with them.” Overall, he predicts that “the markets are going to be much choppier for early-stage companies over the next few months, and possibly as long as a year.”
For companies seeking but unable to raise venture capital, Urdan says there are other—though potentially less desirable—options in the form of private equity firms or larger, established companies that might make low-ball offers, and at modest valuations.
“This is an environment where businesses that face financial pressures right away will be forced to sell, and there will be people ready to buy those companies,” he says. Financially, “this is a better time to be a large, slow monolithic publisher than a nimble but thinly-financed startup.”
A Boost in Demand. But Business?
In normal times, customer demand usually correlates to good business. Yet these days are anything but.
As entire states cancel in-person classes and prepare to move them online, supporting that transition has been the priority for portfolio companies, according to Carolan. For her team, that entails connecting them to officials at departments of education, nonprofit groups and other technology companies.
Among the partnerships they’ve helped set up is one between Zoom and Outschool, a provider of live online classes, in which the video-teleconferencing company is donating money to make those classes freely available to students.
Hundreds of other education companies are also offering access to their tools for free or reduced cost. In some cases, according to Carolan, websites have crashed from increased traffic volume.
But there’s no guarantee that the uptick in demand will drive sales or revenue. Palmer says his portfolio companies have fielded “a lot more phone calls and inquiries, but that hasn’t necessarily translated into implementation.” One reason, he believes, is that “most schools and districts haven’t figured out the proper procurement process” for buying new tools.
Education officials have also noted that the first days of transitioning classes to online learning is not a good time to be trying new products—or reviewing company pitches.
It may be tempting to assume that a wide-scale move to online learning will be a financial boon across the entire education industry. But such a notion is overly simplistic, says Greenfield of Rethink Education. “The reality is that there’s too much chaos right now to think about capitalizing on opportunities.”
“Hundreds of millions of people are about to experiment with Zoom or Hangouts or other platforms for the first time, and they’re going to discover what these tools can and can not do,” he adds.
There’s also the question of whether a current short-term spike in demand for online tools will translate to longer-term needs for schools, colleges and districts. The optimistic hope right now, observes Urdan, is that the coronavirus lockdown will pass by the end of the year, after which life will return to some normalcy.
That could well change. For now, “this is a good time for companies to build goodwill. But for schools, it’s not a good time to sign a big contract,” says Urdan.