How did Phoenix become the Silicon Valley of EdTech?

By Stephanie Morse, AZBigMedia

Phoenix has become a hotbed for education technology — or EdTech — startups in recent years with more than 50 companies in the Valley.

Over the last several years, EdTech startups in Arizona have garnered national attention and captured millions of dollars in venture capital from states across the nation. The success of existing EdTech companies, improving entrepreneurial ecosystems, school choice environment and strong universities has created a large and growing cluster of EdTech companies in Phoenix, according to local leaders.

“A lot of people in this industry actually call this area the Silicon Valley of education technology,” said Frank Healy, CEO of Higher Ed Growth, an EdTech startup in Tempe.

EdTech in the Valley rose to the national scene with success of the Apollo Education Group in the 1980s and ’90s. The company started the University of Phoenix, a for-profit college with online and in-person classes focused on providing higher education for adults.

“I think the amount of money the Apollo group was spending really created the EdTech space here in Phoenix,” said Healy, who worked with Apollo at the University of Phoenix before starting Higher Ed Growth. “Because of the dollars they were spending, all the businesses flocked here.”

Recent successes

The more recent success of Blackboard, a learning management system, and Parchment, an online digital credential service, has continued to draw attention to Phoenix and attract other EdTech companies.

Steven G. Zylstra, president and CEO of the Arizona Technology Council, said these businesses created a clustering effect in the area, allowing startups and companies to share resources and expertise.

“Companies tend to congregate around companies of the same industry,” Zylstra said. “They get to share supply chains and you end up with a workforce that’s knowledgeable about the industry. All of those are key factors to the development of an economic cluster such as we’ve seen grow here in Arizona.”

Zylstra also said Arizona’s improving entrepreneurial landscape has continued to grow the EdTech industry in the Phoenix area. The increased focus on startups and the growing number of accelerators, incubators and coworking spaces has helped Phoenix attract more startups in EdTech and other fields.

“All of the things that were conducive to growing entrepreneurial companies, generally speaking, are applied to EdTech equally and created the spike of activity that we have now,” Zylstra said.

Companies in California, New York and Massachusetts, however, still receive 78 percent of all startup investment funding in the United States, causing funding challenges for some startups in Arizona, including those in EdTech.

“I would say the one flaw or challenge we have in our entrepreneurial ecosystem is capital and that’s not unique to EdTech,” Zylstra said. “We only have just a few venture capitalists town. You can count them one hand, unfortunately. We have two very good angel groups, but when you make that next hop beyond angels, they are few and far between.”

Outside help

The lack of funding and venture capital in Phoenix caused EdTech and other startups to have to look outside of the state for investments, which can prove to be more difficult.

“Entrepreneurial companies are able to get capital,” Zylstra said. “It’s just a measure harder, because when you’re seeking the funding outside the community, there’s more effort that has to go in.”

Despite these challenges, EdTech in the Valley has captured more than $100 million in venture capital during the past several years, according to EdTechAZ. Zylstra said companies have received funding from people and groups in Texas, Utah, Colorado, New Mexico and California.

“Entrepreneurial companies have to go outside the region to raise money and that’s where the leadership qualities and models that exist here are helpful,” Zylstra said. “People know that Phoenix and Arizona are sort of a hotbed for these kinds of companies. It allays some of their fears about investing outside of their own territory.”

Industry leaders also said the education environment in Arizona fosters creativity and encourages innovation in education, including looking at technology for solutions.

“Arizona has been one of the more progressive, open states in looking at creative solutions to help students, including technology,” said Leslie Sobon, vice president of marketing and customer experience for Edgenuity, an EdTech company in Scottsdale.

Arizona is one of the top three states in the nation for school choice, according to the Center for Education Reform’s 2017 Parent Power Index. Both Sobon and Zylstra said this created an environment open to embracing technology in the classroom.

“From a policy standpoint, we’re a leader in offering choice,” Zylstra said. “We’re a top state in the nation for offering choice in K-12, which led to the whole charter school movement. That was highly disruptive.”

Chartering a course

Sobon directly credited charter schools for helping Edgenuity grow because they are often innovative and more open to change.

“Certainly, what has helped Edgenuity is school choice,” Sobon said. “The ability for charters who are always more experimental to some degree has been part of our initial success.”

EdTech leaders also said Arizona State University and the other higher education institutions in the state help create this creative environment. ASU was recently ranked the most innovative university in the nation for the third year in a row by U.S. News and World Report.

“Having the strength of the university, especially with ASU, has helped,” Sobon said. “The higher-ed industry, and the companies and universities serving that, has helped as well just as an incubator and an understanding of looking at education from creative solutions and an open perspective of, ‘How can we make it better?’ or ‘How can we look at the classroom and make it more receptive to teachers and students?’”

Sobon said this creativity trickles down into the K-12 space, creating a more innovative environment overall.

“I think that comes from a lot of those factors, like having a university that’s really leading the charge in innovation around education,” Sobon said. “Overall, that all seeps down into the K-12 space.”

Sobon said the education environment in Phoenix is crucial for EdTech, because the industry is focused first on the classroom.

“It’s much more about the education environment here,” Sobon said. “Education begins with academic goals for the student more than it is looking at it from any sort of business perspective. We really focus on the classroom perspective first.”

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