How Chicago edtech companies are rising to the head of the class
Brad Spirrison
3/23/2015 @ 2:15:07 PM
You could put it on the blackboard! Yes, Chicago is an epicenter for educational innovation.
Earlier this month, two Chicago-based education technology companies - ThinkCERCA(who we told you about last year) and Classkick - raised institutional venture capital rounds. And while both companies are individually impressive and already influential in the burgeoning edtech sector, they have a lot of corporate classmates in the Windy City that are also attracting strategic and pure venture capital.
As we write about regularly, instructional delivery models in education - particularly within K-12 - are rapidly transforming. Educators have access to more digital resources than at any point in history and are using a combination of apps, videos, and websites to flip their classrooms, personalize instruction, and assess student performance both individually and in aggregate.
Startups, often founded by educators who sense opportunity amidst all of this disruption, smell blood.
“Big companies with top-down approaches and highly paid sales teams don’t get what startups are good at,” explains Howard Tullman, longtime entrepreneur (edtech and otherwise) and CEO of Chicago’s digital media incubator 1871. “But what startups need to understand is that they have to solve the adoption issue (of their product) first, and then they can worry about writing a giant contract.”
Combining the best of both worlds
In recent years, several 1871 edtech companies have raised angel, institutional and corporate venture capital.
ThinkCERCA, which creatively couples informational text and reading assignments for students grades 4-12 with Common Core-aligned assessments, in March raised $3.2 million in venture capital in a round led by the venture capital arm (managed by Atrium Capital) of Chicago area educational publishing pioneer Follett. Other investors included Chicago-based Math Venture Partners, Amicus Capital, Great Oaks Venture Capital, and angel investor/OpenTable founder Chuck Templeton. ThinkCERCA has previously raised $1.5 million from individual investors.
Beyond the capital from Follet, which will be deployed to sales and engineering talent, ThinkCERCA CEO Eileen Murphy (a former Chicago public school teacher and administrator) sees relationships to tap into from a company that was founded two years after the Chicago fire (1873).
“One thing that Follett can bring today is a lot of credibility with customers, which helps us stand out.” We have yet to work out all of the details of the partnership, but we are figuring out how to leverage their enormous network of schools.”
Follett CEO Mary Lee Schneider concurs.
“Follett works with more than 70,000 schools across the country,” she said, “and through this partnership, we’ll be able to expand ThinkCERCA’s reach, as well as foster developments that will make the technology even more effective and easier to use.”
ClassKick, another Chicago edtech company to recently raise venture capital, has already attracted customers nationwide and in 75 countries around the globe with its slick technology that lets teachers individually monitor students in their classrooms as they are working on problems on their iPads. The company raised a $1.7 million seed round led by leading edtech investor Kapor Capital, Lightbank, Great Oaks Venture Capital and Yammer founder Adam Pisoni. ClassKick’s founders hail from Teach for America and Google.
Other 1871 edtech companies that have either recently raised significant outside capital or are expected to include Learnmetrics (an analytics company that aims to do for educational data what Mint.com does for financial data), NextTier Education (which is reimagining the college application process) and Infiniteach (developer of the Skill Champ app for students with autism).
Beyond funding
Edtech companies springing up at 1871 and other Chicago locations are also benefiting from local organizations like Leap Innovations and DV X Labs. Founded by former New Schools for Chicago CEO Phyllis Lockett, Leap Innovations is based in 1871 and helps educators discover the best new educational innovations (while also providing feedback to edtech developers). DV X Labs, a joint venture between 1871 and DeVry, is an accelerator for edtech companies seeking to pilot and market their offerings.
Of course the best resource for an early stage edtech company (in Chicago or otherwise), explains 1871’s Tullman, is a good customer relationship management system.
“They need a good CRM program to find champions and advocates within schools, and not spend too much time on marketing to everybody,” he says. “I wouldn’t even call it viral. It’s simply class warfare.”
Veterans’ start-up will help those in military save money on financial services
Jason Smartt (left) and Ceasar M. Munoz are with CreditServe, which provides financial services to active-duty personnel, steering them away from predatory lenders. | Photo courtesy of 1871
Afghanistan war veterans Ceasar M. Munoz and Jason Smartt aim to upend traditional credit scoring for junior active-duty soldiers who often have no or low credit scores.
