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Education Technology
May 1, 2016

Change Your Mind

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Market Snapshot

Indices Week YTD
GSV 300 0.00% 53.10%
S&P 500 -0.20% 15.30%
Dow -0.50% 18.50%
NASDAQ -0.20% 25.40%
Russell 2000 -1.30% 8.70%
MSCI -0.10% 32.20%
Valuations P/E Fwd P/E/G
GSV 300 27.5x 0.7x
S&P 500 19.4x 2.6x
I-Rates Now YTD
10-Year Note 2.40% -2.00%
3-Month Bill 1.23% 141.20%
Sentiment - Current
Bull-Bear - 45.1-23.1
Put-Call - 1.16
Vix - 11.29
Inflation Now YTD
Gold $1276 10.70%
Oil $56.90 5.70%
Mutual Funds - Week
Fund Flows (bil) - $4.70
Growth-Value 00-09 09-Now
Growth -34% 244%
Value 87% 147%

Impossible is not a fact. It’s an opinion.

— Muhammad Ali

With Political Season in full swing, there are more “flip flops” in the air than a House of Pancakes. Candidates are trying to tap into the mood of the mob… and it’s not pretty. People are angry because opportunities feel few and far between, with the future not looking as bright as the past.

In the “Winner Take All Economy”, top entrepreneurs, executives, and enterprises garner a disproportionate amount of the spoils. CEOs make 303x their average employee. Professional baseball players earn an average of $4.2 million a year, whereas 50 years ago salaries were in line with median income. Consumers may say they want the choice between Coke and Pepsi, but with technology businesses, the winnings exponentially accrue to the top dog — from Google to Facebook, Amazon and Airbnb. (Disclosure: GSV owns shares in Alphabet, Facebook, and Amazon)

With the math of democracy being that 50.1% wins, the acts of the political circus have been about grabbing attention from the masses. Candidates are scrambling to change voters’ minds by selling their ability to better “stick it to the man”.

While there was plenty of competition for “mindshare”, last week we co-hosted the seventh annual ASU GSV Summit in San Diego, a gathering of leaders from across the global innovation economy with the mission of accelerating exponential ideas in education and talent. We welcomed over 3,500 entrepreneurs, educators, business leaders, policymakers, and investors, as well as 350 game-changing presenting companies.

What makes the Summit so impactful is the unusual “cocktail” of participants we convene, with the common ingredient being a commitment to giving everybody an equal opportunity to participate in the future. Increasingly, as exponential ideas that are transforming other industries are applied to education — think Tesla’s impact on the automobile industry or Airbnb upending travel and hospitality — this goal is more reachable than ever. (Click HERE to watch my opening remarks at the ASU GSV Summit, which lay out a vision for applying exponential ideas to education.) (Disclosure: GSV owns shares in Tesla)

ASU GSV Summit: Unusual “Cocktail” of Speakers
Entrepreneurs, Business Leaders, Educators, Investors, Policymakers, Thought Leaders, and Philanthropists

This year’s cocktail of keynote speakers included Bill Gates, Dr. Condoleezza Rice, Khan Academy Founder Sal Khan, Grammy award winning musician and actor Common, retired Four-Star General Stanley McChrystal, and many others.

We all go to conferences where there are some good speakers and intellectually stimulating conversation. But when you leave, it’s over. This is why the ASU GSV Summit has so much momentum. People come here because things happen here. Connections are made. Capital is raised. Ideas are brought to life. People come here to make things happen.

OPPORTUNITY GAP

America’s population of students from low-income families is exploding. In 2000, there were four states where 50% of the total student population was low income. That’s a sobering number in its own right in a developed country like the United States. Today, it’s 20 states, approaching half of the country’s entire student population. If you count the states where 40% of students are from low income families, it jumps up to 39.

America’s Exploding Population of Low-Income Students
States where Students from Low-Income Families Exceed 50% of the Total Student Population

States where Students from Low-Income Families Exceed 40% of the Total Student Population

Source: The Atlantic, Southern Education Foundation, New York Times, GSV Asset Management

Play it forward and students from low income families are five times more likely to drop out of high school and eight times more likely to go to prison. In fact, according to research from the Bill & Melinda Gates Foundation and the National Education Association, over 80% of the U.S. prison population is comprised of high school dropouts.

