What’s Happening in the Market
Are we prescient or what? We’re not, but whatever! Last week we talked about the re-privatization of publicly traded EdTech companies. On Friday, PE firm Thoma Bravo, which owns a controlling stake in Instructure (which they purchased in 2020 and took public in 2021), announced they’re seeking a buyer. Instructure recently purchased Parchment last year, giving them vertical integration across higher education. The buyer will likely be another PE firm looking for a cash cow to optimize.
Google is adding a Gemini add-on to Google Workspace. Gemini Education will offer freemium tiers to students over 18, basically adding an AI chat bot which can summarize notes, reference textbooks and readings in its responses, etc. Basically, another threat to Chegg (Chegg stock is down about 8% this past week, and 54% YTD).
What We’re Talking About
Byju’s India CEO resigned last month, and now two of their latest board members have stepped down after only two months in-seat (this follows the resignation of other board members, such as representatives from Chan Zuckerberg, Prosus, and Peak XV). Byju’s is in the middle of trying to raise $200M from existing investors through a rights offering, which is usually a last resort when you can’t borrow. Their rights offering is at a valuation of about $225M, down 99% from their last funding round at a $22Bn valuation. Byju’s needs the money to pay down debt and loans, and is in really bad shape. They are getting sued every which way. Byju’s is the poster child of debt eating up a balance sheet, but to an outrageous degree (other companies with debt-laden balance sheets like 2U [a penny stock] and Udacy [sold] pale in comparison).
Gavin Newson and the California Teachers Association (CTA) are set for a standoff. For FY 2022-2023, California collected about 25% less in tax revenue than they projected, and therefore overfunded Proposition 98 (how they fund public schools) by about $8.8Bn. Newsom’s proposal is to recategorize the funding discrepancy as a 0% interest loan, which would mean that schools don’t have to give the money back, but it also means that future Prop 98 calculations would be determined on a cost-basis excluding that $8.8Bn, which means all future increases would be starting from a smaller base. The CTA is set to start running ads against the future Presidential hopeful.
One Big Idea
70 years after Brown v Board of Education, a study from Stanford and UCLA has shown segregation has increased significantly in our largest school districts over the past several decades. There are a multitude of reasons cited, such as a non-negligible impact from school choice, a general decline in attention from local government, and demographic shifts.
Generally, we are seeing a bifurcation of the country into spheres. We talk a lot about the digital silos that social media has created. People of different political backgrounds and different generational cohorts are on different platforms and consume different media and reference, in many ways, alternate realities. I honestly have no concept of who the most popular YouTube stars are, even though they have hundreds of millions of subscribers (MrBeast has 258 million alone).
This separation and siloing is also taking shape physically, too. Asian and Hispanic families have led the urban exodus to the suburbs. Black households are concentrating in cities like Atlanta (where the Black population has doubled in the past thirty years), but they’re also being pushed into more confined boundaries within cities. This isn’t new. Fort Greene was once part of the Black Belt of Brooklyn, and over half of the Black population of Brooklyn lived there in the mid-19th century. Non-Hispanic Whites, meanwhile, account for 35% of the residents in Brooklyn, but only 15% of the borough’s public school students.
These demographic changes and these digital siloes are impacting education in really physical ways. The bifurcation of our political and social fabric has led to some states adopting the Common Core standards, and others, such as Texas, Florida, and Georgia, adopting relatively oppositional standards.
Source: Wikipedia
With segregation and school choice on the rise, white families are pulling their students out to attend private schools or public schools bounded by wealthy zip codes. Black families are moving their students to hyper-segregated charter schools, such as Success Academy Harlem 1, where less than 2% of the student body is White (more than half of the elementary students in Harlem District 5 now attend a charter school).
Segregation in the US is most prevalent in our largest school district across New York, Michigan, Wisconsin, Illinois, California, Texas, Florida.
Source: Segregation Explorer from the Educational Opportunity Project at Stanford.
Resegregation is symptomatic of political and social failures. On some primal level, it also connects to a desire to only surround ourselves with people who agree with us, think like us, and look like us, which the media and technology have exacerbated. Even though Americans harbor many shared beliefs, there has been an increase in emotional polarization, whose onset can be traced back to radio talk shows and cable news (Source: “Polarization, Democracy, and Political Violence in the United States: What the Research Says,” The Carnegie Foundation). This emotional polarization feeds into segregation, and absent of any interventions, it’ll continue to get worse.
School choice is making inroads as a policy preference among even liberal circles; and while we empathize with the short-term benefits, school choice ultimately allows people of means to opt out of public education, while leaving many behind (and under-resourcing public education). What solutions do you see to this growing issue? We want to hear your thoughts.