Owl Ventures’ Tory Patterson tells why it’s a good idea.
INTERVIEW | by Victor Rivero
Tory Patterson is the Managing Partner and Co-Founder of Owl Ventures. He is actively involved and serves on the board of directors of Accelerate Learning, DreamBox Learning, LearnZillion and Newsela.
Prior to founding Owl Ventures, Tory was a Partner at Catamount Ventures, a San Francisco based venture capital fund focused on mission-driven companies.
While at Catamount, he advised several start-ups from the idea stage through launch, financing and commercialization. Tory was a key member of the team that incubated, supported and built Plum Organics, from early vision to becoming the world’s largest organic baby and kids’ food company, to eventual successful exit to Campbell’s.
“We want to be laser focused and absolutely certain that the companies and products and services that we’re betting on, are the ones that are delivering superior student achievement outcomes versus anything else in the marketplace.”
He founded and ran Catamount’s education investment practice where he led investments in leading education companies MasteryConnect, PresenceLearning, EdSurge, TenMarks (acquired by Amazon), Upworthy, and Declara.
Tory earned a BA from Williams College and an MBA from Stanford’s Graduate School of Business.
Owl invests exclusively in education technology companies. They work with teams solving some of the most pressing challenges in education and partner with visionary entrepreneurs who are driven to revolutionize education.
They are a venture capital fund that invests in the world’s leading education technology companies, and they back entrepreneurs with solutions that seek to meaningfully drive improvement in student achievement.
Laser-focused on the education market, they take a hands-on approach in helping entrepreneurs scale their businesses into transformative category leading companies.
In this far-ranging discussion, Tory responds to a slew of questions about the challenges of edtech, from business and growth (his firm has already poured tens of millions of dollars into the sector) to value and purpose.
So grab your coffee, read on, and enjoy. And to sweeten the deal: you’ll also hear what his number one piece of advice is to startups in the edtech space.
Mark Cuban has said that edtech’s hard. What prompted you to move into the edtech space, and what do you think about edtech being hard?
Tory: Well, first off, I’ll start with: I think Mark’s right. Edtech is hard. But it’s changing really quickly. So when I first invested in the space, my first investment was a company called PresenceLearning. That would’ve been 2010, I believe.
Our first investment in the sector were ones where the value proposition that was being delivered was so extremely high, versus the sort of state of affairs, or incumbent, or standard of care.
And those went well.
So the investments we’re doing today are much more what we would call traditional edtech, like true software investment. A far cry from the investments that were working in the 2008-2012 timeframe.
So things have changed a lot in terms of the profile of companies that are getting traction. But the hit rate is low.
So for us, that was the justification for building a sector focused on—I mean, obviously, this enormous $6.3 trillion annual spend category was going to go digital very quickly. The global spend on education being north of $6 trillion a year, the proportion of that that’s being spent on digital products and services are less than 2 percent.
So that imbalance was something that was just fundamentally going to change.
So we had a broad macrothesis that that would correct itself. Which is playing out.
And some of the catalysts domestically that are driving this migration towards digital are obviously the E-rate plan, which has made high-speed broadband much more accessible and affordable to school districts. It’s now accelerated the education superhighway, the most recent stat is 94 percent of schools in the U.S. now have high-speed broadband.
That happened really fast.
So that’s created an infrastructure environment that can now practically adopt a lot of these highly innovative web-based software, education platforms that would’ve been impossible to distribute eight or nine years ago.
Sorry for the long-winded answer, but there’s a few primary drivers why we’re so excited about education.
One is just the macro trend of migration to digital in a very large market, that’s clearly happening.
Two, the infrastructure on the ground is making that possible, with super low-cost Chromebooks and other devices, both with broadband deployment that are now darn near ubiquitous, at least in the United States, has created an environment where just a lot more software can be procured and consumed.
So it’s changing, is the short answer.
Well good, I appreciate that, too. It’s interesting coming from you, one of the wizards behind the curtain, influencing the entire marketplace—especially with—the big number is $185 million—is that right?
Tory: That’s correct, yeah. Fund 2 is $185 million.
Okay. And comparatively, is that the single-largest fund in all of edtech, or how would you characterize that?
