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Friday, August 31, 2007

The ABCs of Fast Growth :Area Tech Firms Plug Into Education

Fairfax County school officials this fall are carrying BlackBerrys that connect to a database of student information, including parent contacts and medical warnings. Dartmouth students are using wikis, blogs, podcasts and other interactive media tools for their courses. A graduate school at Carnegie Mellon has bought new, Web-based software to administer financial aid.

The initiatives are all the work of Washington-area businesses -- part of a wave of education technology companies that have emerged in the region in recent years. Defywire, based in Herndon, makes the mobile database software that is being used by Fairfax schools. Learning Objects, in the District, sold Dartmouth the Web products, and Regent Education of Frederick created the financial aid software.

All told, more than 20 education technology companies have set up shop in greater Washington. Some cater to universities, others to local school systems. Some help educators manage big budgets and intricate bureaucracies; others provide tools for use in the classroom -- or, in some cases, seek to replace the classroom altogether.

What many of the companies share, executives say, is fast growth and a belief that schools will increasingly come to rely on technology, trends that they hope could be attractive to high-powered investors.

"The volume of opportunity in education technology is far greater than it was five years ago," said Frank Bonsal III, a Baltimore venture capitalist. He is trying to raise money to start a fund to invest in education companies.

One test of the sector's strength could come soon as a Herndon company called K12, a provider of online curricula, attempts to go public. Company executives declined to comment on their plans as federal regulators review their registration, filed late last month, to hold a $172.5 million initial public offering. The application said that sales at the company increased from $71.4 million in 2004 to $116.9 million in 2006.

Several company executives cited Blackboard, an education software behemoth based in the District, as a catalyst for new ventures. The company, they say, is evidence that an education software company can prosper. Venture capitalists have long been wary of putting money into these companies because school budgets are notoriously unpredictable and changing political priorities can affect the decisions of administrators.

Blackboard was founded in 1997 by a few 20-somethings who quit comfortable jobs to start the company. The dot-com boom swept up Blackboard, and it weathered the subsequent bust before going public. Last year, it had sales of $180 million.

"There's this whole new emerging category of academic technology that's just started to be invested in by universities," said Michael Chasen, Blackboard's chief executive. "That's helping to spawn new types of companies."

Those companies include firms started or populated by former Blackboard executives.

An original member of the team that founded Blackboard, Greg Davies, left to start Presidium Learning in 2003. He was looking to provide technical support to universities, which, he figured, would need help as they increased their investments in information technology.

At the beginning, Presidium had a few hundred thousand dollars in contracts, much of it acquired through Blackboard. "They've provided us with strong partnerships and access to their sales team," Davies said. Last year, Presidium did more than $10 million in sales

Derek Hamner and Hal Herzog, founders of Learning Objects, are two other Blackboard alumni who have left the company but continue to capitalize on its software.

Learning Objects builds extensions to Blackboard's best-known product, a system that allows schools to manage their courses online. Specialized Web sites allow teachers to post reading lists, homework and other materials, and students can submit their work.

Learning Objects' software allows professors to use wikis, blogs, podcasts and other new media tools. "Students go out into the real world, and instead of coming back to class, they'll keep a journal or a reflective blog related to their experience that they can share" with their class, Hamner said.

Jill Stelfox, a former wireless executive and self-described "crazed mother," created Defywire in 2003 to allow teachers, coaches and other school officials to use their BlackBerrys and handheld devices to access information on students from a school's central database.

Venture capitalists have been impressed by the idea, in use in 40 school districts. Intersouth Partners of Durham, N.C., Amplifier Venture Partners of McLean and Anthem Capital of Baltimore have poured $17 million into the company.

Novak Biddle and Updata Partners of Reston have invested in Spectrum K-12, which makes special education software. The software is used to keep tabs on 6 million of the 44 million special education students in the country and is used in Montgomery and Loudoun counties.

The local market does not come without challenges. Bonsal, the Baltimore venture capitalist, said fellow investors are skeptical about putting money into education start-ups, although they are willing to back more-developed companies.

Ed Meehan, an Oakton venture capitalist who follows the education market closely, said the incentives for innovation in education technology are not the same as in other markets.

"The people who are making the purchasing often gain no personal benefit by picking a cool new technology," he said.

Even the big guys can feel the pressure. Blackboard may one day find itself squaring off against competitors offering similar course-management solutions at far reduced costs. One such technology, called Moodle, is free. Some companies have created businesses around hosting and supporting Moodle operations -- at, say, $1 a student. Martin Knott, chief executive of such a service, called MoodleRooms, said his two-year-old company grew at a rate of 1,500 percent last year, to 350 clients, and is expected to quintuple in size this year. UCLA recently switched to Moodle as its course-management software.

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