Avoid Irrational Exuberance Over EdTech Investment Possibilities

Avoid Irrational Exuberance Over EdTech Investment Possibilities

Be careful when comparing EdTech to other industries.

Man wanting to get rich in EdTech

In 1996, in an otherwise boring policy speech by Alan Greenspan to the public policy think tank, American Enterprise Institute, he said one two-word phrase that lives on to this day: Irrational Exuberance.  He asked,  “. . . how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions. . .?” The markets reacted by losing value, perceiving this comment by the Federal Reserve Chairman to be a warning that current markets were artificially overvalued.

Is EdTech The New FinTech?

In his TechCrunch opinion piece, “EdTech is the new fintech,” David Bainbridge is exuberant over the possibilities for EdTech to become the future for tech investors the way FinTech has been for the last several years. His argument is simple and compelling, technology has been disrupting the financial services industry because consumers want it. We “want things made easy, more accessible and provided instantly,” and that’s just what fintech has provided.

But is his exuberance irrational? Possibly. First take a look at the two industries. While they share the honor of being very highly regulated by government and industry officials, and they’ll both affect nearly everyone’s life at some point, that is about the extent of the similarities.

EdTech will be EdTech

Apples and Oranges

So, let’s look at the differences. The first, most glaring difference is who is the customer and who is the consumer in each. In FinTech, the consumer and the customer are usually the same person, usually an adult using technology to manage her money, pay bills, do accounting and calculate and pay taxes. In education, the consumer — the people who use the product, and the customer — the people who pay for the product are often completely different groups of people, especially if the tech product is targeted for use by students or teachers.

The second glaring difference is the way the two systems work. In the financial system, you put your money in a bank, the bank is regulated to make sure you can access and use your money as you see fit. In education, the system is a much more hierarchical structure that starts with the students, goes up to the teachers, then to the principals and administrators, then to administrators at the district level, then to the state level department of education. And that’s just how it works in the US. Most buying decisions don’t get made until at least the district level, and often not until the state level.

So before you start spending money your startup hasn’t raised yet because EdTech is going to be the next FinTech, temper your exuberance a little. Sure, EdTech has great potential for both investors and entrepreneurs, but it is a unique industry. Instead of thinking EdTech will be the next FinTech, take the more realistic approach that EdTech will always be EdTech.