Washington Post Company might be best known by the public for its agenda-setting newspaper but the group itself has become increasingly reliant on innovations coming from its education subsidiary, Kaplan.
Kaplan was responsible for 58% of the overall group’s revenues last year, but with changing technology affecting its business, the division in June set up a corporate venturing unit to build links with external entrepreneurs.
The unit, Kaplan VC, which is housed in the Kaplan Ventures operating group run by Jim Rosenthal, has already had initial success.
Jason Palmer, vice-president of strategy and business development at Kaplan Ventures and head of Kaplan VC, said he had already dealt with more than 150 external entrepreneurs.
He said: "We launched a fund as the education market and education technology is fast-evolving and there are hundreds of entrepreneurs out there. Kaplan cannot incubate hundreds, although we have a number of innovative
projects that are fully funded."
This technology change is both an opportunity and a risk to Kaplan. In its annual report, Donald Graham, chairman and chief executive of Washington Post Company, said: "Education has been a terrific business, for us and for many other companies. It should be in the future, as well. But as 2010 dawns, Kaplan’s business faces some risks our shareholders should know about and understand…
"One-off charges: $33.2m in Kaplan restructuring charges – $24.9m of these [charges] were related to the closing of Score, an after-school tutoring business for elementary school children we bought for a few million dollars and hugely expanded in the 1990s.
"Score is instructive. It looked like a wonderful business. Technology made it possible. In 1994, a roomful of schoolkids could have access to computer-based teaching and wonderful coaches – recent college graduates.
"And technology killed it. The company that made the software was very slow to update it. Anyway, by 2009 most children had plenty of computer access in school and athome."
Kaplan VC’s first public deal since announcing the fund was a good example of its approach to tapping into the external entrepreneurs, Palmer said. The corporate venturing fund was part of a consortium investing in Moodlerooms, a US-based open-source software company for online learning that raised $7.15m at the end of June.
Palmer said: "Deals are not just for financial returns but strategic connections. Our role is to make introductions to the four business units and for each potential investment we look for internal champions. Either the business unit nominates the company or can see a framework for working closely with them.
"We hope every portfolio company will develop a formal partnership with Kaplan but it is not necessary for us to acquire all of them. We see a third being acquired, a third going public and a third somewhere else."
The size of the fund being invested from the company’s balance sheet has not been disclosed but Kaplan said it would make about six deals by next June in the US, Europe, Latin America, the Middle East and India.
In May, Kaplan invested $3.5m as part of a fourth funding round for child education company Headsprout and has been a long-term backer of publisher LibreDigital.
However, Palmer added that Kaplan was early into corporate venturing relative to its education peers and had learned lessons from a decade before.
Kaplan Ventures made some initial venture investments, including Apex, Apollo International and Blackboard, between 1999 and 2002 under a former manager but when he left Kaplan did not continue the strategy.
Palmer said the "lessons learned were to stay close to the core, invest with VC partners so it is not just us, and take board seats and follow-on invest" in later rounds.
Fact box – Kaplan
Revenues ($m)
Division 2009 2008 2007
Kaplan Higher Education 1,540 1,160 933
Kaplan Test Preparation 445 507 555
Kaplan International 537 545 442
Kaplan Ventures 124 126 106
Key people: Kaplan Ventures
Jim Rosenthal, chief executive;
Jason Palmer, vice-president of strategy and
business development;
Phil Mayer;
Justin Young
Assets under management: balance sheet
Selected portfolio companies: Headsprout, Moodlerooms