Tory: Yeah. That is the largest venture fund in edtech. It comes on the heels of our $100 million fund 1 in 2014. And you know, what that enables us to do is two things. I’ll make a few observations.
The first is, I think a lot of edtech companies have been chronically underfunded. So the way in which Silicon Valley funds companies and other enterprise software business, consumer Internet companies, is just fundamentally different than the way the majority of edtech companies have been financed, particularly K-12 focused ones.
So with our firm, we are in a position to make substantial venture investments into the world’s leading edtech companies. So that for us means a $5- up to $20 million check into companies that are breaking out.
For us, breaking out is two-fold:
One, it’s marketplace traction measured by market fit, revenue, user growth.
Secondly, it’s outcomes. A big theme across all our investment work is learning outcomes. We are looking very, very closely at how products perform versus incumbent solutions, versus other products that are on their way to market.
Basically, when we’re making these substantial bets, we want to be laser focused and absolutely certain that the companies and products and services that we’re betting on, are the ones that are delivering superior student achievement outcomes versus anything else in the marketplace.
For us, that’s the, for lack of a better word, co-orientated—the most dependable to bet on. The products and services that are driving that outcome.
The reason these products are being procured in the first place is to deliver some sort of superior student outcome. And that’s getting much, much easier to track and understand as these products are becoming digital.
Okay. Well, good. Ever consider a Shark Tank show exclusively for edtech where you’d be one of the panelists? Or is that ludicrous and not at all your model? It would be something to promote the edtech sector.
Tory: Well, it’s certainly an intriguing idea. Anything to shine more attention, more light on some of the problems and opportunities in edtech, I’m a big fan of doing. Listen, I wouldn’t rule it out. It’s not really my personal personality, to put myself in that situation. But hey, if it’s bringing more light and attention to this industry, I’m a big fan. Yeah, I’d think about it.
Did someone—mother, teacher, somebody in your life—inspire your passion for this space? You’ve been with Plum Organics and other sectors before this—but certainly, I suspect that, as with a lot of people, education is a really passionate area for many different reasons; one big reason is that we all personally underwent some sort of education. In that way, we’re all “experts” in education—god forbid! What’s your take on that? Who inspired you? In what is your passion for education rooted?
Tory: Well, like a lot of people, I have the family connection to education. My grandfather was a superintendent early in his career. Most of his offspring became teachers. So the reverence for the power of education was always front and central or foremost in our family’s values and discussions, things like that.
So I was lucky enough to grow up in a household that had deep, deep family legacy and reverence for the power of education to transform lives. Like a lot of people, I know that doesn’t make me unique. But I did have that.
And as I became a venture capitalist, and found myself in a position to dictate where I wanted to spend time and how I wanted to define my career, I started becoming more and more attracted to the opportunities in the edtech space.
Listen, there’s an organization that deserves a lot of credit for really kickstarting that movement. It certainly caught my attention, which was NewSchools Venture Fund.
Certainly in the early days, I spent a lot of time with that early NewSchools scene looking at some of the innovative key funding work they were doing. And that led to a few investments, which led to a few more investments, and here we are 10 years later, solely focused on that category now.
Tory: So I’d say two-fold. I have a family connection to the profession of education. Again, that doesn’t make me unique. And then had a market-driven migration into edtech as the sector matured.
Your thoughts on the state of education more generally these days, and what are some of the reasons you might think so?
Tory: Yeah. I get asked that question a lot.
To me, we are in this unbelievable moment of optimism.
The sector is obviously undergoing profound change. This migration to digital is very real. Curriculum, I think, will be 100 percent digital in a short period of time, assessment will be 100 percent digital in a short period of time. Professional development, hard to imagine it, but I think a lot of that will be delivered digitally and measured in much more rigorous ways.
“We are in this unbelievable moment of optimism. The sector is obviously undergoing profound change. This migration to digital is very real.”
So I think as you think about it in this traditional bucket of a school system, and by the way administration already is going digital very quickly. All of the traditional major buckets of what a school district does, I think will be massively influenced by digital products and services. So that is a scary, tumultuous time. But it’s also a really exciting time.
There’s going to be a lot of very rational anxiety associated with these changes. But I think that we are in, I think, finally, a zone of rapid progress.