The net result is that today, if you are born poor in the United States, you are likely to stay poor. For the first time in our country’s history, there is no social mobility. Over 70% of people born at the bottom of the income ladder never make it to the middle rung. We have effectively evolved from a meritocracy to an aristocracy.

Upward Mobility is a Myth
Distribution of Family Incomes for Adults Born into the Lowest Income Bracket

Source: Pew Research Center

The widening U.S. opportunity gap is matched by a broader global gap. According to research from the Brookings Institution, the developing World is about 100 years behind developed countries in educational achievement. You might think these gaps would have tightened significantly with the technological advancements and increased connectivity of the Internet Age.

Even After 100 Years, Developing Countries Lag Significantly in Educational Attainment
Average Years of Schooling, Developed vs. Developing Regions

Source: The Brookings Institution

But educational models have remained effectively unchanged for over a century — which has resulted in linear progress against one of the great challenges in our time. At current rates, for example, sub-Saharan Africa will have implemented complete lower-secondary education — a cornerstone of first World education standards — 95 years from today.

MIND THE GAP

The ASU GSV Summit is all about “Minding the Gap”. As our 2016 Lifetime Achievement award winners Mitch and Freada Kapor have observed, talent is equally distributed by zip code but opportunity is not. The common thread of all the programming is accelerating exponential ideas that support our mission to give everyone an equal opportunity to participate in the future.

Bill Gates anchored the Summit’s keynote speaker group by reflecting on the “new majority” of students in the U.S. education system and how best to serve them. He positioned his philanthropic priorities around developing effective personalized learning solutions, building evidence of what works, and adopting proven education technologies.

Watch Remarks from Bill Gates HERE
Bill Gates is Interviewed by Deborah Quazzo, Founder and Managing Partner, GSV Advisors

Source: GSV

Former U.S. Secretary of State Condoleezza Rice argued that education must be the fundamental American priority. She remarked that it is not only a “national security problem”, but, “It’s a civil right — it’s got to the be right of every child in this country.”

Watch Remarks from Condoleezza Rice HERE
Former Secretary of State Condoleezza Rice is Interviewed by 2U CEO Chip Paucek

Source: GSV

Visionary Arizona State University President Michael Crow announced the launch of the ASU Draper GSV Accelerator, a platform to accelerate exponential ideas, entrepreneurs, and ventures in education and talent. Dr. Crow remarked, “We’re creating a way to take new ideas from companies in the edtech space, and walk them through the process of prototyping their tools our testbed of students and faculty.”

Watch Remarks From Arizona State University Michael Crow HERE

Source: GSV

The Grammy Award-winning artist Common, a tireless advocate for mentoring and education programs for disadvantaged youth in his native city of Chicago, discussed the the three core pillars of his philanthropic organization, The Common Ground Foundation: Character Development, Creative Expression, and Healthy Living.

Watch Remarks from Common HERE

Source: GSV

Khan Academy founder Sal Khan reflected on creating global access to high quality education at scale on a panel with Hyatt CEO Mark Hoplamazian and CNN anchor-turned education policy advocate Campbell Brown.

Watch Remarks from Khan Academy CEO Sal Khan HERE

Sal Khan with Hyatt CEO Mark Hoplamazian and Former CNN Anchor Campbell Brown

Source: GSV

Chegg CEO Dan Rosensweig explored the new fundamentals driving broad scale disruption across the higher education system. (Disclosure: GSV owns shares in Chegg)

Watch Remarks from Chegg CEO Dan Rosensweig HERE

Source: GSV

Retired Four-Star General Stanley McChrystal shared a vision for a nation transformed by an ethic of “service”, and discussed the lessons he learned transforming U.S. counter-terrorism strategy to confront new enemies and new challenges.

