Originally published: EdSurge | By Tony Wan | March 26th, 2019
According to Paul Freedman, the name of his company, Entangled Group, is an homage to the physics research that his late father and a colleague undertook that proved Albert Einstein wrong about the theory of quantum entanglement.
Inadvertently, the name could also refer to the many education projects that the company has touched since its start in 2015. Universities and community colleges, foundations and philanthropies, for-profits and Facebook have all sought its advice. Entangled has also started nonprofits, invested in companies and even built a few of its own.
That expansive scope of work was at first a little discomfiting for the company’s earliest backers. “It was really hard to raise capital in the beginning,” Freedman, its co-founder and CEO, recalls.
But investors have since warmed up to its broad scope. Case in point: Entangled has raised $15 million in a Series B round, at a valuation of just under $100 million. The San Francisco-based company has now raised a total of $18.3 million.
Of the $15 million, $4 million came as a convertible note that was closed earlier this year. The remaining funding was led by a family office that manages funds from the founders of Tencent, the Chinese internet conglomerate. The family office of Carl Lu, a partner at TDM Partners and a former managing director at Laureate Education, also contributed to the round, alongside previous investors. As part of the deal, Lu will join Entangled’s board of directors.
Connecting Entangled Group’s activities, best summed up as consulting plus business-building and investing, is the company’s underlying belief that “society has transferred to a knowledge economy, but our education system has not caught up with that transition,” Freedman declares. In the knowledge economy, he adds, no longer will one academic credential sustain an entire career. People must continually learn new skills, across schools, workplaces or anywhere where learning happens. Institutions must adapt to serve those needs.
Entangled wants to be at the nexus of these shifts, and that involves working with just about any organization looking to make the change. A big reason for raising this latest round, Freedman says, is to grow its team beyond its staff of 100 so they can tackle even more projects. It recently opened an office in New York City.
To that, the conventional definition of Entangled’s name serves as an apt metaphor for its growing ambition and reach.
Part consultant, part investor and part company builder, Entangled Group fashions itself as a “venture studio,” a term that refers to organizations that research ideas and create companies.
Much of that effort is led by its professional services, which generated $10 million to $15 million in 2018—the “vast majority” of the company’s overall revenue, Freedman shares. This part of the business includes providing sales and recruiting support for startups. The bulk of it comes from consulting. To date, Entangled has completed roughly 130 projects with foundations, for-profit companies, K-12 and higher-ed institutions.
Consulting clients and projects vary in size and scope. They include the World Economic Forum, which Entangled helped to create a platform for governments and NGOs to identify and fund education projects. For Facebook, Entangled advised on a partnership with community colleges to offer digital marketing training programs. With the Walton Family Foundation and Strada Education Network, Entangled helped launch the Opportunity Pathway Network for philanthropies and foundations to co-invest in workforce development initiatives.
With educational institutions, projects have involved consulting on academic planning, career services, and plans for system-wide innovation. More recently, Entangled advised on the California Community Colleges’ efforts to create an online program, which will welcome its first students by the end of this year. Another client, University of Wyoming’s College of Education, has enlisted Entangled’s help several times to revamp its programs for teacher preparation and training for education leaders. The bills for those projects range from $90,000 to $330,000.
Many of Entangled’s consultants claim experience working in higher education, where they’ve executed projects similar to what they now advise on. That practitioner expertise is in high demand by institutions looking for a nudge in the right direction, says George Siemens, a professor at the University of Texas at Arlington (who has not worked directly with Entangled).
“A lot of universities are structured in a way that is quite resistant to change, even though they recognize the need for change,” says Siemens. “Education leaders are grasping for guidance in navigating a new regulatory and technological structure that they’re coming up against.”
From Consulting to Company-Building
If Entangled were solely a consultancy, it wouldn’t need to raise additional funding. This side of the business is already profitable, according to Freedman. Those profits are reinvested into creating companies or investing in others.
For Entangled, consulting engagements double as market research, informing whether there is demand for products and services that are currently unavailable—and whether it should build them. “We are acquiring insights and customer relationships through the consulting business,” says Nick Hammerschlag, Entangled’s president. “And we want to put ourselves in a position to act on those insights in a way that is commercially successful and drives real impact.”
New businesses begin in Entangled’s in-house incubator, staffed with engineers, marketers and product designers, all overseen by a “Ventures VP” who acts as de facto founder of each idea that turns into a startup. Entangled will invest up to $1 million into each venture, after which it decides whether to spin out the company as an independent entity. (Entangled typically retains a board position and equity.)
The $15 million in new capital will help accelerate Entangled’s startup-building efforts. So far, six companies—Adjacent, Embark, Pathstream, Practice, ReUp Education and Student Blueprint—have been incubated and launched.
Adjacent, the newest of that group, stemmed from the company’s work with small liberal arts colleges that wanted to weave digital skills training into existing programs, without starting entirely new departments. Entangled tried to arrange partnerships between existing coding bootcamp providers, but to no avail. So it started Adjacent, which is running its first “coding-plus-liberal-arts” pilot program later this summer.
Another company, ReUp Education, was born as a result of its work with colleges to re-engage students who dropped out and bring them back. Its first customer was Bellevue University, an Entangled client. ReUp now works with 20 campuses and claims to have helped re-enroll close to 10,000 students.
Running a business that both advises clients and sells its own products can present challenges, most notably possible conflicts of interest. “As a university, you want a consulting partner that is here to help achieve your goals, and not worry about possible conflicts with products or services they may be selling me,” says Siemens. It can beg the question: “Are they here to help me, or are they here to build products for the market?”
Freedman’s answer would be both, and that transparency is key to making the juggling act work. “Any time we’re dealing with a project that could potentially lead to a recommendation of a company that we work with, we make it clear upfront that this is an area where we have made investments, and we make it clear who we’ve invested in,” he states.
In addition to building its own startups, Entangled has also invested about $3 million in early-stage deals for 18 other edtech companies. Andela, Guild Education and RaiseMe are the biggest in its portfolio, in terms of revenue and venture capital raised. Entangled will continue investing $1 million per year in this manner going forward.
Some of those bets have paid off. Altogether Entangled has netted about $9 million in returns from six exits: Practice (acquired by Instructure), Student Blueprint (acquired by Viridis), MissionU (acquired by WeWork), Gradescope (bought by Turnitin), Koru (acquired by CAPP) and Flywire (stake sold to other Flywire investors).
Earlier this year, the company also made its first acquisition in ProjectEd, an education consulting firm that was spun out of Amplify and has worked on projects including The XQ Institute’s Super School Project. That deal was made to bring K-12 sector and design expertise to Entangled. More purchases may come, hints Hammerschlag: “It is not totally implausible that we will make another acquisition or two.”
There’s a sort of virtuous cycle in how Entangled’s mix of advisory, investment and company-building activities all inform one another. However, this venture-studio model is not unique to Entangled or the education market. Analogues include Oxeon in the healthcare sector, and groups including Prehype and Science for general consumer industries.
“My prediction for this business model is that it is an emergence of a new asset class,” says Hammerschlag. “Just as people now recognize brand-name venture capital funds, people will know venture studio names in 10 years.”