EdTech Angels: Investing with impact - Dr. Melody Lang / MPA Education
Guest: Dr. Melody Lang from MPA Education, an advisory and investment company dedicated to the future of learning and work. She is based in London, UK, and focused on investing in solutions for learners 16+ in areas such as apprenticeships, challenger universities, lifelong learning, as well as talent acquisition, development & retention including mental health & wellbeing in the workplace.
Frank Albert Coates: Today I'm delighted to welcome Dr. Melody Lang, who is the founder of MPA education, an advisory and investment company dedicated to the future of learning talent and work. She has a portfolio of 10 companies in the education space and has been investing since 2018. Hi Melody, how are you doing?
Dr. Melody Lang: Hi Frank. I'm well, thank you. Thanks for having me today.
Frank Albert Coates: Thank you for joining us in the second season of the EdTech founders podcast where we are focusing on business angels and investors. So let's just dive straight into it. Tell me a bit more about yourself and most importantly, why did you start investing in EdTech?
Dr. Melody Lang: So as I tend to say, let's try not to repeat what can be found online. So in a nutshell, as a background, I'm a mathematician did my PhD in mechanical engineering, but then I thought I had such a strong passion for education that I wanted to take part in the transformation the whole industry was and is still going through. So I started my journey in EdTech as an operator.
I joined a company called Knewton, headquartered in New York, but I was the first hire outside of the US to join the London team and stayed with them for four years. I was able to be very close to product, partnership, business development. Being in a satellite office, I really had a chance to be close to all the different departments.
From there I was approached by a VC fund who wanted someone with EdTech, my EdTech industry expertise and network to help them with their investments in that specific industry. So that's how my journey as an investor started. And I did that for them for a year before I founded my own investment company, MPA education.
So that was back in 2019. I did a small detour being co-founder of a company in the field as well, called Mindstone - that was during the pandemic. And now I have resumed my activities as an investor to raise a second fund for MPA [note; the second fund will also be raising from EIF and other public organisations].
Frank Albert Coates: So tell us a bit more about the specific areas of EdTech that you believe in and that you invest in. So essentially; tell us more about your investment thesis.
Dr. Melody Lang: Yes. So my investment thesis, I was able to refine it over the years, as you can imagine having sat at different ends of the table. What I'm looking at specifically is whenever the learner is 16 year old plus. What, what does it mean and why? It's because mandatory schooling is done and over with in most countries at 16 years old, and I'm interested in what happens next. So apprenticeship, internships, challenger universities, all the way to learning and development, lifelong learning as well as mental health and wellbeing in the workplace.
K12 is an area I would tend to avoid as an investor. I would keep in mind the easiest way to really frame it. It's to say when the learner is 16 year old plus, and it's to address two challenges. So I would be backing solutions that are tackling two challenges that are; the skills gap crisis and the great resignation. So anything around reskilling, upskilling, talent, acquisition, talent retention. So that would be in a nutshell, what I'm looking at.
Frank Albert Coates: Okay, thank you for that. So I can't avoid asking the question then, why not K12? Because there's certainly a lot of K12 companies out there and then they tend to be very passionate. The founders tend to be very passionate about what they're doing. So why do you try to avoid that?
Dr. Melody Lang: So never say never. The main reason, and that's why it wouldn't apply to everybody in K12, but the main reason is the issue around local context and we are after global scalability. So, local context in this case is all around language and national curriculum. If you touch content, then you will have that as a challenge to overcome when you want to scale globally to expand internationally.
So it makes it a little bit more difficult for companies to expand internationally. Now, of course you may have some tremendous businesses who could even stay national. It's not a requirement for all, but I tend to look at investments with a global perspective.
Frank Albert Coates: So I guess a bit of a follow up to that. In maybe one way you have some more leverage in your decisions on where you want to invest. How much do you make a trade off sometimes between the actual business potential value and your belief in certain areas? Potentially not K12, but at least in some areas where you see that there is a potential for impact versus the ROI.
Dr. Melody Lang: Yes, absolutely. So just before I answer that exact question, I'm gonna just gonna follow on, on my previous answer. Because another way aside from local context, as we all know in EdTech, there's a very complex ecosystem. And very often your end user is not necessarily your end customer.