Watch Remarks from General Stanley McChrystal HERE

Retired Four Star General Stanley McChrystal Shares a Vision for a Nation Transformed by Service

Source: GSV

The first bad Apple in 13 years sank tech stocks last week, with NASDAQ falling 2.7%, the S&P 500 dropping 1.3% and the GSV 300 down 0.8%. For the first time since 2003, Apple reported lower revenues, with iPhone sales falling for the first time ever. Since the Market bottom in February, the S&P 500has risen 14% and oil is up approximately 40%. (Disclosure: GSV owns shares in Apple)

World Indices

Source: Yahoo Finance, GSViQ

With first quarter earnings mainly reported, the good news is that they’ve slightly beaten expectations. The bad news is that earnings have fallen 5.5% year over year. The other bad news is that U.S. Economy reported sluggish growth of just 0.5% for the first quarter. The silver lining (in the short term) is that the Fed is less likely to raise rates.

There were three IPOs last week, all pricing in range, with an average return of +0.4%. PayMed was the star, rising 61%. Four Biotech IPOs are on deck this week

On the private financing side, Ant Financial raised $4.5 billion at a $60 billion valuation from CIC, China Construction Bank, China Post Group, Primavera Capital, and China Development Bank. Ant Financial operates Alipay and has over 450 million annual active users.

Aquion Energy, a leader in next generation ion battery technology, raised $33 million from existing investors, including Advanced Technology Ventures, Bright Capital, Foundation Capital, KPCB and Bill Gates. Drivy raised $35 million from Cathay Innovation, Nokia Growth, and Index Ventures. The Paris-based peer-to-peer car renal platform has booked 1.4 million rental days and has 850,000 users.

Baidu Video raised $155 million from Shanghai New Culture Media, Tianshen Yule, Softbank, Asia and Redpoint Ventures. The Baidu spin-off has over 300 million monthly viewers.

Also of interest in the growth world, Snapchat announced that its users view over 10 billion videos per day. Facebook announced that its Daily Active Users spent 50 minutes per day across Facebook, Instagram, and Facebook Messenger (our guess for split is: 28-14-8). (Disclosure: GSV owns shares in Facebook)

Spotify bought photo aggregator CrowdAlbum to build better marketing tools for artists. Dropbox announced “Project Infinite”, which will enable users to seamlessly access all of their Dropbox files from their desktop, regardless of how much space they have available on their hard drives. (Disclosure: GSV owns shares in Spotify and Dropbox)

We continue to see an attractive Market for growth investors. While the average public company is experiencing negative growth, the best growth companies we focus on are growing earnings at 25%+ yet sell at moderate valuations. Favorites include Facebook, Alphabet, Twitter, and Amazon. (Disclosure: GSV owns shares in Facebook, Alphabet, Twitter, and Amazon) 

Bubblin'

by Luben Pampoulov

Pods, Pokes, and Snaps

Singapore’s innovative attitude continues to impress! Earlier this year, the Singapore government officially recognized earned course credits from MOOCs such as Coursera, making those equally accepted to earned courses and degrees from actual universities. The Singapore government also started giving out a $300 tax credit to learners who complete a specialization on Coursera. (Disclosure: GSV owns shares in Coursera).

By the end of this year, Singapore should have autonomous pods cruising its streets. The electric powered pods are made by Dutch startup 2getthere, and will fit 24 passengers per car. 2getthere has already deployed driverless pods in Masdar, Saudi Arabia, and in Rotterdam’s Rivium Business Park. It is yet to be announced where the pods will be deployed, but potential use cases are gated communities, school campuses, or pre-determined bus routes. 2getthere announced the pods will handle up to 8,000 passengers per hour.

Facebook had yet another blowout quarter, posting +52% revenue growth driven by its 1.09 billion daily active users growing at 16%. As proof for its strong monetization growth (global average revenue per user was up 33%), time spent by the average daily active user across Facebook, Instagram and Messenger is now at 50 minutes! Times spent on Facebook alone has been in the high 20s minutes lately, indicating that Instagram and Messenger combined are just over 20 minutes. If including WhatsApp in the equation, then the average DAU spends more than an hour a day on “Zuck’s property.” (Disclosure: GSV owns shares in Facebook).

Time spent on Facebook Inc.

