Forging the Future: EdTech, Investment, and Education Equality with Ash Kaluarachchi (Part Two)

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I'm back with Ash Koularachi, CEO of StartEd and the producer of EdTech Week. We've been discussing the evolution of the edtech landscape and how StartEd's innovation accelerator model provides personalized support for startups. So, Ash, since the audience includes a lot of investors and entrepreneurs, I wanted to focus a little bit of time on investors for the moment. Ash, you had an incredible track record of success investing in edtech startups and unicorns. For the investors listening who have yet to venture into the edtech space, what would you tell them about the space? How should they look at it and how should they get started in investing in the sector?

I'll address the hurdle in investing in the sector. And I think for everyone in the room, I'll recognize that most investors are really trying to make sure that they're creating some good, they're investing in places that they care about, but also they're trying to keep the LPs happy, right?

Yeah.

What is the opportunity cost of investing in education versus elsewhere? I think that's the challenge that most investors will have. And the response to that question is how you actually measure the outcome. There are 12, count them, 12 impact-oriented education-focused VCs managing a few billion dollars of assets under management at this point that publish research about their investments and their reasoning for continuing to do so. It makes their LPs very happy because the LPs get to see, great, their portfolio is increasing in value, but they're also measuring jobs created, learners supported, And all these metrics that prove that the solutions actually work. So in order to make an LP happy, the LP has to care about the financial outcome and a measurable social outcome. And if you are in the position to figure out both of those aspects, then this particular pool of capital, those limited partners are very sticky. They don't leave you once they've invested in the space and you've seen those outcomes. It's a smaller group, but very sticky and relatively easy to keep happy once you do.

So in that, it's interesting you say that because it, I'm just sort of reflecting back on what you said earlier, which I 100% agree with. I call it altruistic capitalism. It's investing capital and using capitalism for altruistic outcomes. And you said earlier, I think they're one and the same. And I agree so much. I don't think that you can— I don't think that there's a separation of investing into something that's environmentally or socially conscious can't be profitable. I think it's the opposite because I think that's the direction that the world is going, you know? So another question along these lines is when you look at the edtech sector and you compare that sector to other tech sectors, How would you explain to investors that this sector is a better sector or something that they should spend some time and learn about and get into?

In order to look at education, you have to take a step back. And usually the term used is patience. You need patient capital to be investing in education. Things take longer to grow and therefore your returns come at a different timeline. Again, opportunity cost comes into play, right? I want to actually take a look at it from a different perspective. I would suggest taking it from the perspective of what's your 100-year plan for humanity, right? If your 100-year plan for humanity is let's get a certain number of folks and individuals out of poverty, let's get a certain area of the world safe and climate appropriate to actually live in. If those are outcomes that you want to put into play and you see the financial outcome from doing that in the short term, zoom out and take a longer-term approach. If you take a longer-term approach, compounding interest comes into play, the 8th wonder of the world, and the outcomes that you get to see from a 100-year plan up going to be definitely larger than the plan that you have for a 5 to 7-year fund.

Very, very, very. And that is some— you just dropped some wisdom bomb right there, man. That was— that's really cool. It— you're right. It— if you look at this, it's like looking at leading versus lagging indicators, right? Like, we're all looking at lagging indicators in politics and in finance and we're looking at, you know, what's going on today, what happened today, what happened next week, what's going on like that. And we should be looking at where are we headed in the first place. It's like focus fire versus fire focus, right? You know, it's very interesting. So the next question I have, and this comes up with investors all the time when I'm talking to investors and they say, wasn't edtech just a bubble from the pandemic, you know, from kids not being in school. I'm sure you've heard this before, right? That there's all these edtech companies popping up and it's just a temporary thing. It reminds me of a— I have a newspaper cutout hanging on my wall in my office that says the internet is a fad. And it sort of reminds me of that, right? So How would you talk to those folks that are like, look, it's just a fad. It's going to go back the way it was before.

The education systems, especially in the US, are very insular amoebas. They take all these exogenous shocks, but they kind of go back to being roughly in the same form. That's why someone 100 years ago could come back from— could come into the future and they'd look at how we move and be transported, and they'd be fascinated. They'd look at how we create our food, and they'd be fascinated. They'd go to a school and say, oh, that's a school, right? They'd recognize it from 100 years ago. How schools look and change very, very, very slowly. There's a couple of things going on with education as a fad, which is when the pandemic resulted in the greatest experiment in edtech that humanity has ever seen, the number of users went up exponentially.