The two alumni of West Point, along with co-founder Nitika Nautiyal, created start-up company CreditServe four months ago to match the soldiers with credible lenders who can give the soldiers more favorable, fixed terms and lower interest rates than they can get now.
The entrepreneurs are seeking angel funding totaling $1.5 million by the end of the first three months of 2015, partly to create an algorithm to show that soldiers are statistically better credit risks than their traditional scores reveal, they said. The goal is for the algorithm to take into account factors such as a service member’s deployments, awards, occupational specialty and length of service to produce the new type of credit score.
CreditServe is part of The Bunker, an incubator for startup companies created by military veterans.
The Bunker will be housed in a 25,000-square-foot addition that opened Tuesday next door to 1871’s home base on the 12th floor of the Merchandise Mart — a 50 percent increase in the much-publicized 1871 tech hub’s current size.
At an event Tuesday morning, Gov. Pat Quinn introduced representatives of the firms occupying the new space. The state of Illinois invested $2.3 million from the Illinois Jobs Now program to help get the original 1871 space started, and put in another $2.5 million for the expansion from the Illinois Department of Commerce and Economic Opportunity.
Some were clearly so excited to be there they seemed a little tongue-tied, remembering to thank the governor and 1871 but not mentioning their names or what their firms did.
After Quinn finished prompting many of the firms for details, it was J.B. Pritzker’s turn at the microphone. The technology venture capitalist billionaire was an early supporter of the 1871 hub.
Noting how focused Quinn had been on listing all the companies, Pritzker told the governor: “I know who the next CEO of 1871 should be.” But, he added, “you probably have another job you want to keep for awhile.”
The new space is part of 1871 CEO Howard Tullman’s plan to support new companies that will disrupt a variety of entrenched industries.
Other incubators to open in the space, though not all at the same time, are:
* Leap Innovations, an education-focused incubator that will engage teachers (including providing working space for them in 1871) to pilot new technologies, including coursework tailored to individual students’ abilities and needs.
* Good Food Business Accelerator, a program for food tech entrepreneurs aimed at expanding the availability of sustainable, locally grown food throughout Chicago.
* The DeVry EdTech Incubator, designed to help startups develop new educational technologies. It offers mentorship, coaching and access to DeVry’s network of educational leaders.
* The Elmspring Real Estate Incubator, supporting startups that leverage technology to create solutions for complex challenges throughout the real estate industry. 1871’s real estate technology incubator space is sponsored by DTZ.
* Impact Engine, an accelerator program to support companies that aim to deal with societal and environmental challenges by providing dedicated programming, including one-on-one mentorship, guest speakers, business workshops and team building exercises.
* WiSTEM, a program for women-owned and operated technology businesses.
The new space will also house four venture-funding firms and companies that have outgrown the 1871 shared space, including OptionsAway and Learnmetrics.
The companies are part of a growing network of resources for Chicago’s entrepreneurs.
For example, Munoz and Smartt came up with their startup idea as part of their coursework in entrepreneurship while pursuing MBAs at the University of Chicago’s Booth School of Business. They also take advantage of resources at the university’s Polsky Center for Entrepreneurship and Innovation. They are set to graduate in June 2015. Munoz, 30, served as a senior communications officer for the U.S. Army’s 2nd battalion, 1st Special Forces mission in southern Afghanistan, while Smartt, 29, served as a U.S. Army tactical and effects coordinator for the 5th Brigade, 2nd Infantry division, based in Spin Boldak on the Afghanistan-Pakistan border.
A beta trial with a soldier who needed a $17,000 loan resulted in the soldier saving $400 a month with a halved interest rate (18 percent, instead of 35 percent) and a three-year loan instead of several loans due over three- or six-month periods.
CreditServe’s target audience likely will realize negotiated interest rates from 10 to 25 percent, the co-founders said.
CreditServe won third place at the Booth School’s “New Venture Challenge” startup competition in May, along with a $10,000 seed-funding prize. The co-founders also have raised $70,000 from friends and family.
Todd Connor, CEO of the Bunker, said Tuesday that the idea is for the 10 to 14 veteran-run companies in the new space to generate revenue, hire people and grow to a point where they will move out after six months of meeting with mentors, strategic advisors and otherwise getting traction in the Bunker.