So for me personally, I have four kids who are all in school. I’m in a moment of tremendous optimism about what their experience will be like.
When we talk of education we’re talking about the future—quite literally, because the younger generation of students are our future.
But it breaks down a couple of ways:
-Existing schools that are set up, they have the 30 chairs in the room, and a teacher in the front of the room, and maybe a whiteboard, Smartboard, whatever.
-And then you have schools that don’t even exist yet because they’re being built from scratch.
So there are two opportunities here.
And then you have charter schools, AltSchool, NewSchools, New Tech High, and different chains of schools and so on.
So a few questions around that:
1 Are you considering investments in school models that incorporate technology, from the ground up?
2 What’s your take on the future? One way to change the future is that there’s a new generation that just comes up. And they’ve grown up around it, and they change it because now it’s the de-facto way—the model is going to be different, because they’re different.
Any reactions to all that?
Tory: No, I love it. One of the most fun things to do is sit down with smart people and iterate on these school models. It’s a fun thing to imagine. Let’s first off say that we are not investing in school models. We are investing in products, services, innovative school models, leverage, as well as traditional school models leverage. So that’s from an investment thesis where we want to spend time.
“As I think about the school of the future, I think that a lot of different models can work, but there’s going to be one consistent theme across the successful, stable models.”
We don’t want to build, own, and operate schools. Now, that being said, as I think about the school of the future, I think that a lot of different models can work, but there’s going to be one consistent theme across the successful, stable models. It’ll be ones that cater to the needs of all four stakeholders.
And the stakeholders we talk about are: students, teachers, parents—and then this broader concept of “society” or “industry”.
From the students’ perspective, having content, curriculum, school schedule, all of these things that are sensitive to my personal learning style, my personal learning interests, and objectives, I think that’s very possible and that’s starting to happen.
From the teacher’s perspective, having real time information regarding student learning progress and student learning style, and basically all the information and tools you would need to deliver a very personalized, rigorous education to every individual school, I think those data streams and that information, those resources are also progressing at unbelievable pace to arm teachers with that toolkit.
Thirdly, I think we’re seeing a ton of companies bubble up that are informing and empowering parents to not only stay engaged with what their students are learning, but help augment their education with really thoughtful tactical, actionable information and data, and resources. So parents, I think, are going to play a much bigger role in the next chapter of education.
And then lastly, I’d say there’s this persistent theme around education being too abstract or de-linked from industry. So the stats that are easy to throw around are the ones around, “Oh my gosh, there’s so many computer coding jobs available in the U.S. that can’t get filled, those are growing at a rate that we could never possibly catch up with, given the amount of graduates that we’re producing that are qualified for those jobs.”
That’s the easy theme.
I think that applies to all sorts of categories beyond just tech.
So there’s frustration from the employer’s perspective, that the graduates who are launching into the world to go build their careers, are not particularly well-positioned to go do that. That’s a very real dynamic.
It’s our belief that the schools of the future will address that, but certainly not grammar schools.
“There’s frustration from the employer’s perspective, that the graduates who are launching into the world to go build their careers, are not particularly well-positioned to go do that. That’s a very real dynamic.”
As we get to post-secondary, I think it’s going to be much, much more thoughtfully integrated into the needs of the economy.
And that’ll be a win for both sides.
So anyhow, as we think about school models that we like, we want all four stakeholders’ needs addressed, is the theme we always revert to.
When you mention those stakeholders, the one I didn’t hear, and I thought you were going to name off as well, was either education leaders or administrators; people who are supporting the teachers, including principals, superintendents, the support staff, and more. Is that part of the teachers thing?
Tory: Yes. And to me, the support staff, the folks who are sharing vision, managing massive numbers of teachers—obviously goes without saying that they’re critical components of this. As we think about the experience of consuming education, clearly the folks behind the teachers are the ones that are empowering the teachers to deliver that experience.
For us, most of the products and services that we’re focused on, are in or around interaction directly with the students.
So, while administrators are making these decisions and setting policy and strategy, and really taking control of direction in which a school and subsequently the students’ education goes—we haven’t factored many administrator-facing services, products, to date.