Right?

And users tend to be a great metric for making money in any industry. So looking at the number of users, a lot of investors thought, oh, fantastic. Education's moment's come. I'm going to put all this capital into the space. But the excess capital that entered the space met with not really efficacious solutions.

Yeah. There was a lot of really bad software.

Yeah. We tracked about 1,000 companies that are created every year in education. In the first couple of years in the pandemic, that went up to 5,000 a year. So that's 8,000 companies that shouldn't have existed that probably received a decent amount of capital that never went anywhere. They were never going to go anywhere. So yes, those companies were a fad and wise investors should have recognized that rather than being tourists. The other last part of this is that what the pandemic created It unstructured a lot of what has created and been instilled into that amoeba structure over the last 100 or 200 years. And it broke apart a lot of the pieces. Parents started sending their kids to alternative education solutions. Microschools popped up. People started finding alternatives to university or even going to work. People started working later in their careers. The boundaries between the these very fixed stages of education that we experience as children to adults, pre-K, K-12, higher ed, workforce learning, they started getting porous and started disappearing. So the fascinating thing that's happening now is that these industries that were almost relatively separate are now congealing into this gigantic $7 trillion market. And we're just a few years away probably from The whole thing becoming a less fragmented whole and market creation is just on the rise.

I was at this lake, this small lake, and I was meditating on the side of the lake. And, you know, when I first meditate, you know, you just sort of gaze before you close your eyes. And I saw this little dragonfly drop into the water and it's just a little drop. And then all these wakes come off the center. And it made me think that's what happens with ecosystems. There's a disruption of some form in a flat surface. And the circles that come off the original are the real big ones, right? Like iPhone and those first big things like social media and stuff. But they're big, but it's highly concentrated and very difficult because the competition is dense, right? And then as the circles go out, You have more opportunities, not as big, but still big, right? And you have more and more opportunities because the circles grow as they leave, right? And there's this like, that's the expansion phase. And during that expansion phase, you see all these companies hustling to try to do something, you know, and then you get the contraction phase, right? And this is where everybody starts to close their doors and then you get down to the ones that are The good ones. Is that what happened with edtech? Is it there now or where are we at with it?

So like in tech, we've gone through a few of those cycles. I'd say at least 2 or 3 by now. Edtech's only gone through one of those cycles so far, right? We had a slow rise and boom, and now we've come out, just coming out of that bust. So the second time around, the second wave that we're building up to, I think we'll take about 4 to 7 years, but the companies that have come out of the next few phases that are forming right now are forged in steel, right? I mean, it's like '08 again when marketplace models started really booming. That's what's happening to edtech in 2024 and '25.

Yeah. So something that's really passionate to me, right, is underserved communities. Any of the people that are stepped on, stepped over, passed up, or shoved aside. Right? So this is not just people of color or neurodivergent people. This is blind people, deaf people. This is the people that are immigrants that come into the country and are— they are just learning, right? And they're just getting started. And our country is a country of immigrants, right? I mean, that's what we are, right? The indigenous, we almost made them extinct, unfortunately. But so we are a country of immigrants. So are we serving these underserved people with edtech and can we do a better job helping them? You know, I, I was working outside in my garden and I got a couple of day laborers, right? And a guy from Venezuela and a guy from Mexico City. And they're going to school to learn English, right? Because they need to learn English in order to get a job. And this, the amount of, I mean, they're, they're struggling, right? Like really struggling trying to get through this. And when you were talking about the future here, I was thinking, maybe there's a way that we can help the immigrants rise up. Maybe there's a way that we can help those people that grew up in rough areas like where I grew up, come up easier, right, and get a real education. Because what I know, and I've seen, is that if you live in a nice neighborhood, you have a nice school. If you don't live in a nice neighborhood, you don't have a nice school. There's no money, there's no tax revenue, and the teachers don't get as much and you just don't get the same quality, right? Because the teachers have to make a living too. So they go to a better school that's going to pay them more. I'm wondering if there's a way to deal with education equality, basically, right, by— through edtech, and if there's anything currently happening In that space. And if there isn't, please, founders, if you're listening, do something. Anyway, that's my question.

