When Ireland's Litmus, an artificial-intelligence tutoring app for math students, wanted a place to validate its product and grow into a business, its founders came to Philadelphia. The company, founded by Keith Mthunzi and Patrick Devine in September 2015, wanted the guidance of leaders in educational technology, or "ed-tech," and turned to the University of Pennsylvania's Graduate School of Education.
The link between education and start-ups is a natural one for Bobbi Kurshan, the school's executive director of academic innovation. "Many of the same skills that you find in great teachers are the same skills you find in entrepreneurs," she said. Both fields require a level of comfort with change, a passion to change the world, and quick adaptation to new challenges.
The school holds an annual Milken-Penn GSE Education Business Plan Competition that awards more than $140,000 in prize money. The winners are then invited to join the incubator, Education Design Studio Inc. (EDSi). The incubator invests in these companies, and provides their founders with mentorship and extra help in fund-raising. EDSi has graduated over 30 companies since it was founded in 2013. Its latest class includes seven portfolio companies that garner the most investment and four other firms that get consulting help. The school also offers a structured, 13-month executive education master's program to help students build companies.
The incubator typically takes an equity stake of 6 percent to 8 percent of its portfolio companies. Program fellows cap their experience during a Demo Day, where they explain their technology and say how it will help a wider audience, including partners and investors.
Since ed-tech is a broad field, the companies reflect this diversity. Litmus impressed Kurshan and her colleagues enough to win a spot at EDSi in 2016 with its AI software geared to helping students do math.
By the end of the fellowship, the conversion rate (students who download the app after seeing it) rose to over 75 percent, with students from more than 60 countries getting mentoring. The average conversion rate of an education app is 7 percent, so Litmus has grown substantially over the last few months.
"The EDSi program gave us invaluable insight on how to progress," said Mthunzi, whose app is free for the moment. "They've helped and continue to help us lay out a clear, step-by-step plan to not only deliver an outstanding product for our users but to create the best possible business around it."
Andyshea Saberioon, cofounder of PledgeCents — a crowd-funding platform for teachers — agrees that Kurshan and her team have been essential in helping the company form partnerships with more than 275 school districts and facilitating $700,000 in transactions.
A desire to be closer to EDSi and the East Coast market drove Saberioon and his cofounder, Ricky Johnson, to relocate to Philadelphia from Houston. EDSi "introduced us to [K-12] marketing experts, investors, and helped us hit our milestones," Saberioon said.
Despite the enthusiasm that ed-tech generates from the venture community, some worry that these fledgling firms are not financially disciplined. When Adrian Ridner, the Mountain View, Calif.-based CEO and cofounder of Study.com, built a subscription-based company that helps over 30 million students and teachers a month access an online library of more than 40,000 lessons, he and his team self-funded the company's operations.
This mindset, he said, created a culture of data-driven financial discipline. "Focusing on the number of users at all costs is a mistake," he said. "I know of companies where the lifetime value of a customer is half of the cost it takes to acquire them. That is not a path to sustainable growth and long-term profitability."
Kurshan acknowledges the criticism and advises her start-ups to actively manage their finances. "You can't have an impact unless you have some revenue to be sustainable," she noted. "But we look at a double bottom line: Can you do well and do good — have a positive social impact?"
Knowing the difficulties firms face, Kurshan isn't afraid to challenge entrepreneurs. TriviaNote, an AI company that automatically creates flashcards, quizzes, and trivia games, revamped its revenue model during its time at EDSi. "Bobbi challenged us to rework our sales and marketing funnels to be more in line with the educational environment we are a part of," said cofounder Evan Megill.
Part of building a successful ed-tech company is noticing which trends will be critical in the future. One is personalized education, or creating individual learning paths that meet the needs of each student based on data analysis.
Kurshan also stresses data visualization. "Everyone wants to make decisions based on data," she explained. "I'm very interested in companies that help parents, teachers, and students look at educational data to make good decisions."