Why I left edtech and got into gaming

Now that COVID-19 has accelerated the adoption of digital education tools, edtech has become one of the hottest areas of investment.

As someone who has been in edtech for nearly 20 years, this sounds like the precise moment to capitalize on all the newfound interest. Which is why what I’m about to say might be surprising: I’m leaving edtech for the world of gaming with my new company, Solitaired.

I first got into edtech in high school, when a friend and I founded EasyBib, a website that helped students cite sources for their papers. At the time, we were just students who felt there had to be a better way than formatting tedious citations for research papers by hand. But as we dove into the business further, we realized there was a lot to like about bibliographies and education technology in general.

For one, the education market is large. There are more than 56 million K-16 students in the U.S., and over 1.3 billion globally. Federal, state and local governments spend an aggregate of 5% of GDP on education, and that doesn’t even include what students and parents spend on content and technology.

Secondly, it’s structured. Students generally all go through the same curriculum together. That means most students have the same problem in the same way; if you solve a problem for one group of users, you’ve probably solved it for most users.

The citation problem was just like that. When we sold our company to Chegg, we were already reaching four out of five students that needed bibliographies, or over 30 million students in the U.S. Edtech companies that help students with math, chemistry, homework help, tutoring and other curricular needs can build massive audiences quickly.

Edtech that’s part of the curriculum also has high engagement. EasyBib users stayed on our site for nearly ten minutes per session, creating one citation after another for their bibliographies. For direct-to-consumer edtech companies that are ad and subscription driven, this behavior creates many monetization opportunities.

While we grew fast, our endemic market opportunity was limited. Why? The strengths of edtech can also be its downsides, especially for a startup. On the user growth front, we focused on school relationships, marketing and SEO. But once we reached four out of every five students in the U.S., there wasn’t much more room to grow.

To increase engagement even further, we tried a number of things: encouraging more citation creation, adding research and note-taking features and building a Chrome extension to be more ever-present in the user’s research journey. Those efforts fell short too. Ultimately, the school calendar dictated how often students needed to use us, and we were constrained by the number of research papers teachers assigned.

These challenges can certainly be overcome. But as a startup, we had to decide if we wanted to pursue adjacencies and expansions ourselves. Ultimately, this realization was one of the reasons we decided to sell our company to Chegg, which had a wider user base and product synergies that we couldn’t achieve on our own. As anyone who follows Chegg might know, they’ve been very successful in accelerating the edtech digital transformation.

When we began thinking about our second business, we had these lessons in the back of our mind. That’s when we discovered gaming.

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Gaming rules the entertainment industry, so why aren’t investors showing up?

As gaming’s popularity reaches epic heights, venture investors’ activity in the industry doesn’t seem to equate with the overall size of the games market. Spurred by an unreal year where traditional entertainment has been upended by the COVID-19 pandemic and consumers find unity in virtual worlds like Animal Crossing and Fortnite, gaming has never been more popular.

Late-stage investors have shown that they have a tremendous appetite for businesses in the gaming industry. They’ve been pouring capital into established gaming companies like Scopely, which on Wednesday announced a $ 340 million investment round at a $ 3.3 billion valuation. But venture capital simply hasn’t given the gaming industry and the broader synthetic market the attention it deserves given its place in the entertainment and cultural firmament.

Just ask LeBron “Bronny” James Jr., the son of the NBA’s biggest star, who became a professional athlete this week — as a gamer with one of the most popular teams in online gaming, FaZe Clan. Or look at Unity, the creator of a popular game development engine, whose stock price has nearly doubled since its public offering in mid-September. Since opening trading at $ 56 per share, the stock has nearly doubled in value and is now trading at $ 100 per share.

In the first half of the year gamers spent $ 36.8 billion on games through both the Android and iOS app stores, according to data from SensorTower. New game installs are also up for the year. The app analytics company said that new game installs were up to 28.4 billion over the first half of the year. Annually the 15 billion new game downloads in the second quarter represented a 45.2% year-on-year growth in gaming.

Then there’s Bitkraft, one of the only venture firms to focus on the totality of the gaming industry, which announced the close of its most recent fund, a $ 165 million investment vehicle. The firm, which added a former Goldman Sachs managing director earlier in the year to capitalize on the opportunity in what the firm calls “synthetic reality” investments, raised $ 25 million more than its $ 140 million target. One of these things is not like the others.

“I’ve been in the games industry for 23 years now [and] I’ve always had this huge fundamental conviction of video games not only dominating the entertainment industry but sort of taking up a big part of what society is — where video games create the digital identities that define evermore of what we understand of ourselves,” said Jens Hilgers, Bitkraft’s founding general partner. “We feel that these are times of acceleration … it’s great to see how we’re leapfrogging one or two or three years of the games industry in this crisis and it makes it more exciting to invest in these times.”

The Unity public offering, and its emphasis on markets outside of gaming, seems to prove Hilgers point and show just how much opportunity remains around the notion of synthetic reality in business and entertainment.

“Their thesis around democratizing access to gaming tools by letting hobbyists use the tools for free is smart, if you want to win the market,” said Alice Lloyd George, founder of Rogue Ventures, a new investment firm focused on frontier technologies and gaming investments.

Lloyd George compared Unity’s business to its biggest competitor, Epic Games, and noted that both have broad aspirations. “Both of them want to use their game engines beyond pure gaming,” Lloyd George said of the two big new gaming platform developers. “Unity is really well-positioned because they’re so strong on mobile. That positions them well for AR and VR. And you need onramps for the developers for AR and VR.”

Engagement and the future of entertainment

When Scopely’s co-chief executive Walter Driver talks about the attraction of gaming properties for players — and the reason investors have been willing to value his Los Angeles-based company in the billions of dollars — he talks about the connections between players. “People have found — and investors looking at the space have found also — that people value the connection they’re getting from interactive experiences. It’s not just our relationship with the players, but their relationships with each other,” Driver said. “Inside of most passively consumed media experiences, you don’t have an identity. You don’t have friends.“

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