Over the last 15 years, education entrepreneurs have raised billions of dollars in venture capital and philanthropy to build products and services designed to improve educational outcomes for our nation’s students. Too few have grown into visionary companies that drive meaningful change for children over a long period of time. One reason: companies that have proven capable of driving both impact in schools and strong financial performance are sold to larger companies, or private equity firms, which place far less emphasis on mission than on growth and profitability. In too many cases, such companies regress to the mean, or fadeaway, within a few years of an acquisition.
This is both a problem and a missed opportunity, especially for the millions of students struggling in schools, and falling further behind.
Our field - specifically early stage investors, founders, and employees - has an opportunity and responsibility to do better.
We need to ask ourselves a number of hard questions:
As in any industry there are many reasons why earlier-stage companies sell to larger companies or private equity firms. Founders may be exhausted and ready to move on. After many years, they may have financial and family needs that can only be met through a liquidity event (partial liquidity for founders can be a valuable tool in this case as well). Founders may have little say if the majority of the company is owned by investors that are ready to exit. And founders of companies demonstrating early success may look at an acquisition as the most powerful way to increase investment and expand reach and impact.
Let’s focus on this last scenario: companies that are winning, and demonstrating they can drive both financial returns and impact. For those of us who care deeply about improving outcomes for all students, these are the companies we should want to see innovate, grow and thrive.
I have spent time listening to and learning from entrepreneurs about their journeys from start-up to acquisition. I focused primarily on leaders of companies that were considered successful, using certain indicators as a proxy given how rare and often difficult it is to conduct meaningful, long-term evaluations: they grew beyond $10M in ARR, had very high renewal rates, strong NPS scores, and clear indications that customers valued their products and partnerships.
A number of the founders I talked with look back at the acquisition of their companies with some level of regret. They wish they had done more - or made different decisions - that may have increased the chance of their companies continuing to focus deeply on progress toward their mission as well as financial outcomes. These acquisitions are cautionary tales that surface insights others can learn from.
Through these conversations, a few themes became clear.
First, most of the founders in this group did not spend sufficient time developing strong relationships with the acquirer. Either they, or a banker, ran a process which required meetings with a large number of companies and did not allow for enough time to build relationships with an ultimate acquirer. Related, there is a lot to learn, including who you will work with day-today, how the fund is performing, and where they are in the fund life, that will influence the future relationship. Without a strong foundation, and trust, it was much more difficult to develop guiding principles for how the two organizations would work together post-acquisition.
Second, founders did not do sufficient diligence to really discern whether a strategic or financial acquirer was fully mission-aligned. Entrepreneurs start and build great companies when obsessed with a mission and solving a problem. While acquirers may not share the same level of passion, too many acquisitions of impact-focused companies prioritize financial outcomes alone, failing to understand that mission and impact are essential to financial returns.
Third, in the absence of strong relationships, and hard conversations, many founders who sell their companies have very little clarity about the level of investment the acquirer was prepared to make in order to drive ongoing innovation and impact. This is both a diligence issue, and one that should be part of a negotiation. Founders spent insufficient time conducting their own diligence, looking at other case studies and negotiating a clear, shared vision and financial strategy post-acquisition.
In many of these cautionary tales, founders left the acquiring company earlier than they had intended, as did many key team members, making it difficult to drive ongoing growth and impact.
Not all exits end this way, however. In addition to the cautionary tales, there are examples of acquisitions that have accomplished what founders set out to do: reach more students, deepen impact, and create financial wins for team members and investors.
The Ellevation Experience
In 2011, along with Teddy Rice, I started Ellevation, a software company focused exclusively on English learners (ELs) and the educators that serve them. We invested heavily in R&D, developed new products to help educators address significant challenges, and grew every year while retaining greater than 95% of our district customers. For over a thousand school districts in every state Ellevation was the platform educators used to manage multilingual programs, improve professional learning, scaffold instruction for ELs, communicate with families, and much more.
In 2021, after receiving a few unsolicited offers and then running a very targeted process, Ellevation was acquired by Curriculum Associates (CA). We were fortunate that we were in a position to choose among several different potential acquirers. Ultimately we believed that CA, given a similar focus on culture, R&D, and long-term value creation, could help Ellevation reach more educators and students, more quickly and with greater quality.
Five years later Ellevation is thriving: serving close to 60% of all English learners in US schools in approximately 2,000 school districts, launching new products, and generating approximately 3x the ARR than in 2021. This success is largely due to Curriculum Associates, especially Rob Waldron and Kelly Sia, keeping the commitments made during the acquisition process and providing support, expertise, and ongoing guidance - underscoring the importance of choosing the right partner.
Mergers and acquisitions are inherently difficult. As Oren Cass wrote in the New York Times, citing Harvard Business Review:
“M&A is a mug’s game, in which typically 70 percent to 90 percent of acquisitions are abysmal failures.”
In education, and other fields where positive social outcomes should be central to any business and product strategy, successful acquisitions are even harder, especially at a time when public education is under significant strain.
Here are a few lessons that can increase the chances of post-acquisition success:
As an ecosystem, we have an obligation to help founders increase the likelihood for ongoing impact. If following an acquisition, innovative companies wither, or great products regress to the mean, or great leaders simply move on, it is worth asking whether all the capital, support, and human effort truly made a difference.
As an Executive-in-Residence at A-Street I am going to continue to focus on ideas that help founders and drive outcomes. If you have thoughts, or related stories, please reach out: jordan@astreet.com.