The first group of 14 startups at the Bunker were chosen from 51 applicants because most were already making money and attracting customers, said Connor, a Northfield native who earned his MBA from the Booth School after serving as a lieutenant in the U.S. Navy aboard the USS Bunker Hill as part of the “Shock and Awe” campaign on Baghdad, Iraq.
Indeed, the startups will be expected to show results quickly because the Bunker “is not a co-working space or a space to hang out,” Connor said. The companies will be evaluated based on their growth in jobs, revenues, capital investments and ability to remain going concerns that continue to exist for three years or are sold on terms favorable to the founders, he said.
The Bunker’s motto, “Come, Create and Conquer,” is aimed at appealing to veterans’ sense of mission and empowerment, rather than focusing on images of veterans as homeless and unemployed, he said. “We don’t want a pity party. We’re trying to recapture a sense of community. This is a place where you can build a business.”
1871, the business incubator and co-working space located on the 12th floor of Merchandise Mart, is expanding. 1871 CEO Howard A. Tullman, Illinois Governor Pat Quinn and members of the Chicagoland Entrepreneurial Center board of directors announced the expansion of 1871 Tuesday. Chicago's digital entrepreneurship hub will expand by 25,000 square feet, which is a 50 percent increase in size. The co-working space recently turned two years old.
Gov. Quinn took another tour of the facility before announcing the $2.5 million grant to help the tech incubator expand. Illinois made a similar-sized investment of taxpayer money two years ago.
"We've been able, with this great movement of 1871, to create more than 1,000 jobs in a couple of years with a modest investment," Quinn said.
The expansion will allow 1871 to house larger companies than they were previously able, including companies that have outgrown their current space but want to continue to work within the space's environment. It will also allow 1871 to grow, or expand incubators and accelerators in food technology, real estate technology, education technology, financial technology, startup engineering and women-owned technology businesses. They will also house venture capital firms looking to invest in local companies. The space added with the expansion is already sold out.
1871 has a national reputation, attracting college-educated, young entrepreneurs who start and grow their tech businesses in Chicago.
"Starting up is easy," said Julian Miller, CEO of Learn Metrics. "It's staying up and finishing up that are tough."
Mayor Rahm Emanuel is also confident in Chicago's future as a center for technology-driven businesses, but he and City Colleges chancellor Cheryl Hyman say they know that to reduce chronic unemployment in low-income neighborhoods, more students must complete two-year associates degrees that train them for available jobs.
"It's incumbent upon us that after they invest their time and their money, that that degree means something," said Hyman.
Many business leaders doubt that public schools can keep up with the rapidly changing needs of private industry. 1871's CEO Howard Tullman said he believes private companies can do more when it comes to job training and retraining.
"The more important solution is for companies to invest in training and retraining their own workforces, and to bring new folks in," Tullman said.
Chicago-based startup Learnmetrics took home one of four DEMO God awards at the DEMO Enterprise 2014 conference on Thursday in San Francisco.
The award recognizes companies for their ability to present a great product and emphasize its position in the market and its compelling features.
Learnmetrics brings together data collected from disparate sources on student performance. It aims to present the data in a way that helps teachers better address student needs.
“I’m just looking forward to seeing how we move the needle forward,” Learnmetrics CEO Julian Miller said as he accepted the first of four crystal awards presented onstage.
The winners were chosen from 26 companies based on votes from the audience in San Francisco, judges’ commentary and organizers’ votes after a day-long session, according to the event’s producers. The other recipients were ThinAir, Eco Devices and Parklet.
Learnmetrics’ Miller told Blue Sky on Friday of the award: “It gives us access to resources and a community that most early-stage companies can only dream about. We’ll be using both to iterate faster, work smarter and get closer to our goal of using smart data to make sure that each and every student receives a high-quality education.”
Learnmetrics, which grew out of Chicago’s Impact Engine, joined two Chicago-based companies out of 1871 — MarkITx and WeDeliver — in gaining recognition this week in California. MarkITx and WeDeliver each received $100,000 in investments from serial entrepreneur Steve Case at the Google for Entrepreneurs Demo Day on Tuesday in Mountain View.