So you've got very different stakeholders and I would rather not look at B2I, business to institution or B2G, business to governments. And that's where K12 mostly resides if you are not a solution for consumers directly. So the markets I would favor are corporate and consumer markets.
So that would be another way to answer the question around K-12. But again, as I said, not everybody falls in those rules, so that's why never say never. I would be looking occasionally at some opportunities in K-12. Now back to your question, the impact angle. So at MPA we're investing, we are a for profit and for good.
So in other words, investing with impact, as opposed to for impact. What it means is that financial returns should meet our expectations around standard multiples for early stage investment funds. So a times two would be a totally reasonable and acceptable target while also meeting our expectations in terms of impact.
So we partnered with gold star with the aim to get all our portfolio companies with an A or B gold star rating. And on the other end companies who think they will not be financially profitable but have an A gold star rating sadly won't be for us. So we need both. So that's where you have a difference investing with impact or investing for impact and of course, philanthropic money.
So we really sit in between the philanthropic and for impact investor and the sort of VC money that might have a priority on financial returns rather than impact.
Frank Albert Coates: And do you think the way that you look at it, with impact and the way that you calculate it; do you think that's something that is done also in the industry or, is it sort of a new way of doing things or, or how do you see that sort of way of looking at the investments?
Dr. Melody Lang: Yes. It's very new. It's very new. It's a gray zone and that's why in LPs mind, so LPs are the investors in our fund, in the funds. They tend to think either or so, wait, am I gonna make money out of this? Or is that more sort of impact money? And so they really struggle to understand this sort of in between where we have the same ambition as purely sort of generalist VC funds.
I mean, okay. I'm laughing because they have ambitions that are at times 10 and we're at times 2. So maybe that would not be accurate. But what we're saying is that for us to have the largest impact, we need to back businesses who can be financially sustainable to have the largest impact possible.
And some projects can only actually be funded by philanthropic money, but these are not the businesses who we would be after.
Frank Albert Coates: So, you're starting to touch upon the various actors in the investment landscape. You say that you're not a VC and then you are not a straight business angel either. So sort of, where do you sit in the landscape?
Dr. Melody Lang: Okay. So we are a small fund that is backed by angel investors and family offices. What it means is that we can look at long term investing. We have a structure that is a 12 year duration, and that can be extended twice for three years. So we're really approaching an evergreen structure if you will.
And this is where we're a very different type of animal compared to your classic VC fund that comes with different timeframes.
Frank Albert Coates: So typically a VC would have a five to seven year timeframe, something like that?
Dr. Melody Lang: Yeah. They would need to have a route to exit within a certain timeframe, where we can be way more flexible with that. And some businesses grow healthily, but at their own pace and are not in for the hockey stick curve type of returns. So it's just about being a bit more patient.
Frank Albert Coates: Absolutely. And just on the details. So what kind of investor are you? Are you a lead investor or a follow-on? What's your ticket size typically?
Dr. Melody Lang: So we are totally fine to be a full-on investor, to co-invest or to be a co-lead because we are in that category that now I have seen has been called micro VC, which means we like to be very lean in our team and our approach. In terms of ticket size; initial ticket size for fund two will be between 500 K and a million with a high follow-on ratio of two to one. And we are looking at opportunities globally.
Frank Albert Coates: And a bit of a promotion question. So why should startups or founders pick you versus other types of investors? I guess what makes you unique as an investor?
Dr. Melody Lang: My background in the EdTech industry makes us a strategic investor for a EdTech founder in the sense that we are, what we call an operator investor. If we invest in a company, we're gonna give them operational support, as well as access to our trusted network of operators and whomever, they need to grow their company towards a series A. By the way, I haven't mentioned the stage, but we enter at pre-seed or seed stage and can follow on. As I said, with the follow-on ratio we have, we're not set on stopping at series A necessarily. It's depending on that follow-on ratio, but we like our initial ticket to be in the pre series A stage. And then, it's really having a strategic investor on board that MPA would be your strategic investor in that sense. So we can make sure we can give that operational help and open the right doors at the right time.
