Making Connections: The rise of an education tech startup
Baltimore online K-12 company recently acquired for $400 million
Amy Sparks and daughter Samantha, 5, watch Patrick Sparks, 8 work on an online English lesson through the National Connections Academy. (Karl Merton Ferron, Baltimore Sun / November 30, 2011)
The $400 million purchase of a local education technology startup by a British company this fall is the latest sign that the region is successfully producing firms that develop cutting-edge technologies for schools or seek to transform them entirely.
The purchase of Connections Education Inc. by Pearson PLC, a London-based education publishing conglomerate and owner of the Financial Times newspaper, was also among the biggest acquisitions of a Baltimore company in years. Private investors did not disclose returns but said they were pleased by the deal.
"When we started Connections, it was an idea on the back of a napkin," said Chris Hoehn-Saric, who was involved in the original brainstorming sessions a decade ago that led to the formation of the company.
"The idea of virtual schools was something never spoken about" before, continued Hoehn-Saric, managing director of Sterling Partners, a Baltimore-based venture capital firm that sold its minority stake in Connections. "It really is transformational. If [virtual education] continues on this path, Baltimore will be the hub of one of the great movements."
It all started with a big idea -- and big money.
In the heady days of the Internet bubble more than a decade ago, Baltimore's startup scene was fueled by a $500 million venture capital fund and an incubator focused on education and technology.
The fund was Sylvan Ventures, the investment arm of Sylvan Learning Systems, a tutoring center business that's now part of Baltimore-based Educate Inc. Sylvan seeded a bunch of small companies. Some failed, some flourished.
Connections Education, now a $200 million-a-year firm, was among those that flourished. Its majority owner was Apollo Management, a New York-based private-equity investment firm.
"We literally started at nothing, zero," said Barbara Dreyer, chief executive and co-founder of Connections. "Here we are a multimillion-dollar company."
In addition to Educate Inc., other Baltimore education firms with ties to Sylvan include Laureate Inc., which runs for-profit international universities in 28 countries; Prometric Services, which offers student testing and assessment in more than 160 nations and is now part of ETS; and Walden University, an accredited online university that has graduated nearly 50,000 students from more than 120 countries.
The companies are all privately owned and do not release financial figures.
Frank Bonsal III, a general partner with New Markets Venture Partners, a Maryland-based venture capital firm that invests in education technology companies, said the Baltimore-Washington region has become the best place in the nation for such enterprises.
"I think what we have here is an understanding of what education is and what it could be, and the developers to get us there," Bonsal said.
Baltimore has a history with distance learning and public education. Starting more than a century ago, the Calvert School began shipping educational materials to families that couldn't send their children to the brick-and-mortar school.
In addition to its pre-K through eighth grade day school in Baltimore, Calvert boasts that more than 500,000 students in 90 countries have been educated using the Calvert School curriculum. About 160 schools currently use it.
Connections is part of a growing industry that targets K-12 public education with online tools, often working with school systems to provide an alternative for students who, for various reasons, don't fit into a classroom setting.
Analysts say companies such as Connections and its larger competitor, K12 Inc. of Herndon, Va., are targeting a multibillion-dollar opportunity in the education market, while operating at the crossroads of education, business and even politics.
Connections derives its revenues from contracts with public school systems to provide a complete online education for students. The company has 1,700 employees nationwide, with more than 500 in Maryland.