“Most of the products and services that we’re focused on, are in or around interaction directly with the students.”
Now, we certainly have a few. One of them is Abl Schools, which is an incredible school schedule product. But yes, the administrator, that would be bundled into the team that empowers a teacher who’s interacting with the student. It’s a fair one.
Sure. Fair enough, that’s fine. And then you answered all three of the next questions. What’s technology’s role in education, What major trends are you looking at in the next five years? And what’s your vision for the future of education? And what makes for an ideal learning experience. You’ve touched on all of those, in a way. Want to say more? Otherwise we can move on.
Tory: Yeah; no, I think we hit on all of those. The one I want to triple emphasize is that, for entrepreneurs thinking about entering this space, investors thinking about coming into the space, certainly people who are procuring products for students—this triple emphasis on understanding the data around student outcomes, applies equally to all those groups of people. That data is now so much more accessible and understandable and comparable across product specs.
To us, that’s the big opportunity.
To really get rigorous around making sure that financing is going to companies that are achieving extraordinary student outcome results, and that procurement activity is clustering around the companies that are generating that data.
To us, that’s a virtual cycle that can occur, one of the most important levers we can influence in terms of accelerating great products into schools.
Interesting, very good. I wanted to talk about some other areas. Our publication, EdTech Digest, seeks to promote workable technologies enhancing education, and the people doing so. However, the movement in this arena isn’t without some backlash.
For example, New York Times articles in relation to edtech. And people concerned about the corporatization of education, not to mention foundation influence, i.e., the Bill and Melinda Gates Foundation, and so on. There is a lot of money influencing education as well as education technology, leading to questions like, How can Mark Zuckerberg control all of education worldwide? —and such.
And then if there are any underperforming networks of schools, that could give the whole area a bad name.
There’s just a lot of money involved.
Of course, with all of that can come suspicion, people with ideas about keeping education more pure in some way, at least less corporate—these sorts of issues.
When we look at this whole area—and here you are—well, some folks might just look at you and think, “Shark”—in a very insulting way.
But yet, there’s so much talent, and there’s so many former educators that are now working in this area of edtech, individuals that are well intentioned, hardworking—and they want good things for education.
How do you shake that one out?
Tory: Yeah, no, totally. So complex a topic.
What I would say is, let’s just look at our portfolio.
I won’t rat on companies, but if you look at that portfolio top to bottom, every one of those companies is making a product or a service that is empowering teachers to more effectively own their craft, achieve their desired objectives, etc.
First off, one of the things that I want to address upfront is, for us, we don’t advocate any explicit teaching model. The bulk of our portfolio today is all around empowering teachers. So this is not some sort of highly disruptive model that we have some advocacy or agenda around. This is all about finding solutions that work in schools today, and advance learning in quantifiable ways.
So everyone that’s involved in a school system, whether that’s a parent, teacher, administrator, that I presume would be the shared objective of everybody in the organization. So I don’t think any of the work we’re doing is at odds with anybody.
And I think edtech broadly speaking, I’m certainly aware of that rhetoric, it’s not something that we hear a lot of. And I think a lot of angst around the notion of corporatization playing a bigger role in education is basically being dispelled by world-class product that are achieving terrific outcomes.
So I think that dynamic that you articulated will resolve itself as products improve, and students’ experience improves, and parents and teachers acknowledge the game, and become enthusiastic supporters to the extent they aren’t already.
Tory: Anyhow, that’s probably not the answer you were looking for, but that is how I think about it. I don’t feel anxiety with any of our investments, and really hardly any we’ve ever looked at, that were advocating something that would be at-odds with a particular stakeholder’s agenda.
Yes, fair enough. Alright, let’s talk about some of your companies. Any secret sauce for their success? Anything you have a real hawk’s eye for? Some criteria, three major points, a rubric you use? A checklist? A certain tried-and-true approach? “These companies are successful because they all have…”
For example, another famous investor examines the “products, people, and process” of any prospective company.
Do you have any thoughts on this?
Tory: Yes. I do. Obviously we have criteria that we look at.
Again, the things that get us to say yes are three primary components.
One is product-market fit. We’re looking for breakout products, that measure differently in different categories. Typically the most easy to measure is just vibrancy on platforms. So future students, parents, administrators, whoever the project is designed for, are loving it and growing. So we’re looking for stuff that is working tremendously well, first off.
