STEM education is more important than ever.

With technological change occurring at an ever-increasing rate it has been estimated that 65% of today’s students will be employed in future jobs that don’t even exist yet. Just as “computer programmer” was an unimaginable profession 30 years ago, the jobs of tomorrow will require a level of science, technology, engineering, and math (STEM) education our society has yet seen.

 Widely acknowledged is the fact that traditional school science programs are not effective enough to provide practical exposure to students. Teachers are ill-equipped to teach students real-time scenarios and situations STEM-based jobs of tomorrow will require. Making matters worse, science-education standards are rapidly changing to meet these demands yet content that is compatible with the new science standards is staggeringly scarce.

Enter Because Learning!, a STEM-education company that sells practical education kits for grades k-12 along with companion learning materials.

 Because Learning hopes to inspire today’s students about the science, technology, engineering, and math (STEM) fields through hands-on experiments and activities. It gives the aspiring scientists real-world experience measuring and analyzing data through online lessons and labs, paired with sensor kits to perform the experiments.

 Because Learning aims to show students how STEM applications work in the real world. The students collect real-time sensor data with the help of the sensor kits and analyze the data. They can even conduct space-focused experiments through Because Learning’s partnership with satellite company Spire.

In the U.S. alone we spend over $650B on public K-12 schools and this is estimated to increase to $822 billion by 2025 for a variety of reasons due in part to growth in student population as well as shifting spend behaviors.

 Most importantly for Because Learning, ResearchAndMarkets projects that the global education technology market is expected to grow at CAGR of 18.3%, from $17.7 billion in 2017 to $40.9 billion in 2022. With $1B already being spent by U.S. public schools on STEM we can estimate that spend will either double to $2B or more if a disproportionate amount of spend is allocated to these resources moving forward. If we begin to extrapolate to the global market, Because Learning has a significant market opportunity in front of it.

This growth is fueled by (1) the penetration of mobile phones in the classroom, which can act as a conduit to reach more students with adaptable lessons at scale, as well as (2) the penetration of wi-fi in schools that makes online programming accessible ,and (3) parents demanding STEM education reform more than ever (93% of parents believe STEM should be a priority for schools).

What has largely remained an untouched industry is finally getting a makeover to hopefully meet the needs of students who need an adapted curriculum to prep for the 65% of careers in the STEM field that don’t even exist yet.

The STEM field as it pertains to educational toys and products is in fact a competitive one with many players. However, in our research it appears that the vast majority of products that exist are built to focus on selling directly to consumers and parents.

The reality is, the number of STEM focused education platforms built on a SaaS model of providing continuous sets of new lessons is actually quite unique for the current market.

The handful of most closely associated competitors include littleBits, which also recently acquired DIY.com in order to have a more competitive hardware and content platform mix, much in the same way as Because Learning. To date, they have raised over $60M to build their platform and have been around for 7 years.

Outside of this team however, Because Learning seems to be one of the stalwarts of the industry and with additional capital we believe they can compete more than effectively with the competition. littleBits will also act as a nice comp for helping Because Learning to continue to raise capital and make acquisitions of its own.

Outside of these two focused on the interactive sensor kit lessons, there are a myriad of ed-tech providers, however we think these are less applicable in terms of competing directly.   

With the Because Learning platform already used in 30 countries and 400 schools throughout the world and with the company focused on recently updated science guidelines here in the U.S., we like the trajectory of the company alongside competitors.  

Lastly, we think Because Learning’s affiliation with Spire helps to position it competitively to competitors because students have the opportunity to collect data from a real orbiting satellite. These types of real world applications provide a value add that most schools are looking to bring into the classroom.

Because Learning offers its kits to both schools and to individual parents. BL sells its products to the schools in the form of Classroom Launch Pack. The pack costs $3,700 with an annual renewal fee of $1,500.

The pack includes 15 Sensor Kits that assist the students in learning remote sensing, coding, and other STEM concepts using real-time experiments. Approximately 150 hands-on experiments can be conducted with the kit.

The company also sells its products to the individuals in the form of monthly, quarterly and annual subscriptions. The subscriptions include one sensor kit and access to about 150 lessons in STEM concepts. The subscription starts at just $18 per month. This D2C approach is similar to SmartGurlz business model, which we covered as a TOP DEAL just a few months back.

On the distribution front, Because Learning has recently signed agreements with Astronautic Technology and Migo Edu for planned distribution in China in 2018. This should provide a significant upside revenue opportunity of executed on correctly.

The revenues of Because Learning have steadily increased since its inception in 2014. The revenue in 2016 was $258,000 and increased to only $272,000 in 2017. The reduction in the revenue growth was due to the shift of the company from hardware-based revenue model to recurring revenue model. The revenue in the first half of 2018 was $138,000.

The company has seen losses as it has invested heavily in building out the product and content, but as the company has scaled net losses have shrunk – a positive signal that the company is finding its footing. Net loss were cut from $937K in 2016 to $650K in 2017 and further reduced to $179K in the first half of 2018, ($358K annualized).

Because Learning has raised about $1 million in equity through angel investors and institutional capital as well as almost $800K in a debt offering to date. The notable investors include Fresco Capital, Royal Street Ventures, Spire Global, Buzz Waterhouse (CEO of McGraw Hill).

The funds have been utilized to attract more than 40,000 users with 93% retention rate. The company’s kits are now being used in more than 400 schools in 30 countries. As previously discussed, revenue has increased steadily and net losses have shrunk. The company has distribution partners in China and Middle East as well, and has affiliations with University of California Berkeley, the Association of Space Explorers and Spire.

Under the current crowdfunding offering at Microventures, Because Learning has raised $34,682 as of August 27, 2018 with 35 more days to go. The proceeds from this raise will be used to further expand the company in China, set up a subsidiary in China and hire an in-country manager. The funds will also be used to grow the domestic business by generating more leads and hiring more sales people.

With an estimated $300K or so in 2018 revenue, the $2M valuation cap seems as though it is coming in on a down round for the team, which is a sign that the team may have struggled in having to pivot to more of a subscription model. However, this does present an attractive entry point for investors. At a less than 7X revenue multiple for an ed-tech stem company, this seems like a fairly priced entry point for investors.

Because Learning was founded in 2014 by Sunny Washington and Kevin Cocco. Sunny has over 15 years of experience in the education technology industry. She is currently the CEO of Because Learning. Sunny’s latest stint before Because Learning was with Instructure, a company that went public in 2015. Sunny has extensive experience in sales, business development, account management, and marketing.

Kevin Cocco is the CIO and co-founder of Because Learning. He also has several years of relevant and similar experience. He worked as VP of IT at the Professional Education Institute, where he led the development of the interactive training platform and analytics technology.

Recommendation: Deal To Watch

Because Learning offers an excellent opportunity for investors to invest in a growing company at a low valuation in what appears to be a bit of a down round. The team has a unique products that provide hands-on and real-time learning to the students in the STEM fields, and also helps the teachers in providing engaging educational materials. For these reasons we think the team can acquire its fair share of the growing STEM spend in k-12 schools.

It’s partnership with Spire further strengthen our convictions that the team is taking the necessary steps to build differentiation into its offering. However, we do have concerns that the team has raised over $1.8M, burned a significant amount of capital and does sit on over $500K in short term debt, although that has been reduced from 2016.

Nonetheless, it appears the team has taken the bumps associated with investing in hardware and content development and is now beginning to build market traction at an attractive valuation for current round investors. With international growth prospects, a reasonable valuations, and experienced management team that has kept the business going, we think Because Learning is a DEAL TO WATCH.