Why Aren’t Universities Investing in Education Technology?

Despite extensive discussion about the way higher education will change due to advances in technology in coming years, universities aren’t listening. Or, at any rate, they may be researching it, and discussing it, but they’re sure not putting their money into it. Maybe they should.

According to an article in the Harvard Business Review:

Education is on the brink of rapid change that will create a lot of value for innovators. But still sitting on the sidelines? Those who make the decisions and control the purse strings at legacy higher education institutions.

I’m a partner at a venture capital firm, and venture capital has long been a key way for the top-performing endowments to deploy capital. But when I talk to general partners at venture capital funds that focus on education — Learn Capital, where I work, Rethink Education, and University Ventures — they report that university endowments have not been nearly as interested as other institutions in the work we’re doing. One outside manager of many endowments I spoke to confirmed to me that there has been “no mandate” from clients to be investing in the future of higher education. “I haven’t heard that at all,” was the quote. At the Education Innovation Summit the only university endowment in attendance was the University of Texas‘s UTIMCO.

The point that while universities sometimes seem to be eager to jump on to the online, rah-rah technology bandwagon, they’re not investing in technology. Or, at any rate, they’re not using their endowment money to support education technology, at least not the kind that’s supposed to disrupt the model. This is trouble, because college endowments could potentially make an awful lot of money on education technology.

But maybe not. Michael Staton , the author of the piece, is a partner at Learn Capital, a venture capital firm focused on education. So obviously he’s rather eager for more investment. But while there’s a lot of discussion here about how technology will transform education, there’s not very much understanding of how technology companies will make money over the long-term. The reality is that most of them won’t. That’s why they’re not really a great investment.

Indeed one of the best ways to make money there is to invest early in a successful company and then have that company get bought out by a larger corporate entity. But that also means investing in lots of companies that won’t work out. That’s why technology startup employees with partial ownership don’t think of being vested as an actual investment; they mostly think of it as a lottery ticket. If they’re lucky it’ll make them millions, but it probably won’t.

The problem with this line of thinking is that while it’s possible “the credit hour, the seat in the lecture hall, the tenured professor with a two or three course load, the four-year tuition, and the two-year professional degree will all be up for grabs,” as the author put it, and a lot of new firms will make money doing this, we don’t know which ones will make it. America is full of tech startups with a great idea and with brilliant young people that will fail. That’s how this new economy works. One can’t invest a university endowment in “education innovation,” one has to invest in real companies.

University endowment managers look at trends the market and where it makes sense to put money so as to maximize the return for the institution. The fact that these managers work for universities gives them no comparative advantage in terms of investing in education startups. They can’t pick the winners and losers in this space better than anyone else can.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer