Guest Post by Heather Hiles, Founder of Pathbrite
I recently spent time with a cohort of ed tech entrepreneurs supported by NewSchools Venture Fund through their NewSchools Ignite accelerator. My friends at NewSchools asked me and a couple of other entrepreneurs to spend some time having “real talk” about what it takes to raise capital, get exposure for a product and ultimately create something that has value in the marketplace. I sold my company, Pathbrite, about a year ago, and many of the lessons I’ve learned are still fresh.
So, as I looked out into the audience, a lot of thoughts ran through my mind. Among other things, I was struck by the diversity of the group. I don’t think I’ve ever seen so many women and people of color in an accelerator cohort. Kudos to NewSchools for that. I have first-hand knowledge of how hard it is to start an ed tech company as a black woman, and that’s why it’s so important for me to share what I’ve learned.
First of all, education is a really hard sector. Just think of all the millions of people who have tried, and the billions of dollars already spent on solving the mystery of how to make education work better for more students. This is not only a high calling, it’s a very hard thing to figure out.
It’s also rather difficult to raise funds for an ed tech company. Most of the money in education comes from government, but those dollars don’t provide a lot of room for innovation. The next largest source of revenue in education is philanthropy – which can be an amazing resource, but can also distort the market by picking winners or promoting silver-bullet solutions prematurely. And, VCs are the toughest. Most entrepreneurs have no direct connection to get a meeting, and even when there is interest, the entrepreneur has to be careful that the VC isn’t trying to take the company in a direction they don’t intend.
But, even with all the challenges of starting an ed tech company, there are still – fortunately – a lot of optimistic people who believe in the power of new concepts, products and resources in education. They believe it’s possible to create pathways and provide opportunities through their new ideas. That makes me excited, because there is still so much to do to provide every student with what they need to be successful in school.
Last month, when I met this new crop of early-stage entrepreneurs funded by NewSchools – full of passion and great ideas – it gave me reason for hope. Here are some of the pearls of wisdom that I and the other seasoned entrepreneurs shared with the group about finding the funding they need to build their companies:
- Choose your investors carefully, and be sure that you and your investors are aligned on the future of the venture. It’s a rare company of any type that has a path to becoming a billion-dollar company. And, that’s what VCs are looking for.
- Take the time to talk with other entrepreneurs who have been funded by your potential investor. They can provide incredible information about what it’s like to enter into an agreement with that investor.
- Remember that foundations are a possibility. NewSchools is an example of a funder that provides investments to for-profit as well as not-for profit companies. And, they don’t take an equity stake.
- Program-Related Investments (PRIs) are also an option for foundation funding. So, even if you’re a more established for-profit company, you might still be able to get significant foundation funding in the form of a PRI.
- Some start-ups may be better suited to be non-profits. Foundation dollars don’t have the same strings as VC money…and your company won’t be beholden to a VC-driven outcome. It is often much easier to be mission-focused as a non-profit.
- Don’t get hung up on valuation in the early stages. In fact, err on the low side of valuation…you don’t want investors getting itchy early on because they think they won’t make their return.
- Learn how to stand, not kneel when asking for money. Be sure to frame your company’s story in a way that highlights its strength. Fundraise against impact, rather than a budget. Also have an earned income model.
- Under-promise and over-deliver. If you are conservative in your projections, you are more likely to exceed expectations and look like a stronger investment in your next round.
- You have to learn from your customers – teachers, students, and administrators – and go where they are. Be willing to be flexible with your business model, if the market is suggesting you take another path. This can help with raising funds.
- You should always be working on a Plan B, whether that’s a new revenue stream, new members of your board or new investors. You’ll need it.
If you’re thinking about being an ed tech entrepreneur yourself, maybe these tips will helpful to you, too.