The Next Gold Rush: Start-ups Move Into Education

The model that sent settlers streaming across the continent and led to the gold rush in California then to Alaska is not that different from start-up culture. There is a whole bunch of opportunity out there, but the risk is high and a lot of it is buried in places that are hard to find. A large company can explore, but it has to evaluate the risk and vet the project.

Exploring all the potential paths to the gold will be quite costly, possibly more than the value of the gold itself. But if you let individuals go out there and look, then each one takes on the risk himself. Failure doesn’t burden the system as a whole, and the successful gold-miner then sells to the big company. Even if most gold-miners fail, those that get rich are the ones who move us into the future.

Entrepreneurs also take on individual risk that a larger company might not be able to afford. Start-ups fail frequently, but a few manage to strike gold. Then, naturally, the big gold mining company moves in and buys them out.

Still, entrepreneurs, like gold-miners, tend to cluster around success and rumors of success. Imitation reduces risk. Information can be shared, to some extent, though the actual claims are often closely guarded.

The new gold rush for entrepreneurs is the education field. According to TechCrunch, education start-ups have raised over 500 million dollars in the first quarter of 2014. The increase in funding can be seen in the chart from Crunchbase, below.

“It’s interesting because public education hasn’t changed that much in 150 to 200 years and there had been almost no technology going into it,” said Don Burton, managing director of the Techstars Kaplan Edtech Accelerator program. “It’s not only that there’s this huge behemoth sector of the economy that spends $1.2 trillion on educating kids, but that it’s old, it’s long in the tooth and it’s bound to get disrupted.”

But the truth is that most of the gold-miners did not get rich. Many start-ups are facing the hard reality of the marketplace, a good example of that struggle can be found in this EdWeek article.

In the next few posts we will look a little deeper into what is driving this start-up boom and where many companies are going right, or wrong.