Making Connections: The rise of an education tech startup

The Baltimore-Washington corridor is an economic powerhouse in many areas -- federal contracting, anyone? -- but it may soon become known as the nexus of another, growing industry: online education.

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.

About 40,000 students in 21 states receive their public school education through Connections, though none of its virtual public schools are in Maryland.

The company also offers National Connections Academy, an accredited private online school program for K-12 students, with tuition ranging from $4,800 to $6,000 a year.

Students learn online at home -- but that doesn't mean they sit at a computer for eight hours a day, said Amy Sparks, a Rosedale parent whose daughter in kindergarten and son in third grade are being educated through the academy program.

Her daughter gets a half-hour a day of "circle time" on the computer, when she interacts with other children and an instructor. The rest of the instruction is guided by Connections' curriculum, with Sparks and her husband, Patrick, as facilitators. The couple's two older daughters completed high school through National Connections Academy.

"My husband and I work opposite shifts," Amy Sparks said. "He works in the evening, so this allows him to spend quality time with his kids. Not everyone can do this. It takes a lot of dedication from the parents, but it should be accessible to everyone."

Nationwide, about 250,000 students are enrolled in full-time online public school programs, according to Susan Patrick, president of the International Association of K-12 Online Learning, a trade group representing education companies.

The numbers are still small compared with the nation's total K-12 student population of 50 million, Patrick said.

Online education for K-12 students is growing because children and parents realize that public schools aren't for everybody, Patrick said, adding, "People are looking for new options to personalize instruction."

Last month, dozens of educators and software developers gathered in Baltimore for an "education hack day" -- a weekend-long event during which they built education applications for the Web and mobile devices.

Mike Brenner, a Baltimore technology community organizer and advocate who organized the weekend, said there's a strong current of interest in the city about education technology.

"I go to two meetings a week now where people are talking about the future of education and technology," Brenner said. "There are all these ingredients in place to say Baltimore is the No. 1 place for education technology."

Amid the rush of optimism in the education technology field -- driven in recent years by ubiquitous broadband, wireless Internet and smart mobile devices -- there are also skeptics.

Henry Levin, the director of the National Center for the Study of Privatization in Education at Columbia University, said for-profit online education companies may offer communities and parents more options for children, but he said the industry still needs to prove its value with more empirical studies.

"Very little careful research" has been done because tracking student outcomes over time is expensive, he said.

"I love the demonstrations," Levin said of the online curriculums. "But when the pedal hits the metal, [online K-12 education] hasn't shown any advantages right now over conventional instruction."

Connections has been steadily growing while following in the wake of K12 Inc., which had revenues of $522 million last year.

The companies have hired lobbyists to promote their interests in some states. Laws vary, with 30 states allowing full-time online learning programs for public schools, according to Patrick.

In Maryland, a law passed last year allows counties to set up their own virtual schooling programs. So far, however, no county in the state has contracted with a for-profit company to run a virtual public school.

The Maryland State Department of Education runs a virtual school program that offers online courses for credit, but a student cannot get a diploma through the program.

Baltimore County ran a pilot program with Connections for 100 students in 2007, but it was cut the following year because of a lack of funding. The county is now developing its own online curriculum geared toward students who must stay home either for disciplinary reasons or because they are ill or require specialized care.

In Baltimore City, the school system uses an online program from a private company, Apex Learning, to supplement students' classroom lessons, but it does not offer a full-time virtual public school program.

Connections' Dreyer thinks Maryland has not embraced online learning because its public schools are generally well-funded and turn out good students. Other states, however, have fewer financial resources and look to technology to better serve schoolchildren, she said.

"Even our education budgets [in Maryland] are starting to be challenged at the state and district level," Dreyer said. "That may be the catalyst that requires Maryland to start thinking more about the involvement of technology and how it can give better outcomes to students."