I love that question, Greg. And I think, again, I don't have the answer, but I think I have a hypothesis. I think we need an army. We need an army of innovators solving specific problems for specific underrepresented and majority individuals. The reason is because just like there are often diseases and there are micro problems and micro markets, you can't really judge what you fall in love with as an innovator, right? I mean, if you love a problem, you'll really love it. And you're going to focus on that probably for the rest of your life until it kills you or rewards you. That's how most entrepreneurs tend to be. Whether you fall in love with a gigantic market or not, that's Kind of secondary, right? And it's not your fault if you fall in love with a bigger problem. It's your life and your brain. I think we need to create the circumstances where everybody in that army, whether they're focused on a tiny problem in a specific market, whether it's 20 individuals in their small town that they're trying to train through a microschool, or whether it's a large company that's training millions of students, there needs to be a support structure for all of them that recognize all of them are valuable, right? Obviously, the smaller problem spaces are the ones that aren't getting the attention. So in order to create this army, we need to realize that the capital and the regulatory environment that allows for these smaller players to rise is created. And so I think it takes a little bit of a village, a village of policymakers, a village of funders, a village of innovators, all to come together, which tends to be our theory of change, right? You can't really make change in a space like this unless all parties are represented and at the table. Yeah.

Do you feel like we have a future there? Do you feel like, I mean, you know, you're like the, you know, one of the top authorities in this space. Do you feel like there is a future where the underrepresented can get the same education as the wealthy folks?

I don't think that they'll get the same education as the wealthy folks. I don't think they need the same education as the wealthy folks.

Oh, fascinating.

They need the education that puts them in a place where they're able to pursue something they love doing. And when I use the term they, I might as well use the term we, right? We need to create the technology and the problems that we need to create the technology and the financial infrastructure for both sets of parties to receive the information that they need. And for the ones who have the ambition and want to rise, let them rise, right? That's what this country has always been amazing about. And I think it still is. I've been in this country for 25 years and in places like New York especially, who would've thought that a kid from Sri Lanka who came over when I was 17 could gather these people, but by sheer force of will and some luck, I was able to. And I think that opportunity was only offered to me because, A, I had some preparation and then I was lucky enough to be in the right place. So if we can get people prepared, then they'll have a shot.

So the last question, and I thank you for your patience, is looking at your career for those entrepreneurs and investors that are listening. It's a 2-part question. What would you like to share with aspiring entrepreneurs in terms of edtech and also aspiring investors in terms of edtech?

I'll start with the investors and I'll say that if you are an investor, you've been successful in your life and you've decided that you want to give back in some way. Those 2 things need to probably be true. If you're in position to make those investments, I would, my simple suggestion if you're starting out is to be very picky. A lot of folks started getting into that mindset of success and wanted to give back and they just want to get started and they will make their first few bets. And those first few bets, because they haven't really done the legwork to understand the space, will be unsuccessful. And then they'll retire from education or investing in companies in general. So be very picky at the start is my advice when you're getting started as an investor. Talk to the people who know the space really well, people who lead in the space, people who know to separate the wheat from the chaff. I think that's step number one. There are multiple steps after that. For the entrepreneurs, I'll say that this market, this community that we're in has grown significantly over the last 25 years that I've been privileged of being part of it. And I think that every industry has a time and a place to grow. I honestly think that the US and in this next decade is probably the place we're going to see the most innovation in education from a technology perspective. I also think that even if you aren't based in the US and you're trying to solve problems elsewhere, learning from what has been successful in the US from successful entrepreneurs and then importing that knowledge and that innovation to wherever you are in the world to solve the problem that your market and that timing requires is probably going to be the smartest thing you do. So learning from folks who've done it before and recognizing that there's a lot more potential in the market and that stick-with-it-ness that is required to compete and continue pursuing your passion is keep doing it, right? You find your kindred spirits in this space. And once you do, it's really hard to let go.

Ash, I really appreciate you taking time from StartEd to do this podcast. You're a busy guy. Thank you for giving everybody your knowledge. I really appreciate it. Thank you for being on the podcast.

Thank you so much for having me, Greg.

And that's another episode of the Startup Science Podcast. If you can leave a 5-star review on Apple or Spotify, I would greatly appreciate it. And founders, as a thank you for leading the changes in our world, I'm offering free access to the Startup Science platform, Visionaries by Gregory Shepard. A one-stop shop for founders that has everything from a startup academy to investors, grant finders, pitches, and much, much more. It's absolutely free for you. Go to GregoryShepard.com, click on Visionaries to access, use the code FOUNDERS, all capitals, for free access, and check it out for yourself. I'll see you next time, my friends. Namaste.

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