We need a Dividends instead of Exits Mindset in Education

When I started to blog about online education back in January 2009 frankly no one cared. If you take a look at the major tech blogs today you notice that this has changed quite significantly over the past six months. Education became a hot topic for a variety of reasons.

One of them is that education is so meaningful all of a sudden. Remember Sir Ken’s talk at TED where he told the story of being at a cocktail party and as soon as you say “I am in education.” eyes turn white? Well, not today. Now, you are the star.

Which leads to reason number two: there seems to be a lot of untapped money in education. From the public school sector over higher education to lifelong learning. Billions over billions just waiting for a stellar startup to take them. And that brings investors to the table.

Now while this is all in its early stages still compared to other verticals like social media, apps etc we just had another week of significant funding deals. 2tor raised a Series D round of $26 million bringing the total funding close to $100 million. The Minerva Project raised a seed round of $25 million, Voxy raised another $4 million for its mobile language learning application, Boundless Learning raised $8 million and so on and so forth.

And then there was Instagram. Facebook paying $1 billion for a service that is basically just a feature (at least to my mind), that also has not talked about monetization of the service and that has existed for less than two years is the fabric Silicon Valley dreams are made of. I agree with people like Jeff Jarvis and Gina Trapani who worry that exits like this for startups that frankly did not build something meaningful may point in the wrong direction for young entrepreneurs thinking about founding a startup.

The same is even more true for the education market. If you get into the game just for the money and the fame you are in it for all the wrong reasons. Changing education takes years, if not decades and what we need are founders who are willing to stay into the space for the long run. Education is probably one of the hardest markets to be in due to all the different regulations you come across, especially in the public school sector. It’s not a market for quick money yet the interest of investors in the space is promising the exact opposite.

The idea of building a substantial business that is build based on natural growth and on revenues seems to be “old fashioned” for many entrepreneurs. Why bothering with market research and a business plan when I can easily raise $1 million to $4 million for a learning application? And then raise some more later on, we focus on user growth and worry about making money as soon as we hit the magical 1 million user mark.

The catch is, of course that the investors want to make a profit on their investment. Probably 5 to 7 years after they put the money into the venture and then of course with a nice 5x to 10x. But who can pay for those exits in education? You are left with the usual suspects like the Pearsons or Blackboards of the education world.

I think what we need in education is a mentality based on dividends, not on exits. People should invest in education startups to support the entrepreneur and then get an annual dividend in return. Similar to sending your children to college, investing in an education startup should be an investment in the future. The JOBS act which allows non-accredited investors to participate in the funding rounds could make this possible.

And we see more and more educators who have the skill set to build small yet very useful applications and services as they know best what is needed in the trenches.

Getting angel or even VC money is of course and option these days but as soon as you sign the contract, the countdown to exit starts. Raising money via crowdfunding opens interesting alternatives and even today many people are willing to basically pre-order the application or simply donate to the development. So why not investing $10k into a promising education startup instead of Coca Cola or IBM?

Picture: crowdfunding concept via Shutterstock