Ed. Startups Get Money, Advice From Federal Program

Education technology entrepreneurs trying to make it in the often insular and opaque school market have an unusual ally—one found not in the world of venture capital, but in a competitive federal program charged with guiding small companies to prosperity.

The Small Business Innovation Research program, located within the research arm of the U.S. Department of Education, has seen applications for its grants jump recently, as the number of companies in the market has surged, and as the companies receiving financing through the program have gained traction in schools.

Applications for the program’s initial funding phase jumped over the past year from 180 to more than 250 for 12 grants awarded, and department officials say the quality of the companies seeking money has risen, too.

Many entrepreneurs bemoan the difficulty of bringing new technology products and ideas into schools. K-12 officials, in turn, often complain that the tools and devices thrust at them lack evidence of effectiveness, and aren’t helpful to teachers or students.

In some respects, the SBIR program’s design is meant to overcome those pitfalls by asking that applicants conduct ongoing research to improve their products, in exchange for helping them reach the commercial market.

Participants in the SBIR program say they’ve benefited not only from the money provided to develop products—either up to $150,000, or up to $900,000, depending on the nature of the work—but also from the support and recognition they receive.

The SBIR also offers another, obvious advantage for fledgling companies that might otherwise have to pursue private investment dollars: The federal government’s goal is to see their products succeed commercially, but unlike private investors, it doesn’t demand a monetary return on the money it provides.

“We’re a social venture. From the beginning, our strategy was to grow gradually and raise money from our customers,” said Eduardo Briceno, the CEO of Mindset Works, which develops online curricula, professional development, and other tools to help improve student motivation. “It’s a huge change we’re striving for—and change will not be quick.”

The problem with private investment funding, he said, is that it “is not very patient funding.”

“If we’re going to have people give us money at all, it makes sense they’re in it for the long term,” Mr. Briceno added. In that sense, the SBIR program “was transformational for us.”

Sustainability Sought

Congress created the Small Business Innovation Research program in 1982, and today the Education Department is one of 11 agencies that spend a collective $2 billion a year on the small-business effort. Agencies that devote more than $100 million annually to external research and development are required by law to put aside roughly 3 percent of that money for the SBIR.

The Education Department’s SBIR operation has an $8 million annual budget—minuscule compared with those of some agencies, particularly those whose work is more closely associated with major industries. For instance, the National Science Foundation’s SBIR annual budget is about $140 million, and the program in the Department of Defense is funded at $925 million.

In the Education Department, the SBIR is housed within the Institute of Education Sciences, the research wing of the agency. For the past decade, the program has been directed by Edward Metz, who works out of a modest window office in the institute’s headquarters, located a few blocks from the U.S. Capitol.

Mr. Metz, who holds a Ph.D. in developmental psychology, oversees everything from program administration to writing requests for proposals to providing technical assistance to grantees. He has sought to spread word about the program at business-incubator and industry events targeting K-12 entrepreneurs.

Those company officials are operating in a crowded and increasingly well-financed arena. Venture capitalists invested nearly $1.2 billion in education and training companies last year, almost four times the money spent five years earlier, according to GSV Advisors, a Chicago-based organization that consults on education and business issues.

Despite investors’ confidence, many businesses seeking to crack the K-12 market will fail. It’s a highly regulated and risk-averse market, industry officials say, one governed by relatively strict procurement rules and administrators with different interests and levels of expertise. It can be difficult for companies to get feedback on products, in some cases because it’s hard to find districts willing to work with them.

Mr. Metz’s office attempts to press companies to clear those hurdles. The program’s application process is designed to reward companies willing to commit to developing strong plans to research and refine their products and partner with K-12 officials to test them.

The ultimate test is “can you get [your product] to the end user, and do they want to use it?” Mr. Metz said during an interview. “And then, can you keep it alive, through revenue or some other way to sustain it? For me, it’s about dissemination and sustainability.”

Many companies have brought products into the commercial arena on their own with the SBIR’s help. Others have been acquired by larger companies, deals that Mr. Metz views as a success if they help small companies sell their ideas to bigger audiences.

A number of SBIR grantees, meanwhile, have won recognition within the tech industry. Filament Games, based in Madison, Wis., won an award at the 2013 Games for Change conference, an annual event in New York City that recognizes digital games that show social impact. Another grantee, the New York City-based Teachley, won a 2014 award for design from Apple for coming up with a math app for K-2 students and related tools for educators.

Taking Ideas to Market

Many applicants to the SBIR program fall into either of two camps, Mr. Metz said. The first are entrepreneurs who have a business strategy but haven’t developed a plan for researching and evaluating their products. The other is made up of academic researchers who want to shape an idea or piece of scholarship into a product and need help with business strategy.

One recent participant in the program who aligns more closely with the second category is Kara Carpenter, the co-founder of Teachley, a company that helps schools use app data to drive instruction. Ms. Carpenter had begun developing a prototype of the product as part of her Ph.D. dissertation in cognition and learning at Teachers College, Columbia University, along with two peers from the same program.

Teachley tries to build interest in its product through the word-of-mouth testimony of educators who have used its apps and can persuade administrators and others making purchasing decisions to buy it, Ms. Carpenter said. The federal grant money helped the company make significant strides in defining its products.

“We were able to take a dry, ‘researchy’ prototype ... and turn it into a product that was appealing to teachers and kids,” Ms. Carpenter said. “It allows us to transition from academia to industry.”

But some look askance at the government’s role in guiding those sorts of transitions.

The struggle to bring products into the marketplace takes entrepreneurs—in education, energy, and other fields—through a “valley of death,” which weeds out the ones that are not meant to last in the private sector, says Nicolas Loris, a senior policy analyst at the Heritage Foundation, a Washington think tank. Those who make it can arrive at a “valley of wealth,” he said. Having taxpayers bankroll this or that project distorts the process, he argues.

“I don’t think government involvement in trying to commercialize technology or play investment banker makes sense,” Mr. Loris said.

Because the SBIR’s existence was mandated by law, there was a temptation to regard its work as more of a “responsibility to be fulfilled” for the Institute of Education Sciences, rather than an office that could drive innovation, said Grover J. “Russ” Whitehurst, who directed the institute during President George W. Bush’s administration.

A program like the SBIR can help bring promising ideas into the school market, though the best programs focused on K-12 should also be sufficiently “fleet of foot” to give government officials the flexibility to finance potentially transformational technologies, Mr. Whitehurst said.

When Mr. Whitehurst led the IES from 2002 to 2008, institute officials were concerned about not getting enough good SBIR applicants, he recalled.

But Mr. Metz points out that the program is now luring consistently strong businesses, and that participation has evolved to reflect changes in the K-12 industry. For instance, he said the SBIR is now drawing more of the game developers working to bring entertaining, and in some cases, visually dazzling tools to teachers, students, and families.

One of those program participants is Pittsburgh-based Schell Games, which won a grant this year to develop Happy Atoms, a set of physical pieces that let students build molecules and use a camera smartphone to scan and identify the molecules they have built.

Normally, creating that game might have taken the company five years or more, said Jesse Schell, the company’s CEO, but the business-innovation award will greatly accelerate that time frame.

Winning the award also imbues the company with “a certain credibility,” he added, that distinguishes its product from a crowd clamoring for school officials’ attention.

“It’s done a huge amount for our confidence,” Mr. Schell said. “It’s made us braver in getting this started.”