by Jennifer Carolan
In 2014, Theranos founder Elizabeth Holmes graced the covers of Forbes, Fortune and Inc. magazines. The next year, Holmes was named one of Time’s Most Influential People and the Stanford drop-out had raised more than $600M in private capital. When I saw her speak, I found it easy to get swept up in her vision to democratize blood testing and save lives.
We know this story ends badly. Education technology is similarly beset by high-profile failures. In “ Why For-Profit’s Fail in Education,” which is just out, Jonathan A. Knee recounts the tales of several doomed education ventures, including those emerging from Michael Milken’s Knowledge Universe. We have much to learn from failures, especially in fields where the stakes are high, the regulation heavy and specialized expertise is at a premium. The Theranos story, in particular, illuminates their commonality and is instructive in showing how a string of seemingly subtle decisions to prioritize urgency over efficacy can destroy a promising idea.
Read an excerpt from Jonathan A. Knee’s new book “Class Clowns: How the Smartest Investors Lost Billions in Education”
On the surface Theranos looked like the typical Silicon Valley success story, yet dig deeper and you’ll see Theranos was not encircled by the village of investors, advisors and board members you would expect from a biotech unicorn. In fact none of the top life sciences investors backed Theranos. Elizabeth Holmes pitched GV (formerly Google Ventures) and several others. All passed. GV partner Bill Maris explains why:
“We looked at it a couple times, but there was so much hand-waving — like, Look over here! — that we couldn’t figure it out, so we just had someone from our life-science investment team go into Walgreens and take the test. And it wasn’t that difficult for anyone to determine that things may not be what they seem here.”
GV has a five-person investment team for Life Science and Health, most with advanced degrees in bioengineering, medicine and biophysics. The other equally savvy biotech investors I know also declined to invest in Theranos when basic due diligence materials were not provided.
So where did the $600M+ in capital come from? It came from a disparate group of investors: Larry Ellison, the enterprise software mogul, Partner Fund Management, a hedge fund, and Continental Ventures, a NYC firm specializing in real estate. Theranos Board of Directors was as random as their investors. It lacked medical depth and instead was stacked with political and government leaders like Henry Kissinger.
The tight networks of specialized experts behind other top biotech companies had opted out. In a New York Times op-ed piece, “Don’t Blame Silicon Valley for Theranos,” Randall Stross explains:
“The Theranos saga shows just how well Silicon Valley does its homework, especially when considering medical technology, in which the risks of doing real harm to people are higher than those posed by the next photo-sharing app.”
Theranos technology, which was shrouded in secrecy and had never been validated by the FDA or peer-reviewed journals, was flawed and eventually the Center for Medicare and Medicaid Services banned Elizabeth Holmes from the blood-testing business for at least two years. The once high flying company will have to do some major retrenchment to survive.
When we fail in biotech or edtech, we risk that people could be harmed and children might be robbed of their education and future opportunities. And yet we know some failure is inevitable when we innovate, be it in medicine or education. This combination of higher stakes and the need to innovate requires that those of us involved in the edtech ecosystem take extra caution in how we invest, build and scale education technology.
To start, good intentions and a desire to disrupt education are not enough. Education is far more complex than most believe it to be, and it is not disrupted easily. Teaching is highly technical and doing it well requires years of training and experience. In addition, schools are flooded with mandates and initiatives, so implementing new products and tools — no matter how appealing they are — requires time and energy that is often difficult to muster in the midst of the usual flurry of school activities. Education expertise, which is critical to building great education startups, has been undervalued in edtech. Those that appreciate the value of master educators on the founding team build products like Newsela and MysteryScience that grow fast, improve learning outcomes and defy the meme that edtech startups don’t make money.
Second, education, like biotech, benefits from investors with specialized knowledge. There is now a group of education investors with track records of success investing in education. They understand the education system and its particular challenges with business models, navigating categorical funding, convoluted sales processes, and the unique support required for successful implementation. The top performing edtech companies almost always have at least one investor with deep experience operating and investing in the space.
Finally, efficacy matters even if it is hard to demonstrate. Yes, K-12 educational research is plagued with problems too numerous to recount here, but that doesn’t mean the edtech ecosystem should get a “free pass” rather than seek to understand the impact of products on student learning. The top life science investors track peer-reviewed publications. “It’s a way of getting expert due diligence,” says Guy Cavet, CTO of biotech firm, Atreca. Similarly, savvy education entrepreneurs and investors keep up with the latest research in child development and cognitive science. Like GV’s life science investor who went to take a Theranos blood test, thoughtful edtech investors perform due diligence in the classroom to observe how research meets context. They then complement this research with robust, education-specific metric tracking in learning outcomes, retention, usage, teacher NPS and other relevant metrics.
Even with lots of care, edtech failures will happen. I have invested in edtech companies that have failed and it was heartbreaking to let down teachers who depended on us. We reflect on these failures. We re-read our original investment memos and discuss as a team what went wrong and what we can learn from them.
A few weeks ago, Wired ran a piece titled, “ Theranos Blew It. But It Didn’t Ruin Biotech Startups for Everyone.” I hope the failures in edtech serve as important learning for all those involved and make us all smarter instead of spoiling our appetite for innovation and risk. There are so many improvements to be made to our educational system which will make it more equitable and truly the escalator of opportunity it was meant to be.