Feb 10, 2014

Posted Make It Sing This week, Engrade put the finishing touches on an emblematic story in the world of education startups. High school student Bri Holt heard enough complaining from classmates (and teachers) about the fact that there were no good tools to let them view their grades online. So, having taught himself some web development skills, he decided to build a simple online gradebook for his school. Holt’s gradebook found favor among his teachers and at his school, but it took time. Holt soon graduated and moved on to other pursuits. In 2010, seven years later, the online gradebook had found significant organic adoption among teachers, enough that Holt decided to officially turn it into a business and expand it into something larger — Engrade. Fast forward to this week, and publishing giant McGraw-Hill Education agreed to purchase Holt’s online gradebook — now better known as Engrade — for what TechCrunch hears from sources was around $50 million. To education entrepreneurs, it’s an enviable outcome and a path (albeit perhaps not a totally replicable one) worth emulating. All in all, the process, from founding to sale, took over 10 years. Building and selling an education company (for any real return) takes years, maybe even decades. If you build something that solves a problem and that your customer really needs, adoption and customer acquisition will happen for you. Teachers love simple tools that make their lives easier, and if you build one for them, and work with them to improve it, they’ll take care of you. In the end, it appears to be a positive outcome for Engrade’s founders, its team and its investors. The company had raised about $8 million total over two rounds, including from NewSchools Ventures, Zac Zeitlin, Expansion Venture Capital, Kapor Capital, Javelin Venture Partners, Rethink Education and Samsung Ventures, among others. But what’s Engrade and what does it do? Saying that all entrepreneurs need to do is build, amazing tools for their customers, and they’ll have it made makes it sound easy. It’s not, and in education, it’s even harder. Building a simple, well-designed online gradebook is all well and good, but Engrade wasn’t alone. Others were trying to do the same — and building great products at that — but many of them were forced to pivot or join up with other tools to build an education suite. Plus, in the end, a gradebook is more feature than startup, and teachers can’t always write big checks. So, when Hold picked Engrade back up in 2010, he started to turn it into an enterprise education platform, and begin selling Engrade to schools. Engrade quickly added enterprise-grade tools like attendance, discipline and parent-teacher conference tracking, standardized test score analysis, score messaging, report card printing, parent email, SMS alerts and so on. But the real keys: The team built an API that would allow schools to integrate their existing platforms and software into Engrade, and looked to tear down some of the barriers between educational data silos ( a la Education Elements ) and aggregate them in one platform. The idea being that grade tracking, test scores, and the different islands of student data could then be accessed more easily by teachers, parents and students via API. In practice, it’s almost a direct parallel to what LearnSprout and Clever are doing with Student Information Systems (SISes) and APIs. To attract institutions and districts to its enterprise-grade features, the startup has added an array of features, which includes attendance, discipline, and parent-teacher conference tracking, score messaging, standardized test score analysis, report card printing, parent email and SMS alerts, an API for integrating with existing software, and admin-level reporting, among others. With its new funding, the founder says, the team is now looking to tackle one of the biggest problems currently plaguing schools: They are producing a huge amount of data, but that data is spread across a fragmented group of learning management, grading, and tracking services. Teachers may use one service for grade tracking, and another for test scores. To combat this, Engrade is moving to integrate each segment of data into one centralized platform and make it accessible for teachers, students, parents, and third-parties via its API. What this means for McGraw-Hill While this is a positive outcome for Engrade, ultimately, the acquisition says more about McGraw-Hill and its future than Engrade, or really, other startups. Yes, the founders said that companies like McGraw-Hill beginning to acquire education startups is a good sign and could potentially have a positive impact on the space. And, yes, McGraw-Hill Education got a new CEO in January, and already the company’s acquisition pace has picked up. Pearson, McGraw-Hill, Macmillan and Houghton Mifflin becoming acquirers means exit opportunities for education startups that may not have had the capital or the distribution oomph to make any real impact. Maybe they would have instead quietly whimpered their way into the deadpool. The question is whether one believes that the big educational publishing companies can transform themselves from publishing companies into real education technology and EdTech services companies effectively — or in time to save themselves and those startups. Or, more controversial yet, whether it’s a good thing for them to survive at all. (Oh my! ) McGraw-Hill gave Engrade a liquidity opportunity, which depending on where you sit, was deserved after 10 years of building, and if it hadn’t, maybe it would’ve been a long time before Engrade got there, if at all. So, from a startup’s perspective, it is a knight in shining armor. However, let’s step back and look at McGraw-Hill’s trajectory. It has a new CEO, it’s becoming acquisitive, and in becoming acquisitive, at least it’s being smart. It’s buying companies it knows. For example, in June, the company acquired ALEKS , a 17-year-old math technology company, which was one of the early movers in adaptive learning tech focused on “the maths and ‘rithmetics.” McGraw-Hill had been working with ALEKS in higher ed for a decade, and had watched the company ramp up its focus on its research-based, A.I. student analytics tools. Not long after, it bought another old hand in the education publishing world (and math particularly), Key Curriculum, which has become known over the decades as a maker of math instructional materials and products. More recently, Key Curriculum’s print publishing side had begun to struggle mightily, and it decided to pivot to focus on its courseware and teacher training technology, etc. Because McGraw-Hill has a big footprint in K-12 and in STEM within primary ed, both were eager to join up rather than continue slogging it out. Together, so we can imagine the thinking goes, McGraw-Hill’s new tech suite for K-12 and STEM will be that much stronger with the addition of better artificial intelligence and adaptive learning tech. That was further made clear when the company bought a 20 percent stake in Area9 , the Danish makers of the adaptive learning technology behind LearnSmart, McGraw-Hill’s adaptive learning systems that now have over three million users. Next, it bought Engrade, giving it access to the startup’s data unifying tools, which it can then use to add more substance and functionality to its digital products. Just two days after buying Engrade, McGraw-Hill bought the remaining 80 percent of Area9 . What do you notice? Nary a publishing startup in sight. Instead, McGraw-Hill is buying up technology companies so that it can transform itself from a textbook publishing company into an educational technology services provider. Whether one considers this akin to the auto industry’s painful shift to a maker of more fuel-efficient, environmentally friendly cars or a painful Frankenstein-ing (or both), we’re watching nearly every publisher do it. See it reflected in the recent announcement from Flatworld Knowledge , one of the pioneers in free, open textbooks. They all couch these moves in fluffier language, but it’s happening across the board — it’s even some of the original textbook platforms, like Chegg. Once the online textbook and eBook rental hub, all Chegg wants to be now is the OS for students — or an academic services hub, in its PR shrink talk. It’s fascinating to watch the big textbook publishers try to become SaaS companies. In some cases, it’s going to work, and in others it’s going to look more like Mary Shelley’s monster. For McGraw-Hill, it got another great platform and suite of technologies in Engrade. Now it’s a matter of seeing what it can do with it, and its other tech toys.