School + tech = boom

Education is the fastest growing startup sector in Canada

<p>Pupils (11-13) wearing goggles watching experiment in science class</p>

Pupils (11-13) wearing goggles watching experiment in science class

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Anyone who’s ever sat in on a 500-undergraduate lecture knows that taking good notes can get tricky, says 23-year old Jack Tai. “What if you happen to be sitting too far to hear properly?” Or, worse still, “what if you’re an international student?”

That was the case for Tai’s classmate Jackey Li, who’d just landed at the University of Toronto from China. But their friend Kevin Wu, a native Canadian, also had trouble transcribing what he heard in class. The three bonded over those struggles with spotty annotations, they started sharing notebooks and spending afternoons together at the library going over material covered in class.

Four years and three Bachelor’s degrees later, in September 2010, Tai, Wu and Li launched Notesolution, a website that lets students share notes online without having to line up at the photocopy machine. They started marketing the service at their alma mater, and “within the first year we had 9,000 registered users,” says Tai. Today, the company counts over 60,000 users across Canada and 14 employees.

Notesolution is part of Canada’s so-called ed-tech boom, with software companies catering to students, teachers and professional trainers sprouting up all over the country. The last few years have seen education shoot to the top of the charts in terms of startup activity. According to a recent CIBC study, the ranks of self-employed Canadians working in the sector grew by a staggering 65 per cent between 2007 and 2012. By comparison, the second-best performing startup industry in Canada, healthcare, saw growth of less than 25 per cent during the same period.

Canada’s ed-tech champion is arguably Desire2Learn, a provider of software solutions for educational applications that has boldly—and successfully—taken on U.S. giant Blackboard. The Kitchener, Ont.-based startup secured $80 million in funding in its latest round of financing earlier this year, a significant venture capital investment even by U.S. standards and the largest such investment on record in a Canadian education-related business.

The Canadian trend mirrors what’s happening south of the border. In California, ed-tech is the latest hot thing. Startup forums are abuzz with chatter about how education software will save the world, from revolutionizing academia to bringing free knowledge to the low-income students and the developing world, as purported by Coursera, which offers online courses on anything from Contemporary American Poetry to Computational Finance at no cost. Investment in education-related software companies has nearly tripled between 2002 and 2011, rising to $429 million from $146 million, according to the National Venture Capital Association.

Perhaps unsurprisingly, those numbers are much smaller in Canada, where similar deals by local venture capital funds accounted for only $116 million between 2008 and 2012, according to Thomson Reuters data. Between 2007 and the first half of this year, ed-tech companies made up only 3.6 per cent of software investment, and a meager 0.6 per cent of overall investment.

The sector, it seems, hasn’t escaped the familiar constraints so many Canadian entrepreneurs come up against: relatively scarce capital and risk-averse investors. Whenever pitching to a Canadian venture capital fund, says Notesolution’s Tai, the first question that comes up is: “are you profitable yet?” In the U.S., he says, it’s about “selling a vision,” rather than having established revenue flows.

Luckily, Notesolution and several others are getting some loving from Silicon Valley. In June, Tai and Wu were in San Francisco schmoozing with U.S. investors and faculty from Stanford and the University of California, Berkley. They attended the Launch Education Conference, an event hosted by Microsoft where promising startups in the field got a chance to mingle with a who’s who of California’s tech industry.

Still, Canadian investors seem to be warming up to the idea that there’s money to be made out of the digitalization of education. GrowthWorks Atlantic, a retail venture capital management company that concentrates on Atlantic Canada, doesn’t normally focus on the business of education, but in 2006 it dipped its toes in the ed-tech sector with an investment in Azorus Inc., a Halifax-based company that helps universities connect with prospective students and improve their enrollment rates.

The company is receiving great interest from universities in the U.K. Recent cuts to higher education funding there are making college applicants more selective and heightening competition among schools trying to attract applicants, according to GrowthWorks Atlantic CEO Tom Hayes. “We’ve been very pleased,” he says, “we’re pretty bullish about where that might take us.”