Number two, we’re looking for companies that have an explicit monetization strategy. So a lot of venture capital has gone into companies that intend to monetize or develop their monetization strategy second. We think that’s dangerous, for a lot of reasons. One is that I don’t think there is endless money available to edtech companies that don’t have explicit business models. In consumer internet, there is. In enterprise software, oftentimes there is. So people can build massive, free products and I think in edtech that’s dangerous.
Those are the basic components to get us to say yes.
Now, what is making these companies work?
And what is the pattern recognition across us, advice to entrepreneurs?
I’d say the most obvious thing is, we are making products that are meaningfully more engaging and exciting versus the incumbent products, services, solutions.
“We are making products that are meaningfully more engaging and exciting versus the incumbent products, services, solutions.”
So a couple fun ones to point to are:
Newsela. Any learning standard that a teacher in a 2nd grade through 12th grade setting would want to teach, there will be Newsela articles or nonfiction content to put that learning standard into really tangible, really exciting, really engaging context. So the ability to inspire a student to want to engage in that learning, Newsela is transforming classroom experiences across the country and actually across the world, frankly, by just repurposing this content in really thoughtful, engaging ways. Newsela is easy to point to, a very tangible example of the promise of edtech.
Quizlet, another fun one. The user base at Quizlet is extraordinary. It’s one of the top 20 most visited websites in the United States. Unbelievable student engagement. You wear a Quizlet T-shirt down the street, you will be approached within 10 minutes by students who will say how Quizlet transformed their learning experience, made them massively more efficient, and they’re still using it today now that they’re in a corporate setting or wherever.
Those are two easy products to point to that are software tools, that are just making learning more fun, more engaging, more deep, more rigorous.
Other companies that we love: we just invested in a company that’s doing one-on-one teacher coaching, so professional development. It is perhaps the most exciting company we’ve ever been involved with. They are taking the data-driven proof case, that the best way to improve teacher practice is through one-on-one coaching.
Whether you’re a new teacher, whether you’re in a school district that’s undergoing some sort of pedagogy shift, you’re migrating into a blended learning environment now.
The best way to advance teacher craft is through teacher coaching. I’m a big believer in that. And we just invested in a company at a very significant level that’s doing that in unbelievable ways, that’s delighting school systems, delighting teachers.
That’s another example of what we would call an edtech company that is going after this PD opportunity. I haven’t announced that one yet.
I bring it up as an example of the types of things we’re doing. It’s not all software.
A lot of it is just more traditional products and services that are being delivered, whether it’s some sort of technology as a service, or leveraging new tools or new broadband to found these buildings.
I think the pace of change and the quality of products and experiences that are going to now find their way into school districts, are going to be near what we see in corporate settings or other domains that have not found their way in education yet.
That’s starting to happen at a really interesting pace.
Any lessons learned, words of wisdom, or advice you’d provide for those making a go in the edtech sector? I know you’re not going to get to all these companies and there are a lot of startups that have their head to the grindstone and they’re working really hard. I talk to a lot of them myself. Any words of hope our inspiration for these people?
Tory: Totally. The first thing I’d say is, any distribution of particularly a digital product into schools now, it’s just a fundamentally different world than it was three to five years ago. It’s a lot easier to get your product out there.
So a lot of the historical distribution challenges that have been cited, I think the walls are eroding around that.
“Any distribution of particularly a digital product into schools now, it’s just a fundamentally different world than it was three to five years ago. It’s a lot easier to get your product out there.”
So the ability to get teachers and students actually discovering and engaging in your product or service are a lot easier than it once was.
Number two, I think that most school districts are now A) they have access to broadband, but you would know the data better than I would, at this point. Close to 70 percent of school districts now have internet-connected devices available to students, and that number is growing quickly.
I’ll put it differently. People who are procuring products, whether it’s administrators, teachers, students directly, are seeking digital products and services.
So it is a fabulous time to be developing a world-class digital solution for schools.
And then lastly, the Golden Rule of anything having to do with edtech: Focus, from the onset, on outcome.
