VCs Go Back To School For E-Learning

Approximately $2.9 billion worth of venture capital flowed into the education and training sector last year, and 91% of that flowed into e-learning companies, according to a recent report from, an independent market research firm.

However, questions abound about whether the sector is truly heating up and what its recent VC success really means on a grander scale. While industry experts seem generally supportive of the space, they?re still a bit skeptical about the success of many e-learning companies since long-term viability ultimately depends on niche-carving abilities and the creation of value for the education and training marketplace at large.

One company that seems infallible in VCs? eyes despite that damp shroud of skepticism, however, is Blackboard Inc. Widely believed to have been courted by several major investment banks for a possible initial public offering once Wall Street rouses from its bearish hibernation, the Washington-based e-learning infrastructure firm has captured more than $100 million worth of private equity money since its 1997 founding. The company is expected to announce Monday that it has completed its latest private financing, with a $48 million price tag from such new buyers as Oak Hill Capital Partners, Microsoft Corp., Dain Rauscher Wessels and Morgan Keegan.

Additionally, all of Blackboard?s previous investors came back to the table, including Internet Capital Group, Pearson Education, The Carlyle Group, America Online, Novak-Biddle Venture Partners and Merrill Lynch.

The round will remain open for the next month or so to accommodate additional investors who couldn?t make the initial closing deadline, said Michael Chasen, president and chief executive with Blackboard.

With combined pro forma revenue of more than $32 million as of Dec. 31, 2000, Blackboard?s revenue stream is comparable to that of many public companies, making it a totally viable investment proposition, said Trace Urdan, an analyst with W.R. Hambrecht.

“The people putting money into Blackboard at this point are probably feeling pretty secure that there?s going to be a liquidity event in the [near] future,” he said. “It?s clear that Blackboard can come public at some point as soon as the [IPO] window opens.”

IPO potential aside, Blackboard is also somewhat of a household name in the e-learning sector. “We look at e-learning infrastructure as being at the heart of growth and the use of the Internet as a way to improve education,” said Steven Gruber, a managing partner at Oak Hill Capital. “As we looked at the e-learning infrastructure space, we looked at Blackboard as being the market leader. They met the test of being the best-positioned company in the most central sector in the industry.”

A close second is corporate training solutions provider THINQ Learning Solutions. The Billerica, Mass.-based company recently scored $20 million in fresh venture capital in a Series D round co-led by CIBC Capital Partners and Mellon Ventures.

Joining the ranks of e-learning firms that have been blessed with VC funding within the past few weeks is Digital Learning Interactive, a provider of Web-based learning resources for college classrooms. The Medford, Mass.-based start-up captured the attention of new investor POD Holding, as well as existing backer SAC Capital Associates to help complete its second-round funding to the tune of $13.85 million. Essentially, the company is a content play as it caters primarily to college professors who can use its online offerings to augment lesson plans enable students to study in a much more dynamic and interactive environment than a text book can provide.

Another New Economy

What all of these companies have in common is that they are fueling what has become known collectively as the “knowledge economy” ? the notion that, in order to succeed professionally, workers need to be more skilled now than ever. In fact, some 75% of jobs in the current economy require some degree of post-secondary education, up from 50% a few years ago, said Andy Kaplan, a partner with Quad Ventures.

“College is one way to get an education, but there are lots of alternatives,” Kaplan said. “One of the biggest stories in investing is the Apollo Group, which runs the University of Phoenix [online]. DeVry is another. The reason they?re such success stories is because they focus on the core elements of helping people get better jobs.”

Moreover, e-learning companies are in effect leveraging the Internet to help people gain access to educational materials online.

“What?s attractive about education is that budgets tend to be more predictable,” Oak Hill?s Gruber said. “The commitments to IT and education budgets are very strong. We did a lot of direct first-party research, and there is a consistent perspective that growth in commitment to this area is reliable and predictable.”

Ryan Busch, a vice president with THINQ investor Mellon Ventures, agreed. “E-learning provides tremendous ROI [return on investment] to organizations,” he said. “They can cut training costs by taking courses online. That is why a lot of these e-learning companies are being funded.”

One dissenter in the cloud of hype currently surrounding e-learning companies is John Dalton, an analyst with Forrester Research. “I get an e-mail from a new company every day telling me they are in e-learning,” he said. “That?s a flimsy term. E-learning can be anything. A lot of the beginning e-learning stuff is crap. It?s just workbooks online. Courseware online is boring as hell. It?s not where it needs to be.”

You can?t do everything online, Dalton added. “You aren?t going to cure an alcoholic online or train a police officer, but it can add to the process,” he noted. “So much money is flowing into these companies, and not all will survive.”

Contact Robyn Kurdek.