Source: Facebook, GSV Estimates

Snapchat meanwhile announced its users crossed the 10 billion daily video views mark. The impressive success of Stories, Snapchat’s video and photo watching tool, has been the major force behind Snapchat’s emergence to become a major entertainment platform. Similar to Facebook, the average daily Snapchatter spends about 30 minutes per day — making it one of the most engaging social media platforms.

Snapchat Daily Video Views (Billion)

Source: Company announcements, GSV estimate

Pioneer Notes

by Li Jiang

How to be a SUPERBOSS

Between 1979 and 2015, Bill Walsh and his proteges appeared in 32 out of 37 Super Bowls, winning 17 of them. And as of 2008, a year after Coach Walsh’s passing, 26 out of 32 NFL teams were lead by coaches trained under him.

In short, one coach was responsible for cultivating the talent of the entire league for a generation.

Bill Walsh was a SUPERBOSS and was one of the legendary leaders studied in Sydney Finkelstein’s recent book, Superbosses.

SUPERBOSSES are a rare breed of people who not only lead their individual organizations to greatness, but has widespread influence on their entire industries. They often mentor a disproportionate percentage of leaders in their industry and are looked up to by a generation of people in their field.

Legends including Oprah Winfrey, Larry Ellison, Jon Stewart, Ralph Lauren to George Lucas to Julian Robertson are studied in the book.

In Sydney Finkelstein’s book, he studies the characteristics of these SUPERBOSSES. There are three general types of Superbosses profiled in the book.

While there is a long list of traits that allow these leaders to have outsized influence on their teams and industries, I think it boils down to one foundational concept:

Superbosses are more mentally and emotionally invested in the people on their team.

Superbosses are intensely passionate about doing great work and ultimately leading a winning organization and they become intensely invested in the lives of their teammates.

They get very personal in the lives and growth of their colleagues. Everything is high touch and that closeness enables genuine trust and truthful communication, things often missing in many “professional” or “corporate” settings.

Superbosses don’t do “corporate” no matter how big their organizations get. They stay informal with their team and get to the truthful core in their work and mentorship of the next generation. And when the time is right, superbosses let their proteges go off on their own to take leadership elsewhere.

My takeaway from Finkelstein’s book is to find something where you want to devote your life to and expect that devotion from the rest of your team. Then you may well be on your way to becoming a superboss in your domain.

Market Update

Week ending May 1, 2016

World Indices

America Index 11/12/2017 YTD Week
U.S. GSV 300 115.7 53.1% 0.0%
NYSE 12322.6 11.4% (0.4%)
Dow 23422.2 18.5% (0.5%)
NASDAQ 6750.9 25.4% (0.2%)
NASDAQ-100 6309.1 29.7% 0.2%
Russell 2000 1475.3 8.7% (1.3%)
S&P 500 2582.3 15.3% (0.2%)
Brazil Bovespa 72165.6 19.8% (2.4%)
Mexico IPC 48028.3 5.2% (1.0%)
Canada S&P TSX 16039.3 4.9% 0.1%
Euro-Asia Index 11/12/2017 YTD Week
China SSE 3432.7 10.6% 1.8%
Heng Seng 29120.9 32.4% 1.8%
Singapore Straits Times 3420.1 18.7% 1.1%
Indonesia JKSE 6021.8 13.7% (0.3%)
Japan Nikkei 225 22681.4 18.7% 0.6%
India Sensex 33314.6 25.1% (1.1%)
Russia RTS 2169.3 (2.8%) 4.2%
France CAC 40 5380.7 10.7% (2.5%)
Germany DAX 13127.5 14.3% (2.6%)
U.K. FTSE 100 7433.0 4.1% (1.7%)



U.S. Indices Snapshot

Valuation P/E Est. P/E/G Price/Sales
LTM NTM Growth LTM NTM LTM NTM
S&P 500 24.3x 19.4x 7.60% 3.2x 2.6x 2.4x 2.1x
NASDAQ 25.5x 17.6x 7.80% 3.3x 2.3x 2.7x 2.2x
Russell 2000 25.1x 17.7x 6.30% 4.0x 2.8x 1.9x 1.7x
GSV 300 54.1x 27.5x 38.60% 1.4x 0.7x 5.7x 4.0x

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