Part one of three reports on the SIIA’s Ed Tech Business Forum, the leading business and finance conference for the K-12 and postsecondary education technology market that wrapped up a few days ago in New York. This annual event attracts senior management from education software companies, platform technology firms, solution providers, publishers, private equity firms and venture capitalists.

John MartinsonThe keynote speaker for this years conference was John Martinson, Managing Partner of the Edison Venture Fund. With 31 years of venture capital experience, including 8 investments for Edison from $3-10M and 12 investments from $250K-12M as an individual, Martinson has significant experience and a unique perspective on investing in the educational technology market.

In his presentation, Martinson provided a candid appraisal of what makes educational technology attractive to investors, as well as its unique challenges. He also shared his “tired or wired” list, highlighting emerging segments of the market — invaluable insight for anyone managing an educational technology portfolio or investing in new products for this market.

Among his obserations: K-12 software is a sizable niche market with 55M students, 125K schools and 12K districts. There’s tremendous public pressure to improve student performance, reduce costs and improve productivity. It’s a market of passionate entrepreneurs, a market with a high SAS (software as a service) renewal rates. Equally important, if somewhat below the radar of many departments of education and school boards who make purchasing decisions, today’s students are digital natives as are many of their parents, so the demand for educational technology will only increase.

On the downside, there’s a long tradition that schools pay for hardware and expect software and services to be free. Add to that regulations that differ by state, a long (and seasonal) sales cycle, decision making by committee, and disbursed sales (12 thousand districts, 125 thousand schools) and the challenges become clear.

In spite of these negatives, Martinson sees growing investment opportunities on several fronts, including instruction management (learning management systems), data management (assessment reporting and analytics to drive individualized instruction), portals and communication systems, special education (see individualized instruction), online schools and courses (distance learning), educational games and simulations (the “serious games” movement) and in mobile computing devices.

Martinson is particularly bullish on the post-secondary market. Despite being much smaller than K-12, the technology infrastructure is more robust, there are fewer cumbersome regulations, there are business-like initiatives to increase revenues and lower costs, and decisions are more timely compared with those made by state and local school committees.

In a nutshell, while educational technology remains unarguably a niche market with unique challenges, Martinson feels the need for applied technologies, rapid acceptance of web-delivered software as a service, recurring revenue business models, and pent-up demand from years of restrained investment in K-12 point to increased opportunity for investors, publishers and product developers.

>>> Update – The audience for John Martinson’s presentation had a few good questions which were inadvertently omitted from the original post:

Q – Frank Catalano, SVP Marketing for Pearson Education, asked “Why are traditional educational publishing copmpanies are so bad at marketing to teachers and students?”

JM – “I think that’s because its a highly disbursed market that ‘thinks locally’ making it difficult to reach with the kinds of marketing traditional ed-tech publishers are comfortable with.”

Q – “What are the best sources for early-stage funding?”

JM – “Usually ‘friends and family’ are the place to start. Also, I’d talk to entrepreneurs who have already been successful in this market.”

Q – Nelson Heller of the Heller Report asked, “What are the characteristics of a ‘home run’ investment?”

JM – “A home run to me is finding a product or service that capitalizes on current trends, that are ‘must have’ purchases, and that have a 5-10 year growth curve ahead of them.”

Q – “What about effiacy? How can you prove your product works when a proper study takes months or years, during which the market may have moved on?”

JM – “Effiacy is important but less so than delivering a product that meets current purchasing priorities. If the market ‘has to have it’ then they’ll find a way.”