Frank Albert Coates: And your long term view, I guess, is quite unique in that sense.
Dr. Melody Lang: Absolutely. Very true.
Frank Albert Coates: So over to the more advice based on all the startups you've encountered. What would you tell startups that are looking for pre-seed or angel investors? The top three or top five tips that you would give them?
Dr. Melody Lang: I tend to see the whole fundraising exercise as a matching exercise. So not to waste anybody's time, whether the founder's time or the investor's time, I would recommend founders to really do their homework; on what differentiates angel investors and syndicate of angel investors. These are the two routes by the way; individuals or syndicate of angels. And see what are their investment criteria.
For instance, it could be the company needs to be post revenue. If this is not the case don't even bother. The other way around; some syndicate or groups of angel investors could be only backing female founders. Okay. If you're a female founder, great. Go and knock on their door. Other criteria to look at is well, it's based on what you're after as well, ask yourself, what do you want, do you want a passive investor or an active investor?
Do you want what we call dumb money or do you want that person to be involved in any way? So in that case ask yourself if you need a specific EdTech expert or investor, and look at the industry specific events and make sure you are present there and you network network network. There's no secret around that. The same for impact; if you want to be value aligned and for you it's extremely important the whole impact angle, make sure you find someone that's aligned on that. A recommendation for UK companies is to get EIS & SEIS eligible. That would really, I can guarantee open many doors to UK based UK resident angel investors, because it's a tax scheme that's extremely interesting for them. So investing in EIS & SEIS companies is attractive to them. I'm just trying to think if I forgot about anything and then yes. And then maybe ask other founders for advice. In terms of joining communities and networking, there are also founder communities and I find these fairly helpful to share best practices and maybe get some advice from other founders who have gone through similar situations.
Frank Albert Coates: And when you see startups coming to you, do you have any sort of preferred approaches or any also maybe ways that they should not approach you? Some really bad examples that you've seen in the past?
Dr. Melody Lang: I'm fairly open in that respect. I think that not everybody can necessarily find someone who knows me to get that warm intro if you will. So inbounds on LinkedIn for me is, is totally as acceptable as a warm intro by email. So I'm not selective on that. And on the country that's to keep in fact diversity and to get out of the sort of cliquey influence. You know how it's all about your network and who knows who and friend of friend of friend of friend and, you know. Everybody says, oh, friends and family around, but that's not available to everybody. People do not necessarily have the network nor the family members who can back their businesses.
It's a good book on that point actually, to make sure we can give every founder a chance. I think it's called the The Innovation Blind Spot. So in terms of how to approach me again, as I just said, fairly open, I would prefer somehow a LinkedIn message from an email weirdly enough, because that's just a time saving thing where I can just click and view the profile. Bam, bam, bam. It's just more convenient, but again, totally fine with all. And then what I recommend as well, I don't know if that's connected to that specific question, but it's just because it reminds me of that because when you say what not to do, what absolutely would turn me off it's if someone is operating in K12, for instance, and I would recommend for those founders to read a book called Class clowns, how the smartest investors lost billions in education. And to understand fully what we mean by local context and especially if they talk to investors who are looking for global scalability. So if you touch content in K12, you have to get ready to defend your case.
Frank Albert Coates: We'll definitely showcase those recommendations on the site. And lastly, we are in quite of a crisis in some respects in the world today and the investment landscape has completely changed over the last six months. So how do you see that and what do you think that founders should think about it or handle that when they seek funding?
Dr. Melody Lang: The safety rule, but that's a rule that stands all the time in any climate, is to have a good minimum of six month runway. So maybe extend that to 12 in such a climate. But also maybe you could build a case around the fact that the best deals are made in private equity with such a climate. So private equity, and especially in an industry like ours should not feel as endangered as maybe other industries. And another thing I would say is to be sensible with your valuation. So we know that these multiples, we tend to calculate from annual recurring revenue where it tends to be a times 10. Well, these have changed for sure. So be aware of that and don't come up to an investor with your times 10 multiple for your evaluation and look at Goldman Sachs that's got an industry index. You could adjust your multiple too.