That ties into product design, that ties into how you allocate resources within your early-stage company to make sure you’re setting up the back-end systems to be able to track that data in a responsible and effective way so that you can communicate with rigor the value that your product is delivering, and how that compares to incumbent products and services.
“The Golden Rule of anything having to do with edtech: Focus, from the onset, on outcome.”
We see a lot of edtech companies that have really interesting stuff going on, but no framework for articulating why it’s better or how much it is better.
That, I think, is a mistake we see a lot of entrepreneurs make; they just don’t need to make it. That’s not expensive to do that well.
So those are the things I would harp on.
Earlier in our conversation you mentioned $6 trillion. When we’re throwing around trillions, that’s a lot to actually track. In our State of EdTech report we deal with a lot of numbers. Source-wise, there are numbers from CB Insights, there’s Pitchbook, and all sorts of these seemingly wild numbers. Can you take these numbers seriously? Any thoughts on how these are concocted?
Tory: Yes. First of all, that number is global spending on education, inclusive of lifelong learning, inclusive of early learning, so that’s not only school revenue. Corporate learning. All of which are markets that we look at. So those numbers, I think Citigroup has a phenomenal report on education, it cites that number. GSV Advisors in their most recent white paper cited that number.
So there’s ways to track back into that.
But point’s well taken.
The market is definitively big.
It’s one of the biggest vertical markets on the planet, in terms of annual stats, rivaling natural resource extraction, rivaling enterprise software and its sum aggregates.
I think edtech has been perceived as a small, niche-y market.
That’s a byproduct of legacy procurement, the fact that it’s been largely an analog print industry.
All of that is undergoing violent, violent change right now.
So when we look at subcategories, when we look at PD:
PD, most people will tell you, is an $18 Billion, $22 Billion annual spend domestically alone.
So when venture capitalists say, “I’m looking at this great company, I want to make sure it’s in the billion-dollar market,” every subcategory within education is a multibillion, typically 10 billion-plus sub-market.
So the scale of opportunity is extraordinary when compared to other, super-active venture buckets.
Very well, glad I asked. Very helpful. That helps to see the correct “relative importances” of what we’re talking about and can help our readers. I’m trying to be polite with our time, but the more we talk, the more questions I have.
Tory: You should come see us on your next trip to California. We’d love to sit down and go deeper.
Yes, thanks! This has been really interesting. It sounds like you’ll be at ASU-GSV?
Tory: Yeah. I love that conference and I will be there.
Okay. What else are you looking forward to in the coming year? Big plans? Anything under wraps? Either trends-wise or other highlights?
Tory: Well, I’ll say this. We’ve been extremely active at our ventures this year. For us, we’re approaching 10 investments this calendar year, and new company investments, which really is a byproduct of how quickly this market is becoming an attractive venture investment market. The caliber and quality of opportunities we’re seeing is fundamentally ramping, dramatically.
So as I think about the next year and what I’m focused on, we are going to continue to be extremely active on the new company investment side. We are starting to look at later-stage companies.
A lot of investments that have been around for a while are becoming all of a sudden, really exciting growth opportunities.
So a lot of these companies that are five to 10 years old are now starting to really accelerate.
I think the byproduct of schools, just keep seeking more digital products and services. So as we think about what Owl is likely to do, we will continue to be super active on deals, and we’ll probably migrate in a measured way even to include more late-stage deals.
Again, in terms of industry events that we focus on, we have a presence at most, if not all, of the major ones. But what’s keeping my mind busy is edtech investment.
Got any school-age children that help inform your current approaches?
Tory: I’ve got four kids, six years old and under. So I have a lot of very young kids that are just getting started on this journey.
That makes you more than a concerned citizen, and someone with more than a monetary stake.
Tory: Absolutely. I’m a big stakeholder on all sides of this one—and I have my own new product testing lab at home.
Tory: Outcomes, outcomes, outcomes. It’s what we live and breathe at Owl. It’s apt advice to anyone thinking about becoming a stakeholder in this universe, whether you’re buying product, investing in product, creating product, evaluating product. Outcomes, outcomes, outcomes. That’s the only thing I’d re-emphasize.
Victor Rivero is the Editor-in-Chief of EdTech Digest. Write to: [email protected]