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Scaling your EdTech business - key commercial law issues for management consideration

The opportunities for e-learning providers and other Educational Technology (EdTech) businesses looking to scale their businesses continue to look very promising, with the EdTech sector on track to reach £3.4 billion by 2021 in the UK, and £128 billion globally. According to the Tech Nation Report 2020, the UK EdTech leads the way in Europe, with UK EdTech businesses attracting 41% of European-wide investment in 2019. Some notable UK-based EdTech companies include:

  • BibliU - a digital learning platform that makes online course materials accessible and searchable for students of all backgrounds;
  • Firefly - a learning tool which helps teachers manage their day-to-day workload by using timetables, lesson plans and a range of resources to plan their entire academic sessions, and students to access teaching and learning resources from across the school or a specific school group;
  • FutureLearn - owned by The Open University and The SEEK Group, it provides a learning platform offering a diverse selection of courses from leading universities and cultural institutions from around the world;
  • Perlego - a provider of digital textbook access to students and professionals, enabling publishers and universities to find solutions for students looking to access resources from home; and
  • Sparx - a socially-focused EdTech company which uses a sophisticated, adaptive technology platform to transform the way that maths is taught in schools.
  • Edtech businesses and those investing in or making purchases from them typically need to consider a range of commercial law issues in seeking to maximize the opportunities available to them. This article, based on the recent experiences of the Fladgate Edtech group explains those which are key.

Optimise customer agreements

To succeed, an EdTech business requires a deep appreciation and understanding of the academic culture, operations, structure and constraints of its customers. Schools, universities and other educational institutions are often slow moving and risk adverse compared to other sectors. This can impact the sales process (with word-of-mouth recommendations, and try-before-you-buy, often proving important) as well as the contracting models adopted.

Ideally, commercial arrangements with educational institutions should trend towards being ‘relational’ rather than ‘transactional’ - educational institutions increasingly rely on, and manage, a broad ecosystem comprising EdTech businesses and other service providers. These ‘partners’ supply a broad span of educational and related services which they have to integrate into the day-to-day operations of the teaching and learning services they in turn provide to their student bodies.

EdTech companies should invest in developing robust but fair terms of use covering key contractual issues such as warranty, liability and indemnity, the idea being to shorten the contracting phase or, even better, to facilitate online ‘check the box’ contracting using standardised terms. The customer contractual documentation will typically comprise, as a minimum, a Subscription Agreement or Terms of Use, together with acceptable use, privacy and cookie policies.

Depending on the nature of the solution offered, this may also be supplemented by a service level agreement (or schedule) which sets out what happens if specified standards such as platform availability are not met. Remedies can include the implementation of a remediation plan as well as payment of service credits i.e. a rebate of some proportion of the charges to recognise that the required level of service was not delivered.

Customers may also try and insist on flow-down requirements which a supplier has to try and insert into its own subcontracting arrangements (ie to ensure that any third party whom the customer relies on for the provision of the services indemnifies against any performance failure). Often this simply isn’t practicable, such as where enterprise agreements are already in place or where a product is provided on a standardised, out-of-the-box, basis. EdTech providers should therefore be careful not to rashly sign up to customer terms which cannot be met.

Businesses looking to deliver on growth targets and metrics should also be careful not to enter into agreements with customers which lock them out of valuable markets (e.g. through transfer of valuable intellectual property or the grant of exclusivity) or which would otherwise limit their ability to realise their business plan. Sacrificing long-term potential for short-term gain may later prove to be an issue, such as when preparing for outside investment.

Focus on legal operations

As start-up companies begin to scale, in-house functions can quickly become overwhelmed by the volume of contract requests (new sales, contract changes, renewals), and may struggle with managing negotiations, approvals, execution, new versions and amendments, extensions, cancellations and expiries. These issues can manifest as a serious business risk.

The answer is to focus on improving legal operations which includes optimising contracting processes, workflows, and data visualisation and reporting, introducing some self-service functionality for the business, implementing collaboration tools, negotiation policies and playbooks, and a contract management system (CMS). A good CMS will operate as the store executed contracts as well as helping to automate aspects of the contract lifecycle such as e-signature, diary management of important dates such as renewals, and management of outside counsel. This will enable quicker business decision-making, whilst freeing up the legal department to focus on more strategic, added value work for the business.

Weigh up new markets 

According to another recent report from Tech Nation, the UK was the world’s fifth-biggest exporter of digital tech services, behind India, the US, China and Germany. One of the main reasons cited is the high number (approximately 7,500) of high-growth tech companies located in the UK, which is seen as an attractive base for digital technology-based business.

The UK ranks second (after the US) in Tech Nation’s Global Opportunities Index for promising tech businesses (based on factors such as the rise of digital retail and e-commerce sales), with the US, Israel, Canada, Germany and the Netherlands ranked as some of the most profitable export markets for UK digital tech businesses.

Key issues when considering expansion into overseas markets include:

  • Deciding whether to incorporate a subsidiary in the local jurisdiction, appoint a distributor or agent, or enter into a joint venture with a local partner;
  • Understanding the potential application of local laws and regulations, especially where selling direct to consumers, and employing local personnel;
  • Protecting intellectual property in markets in which you are operating;
  • Complying with applicable import and export controls, such as where software has cryptographic functionality or may have a military as well as a civilian application; and
  • Structuring transactions to minimise tax payments and related obligations.

Develop and implement an IP strategy 

From the outset, EdTech companies should be careful not to disclose confidential information such as business ideas, plans and trade secrets without the protection of a non-disclosure agreement. They should also be careful to secure such information, whether digital or analogue, so that it cannot easily fall into the hands of competitors, e.g. through implementing information security policies and procedures and securing networks and devices.

Beyond these practical steps, EdTech companies should develop and implement an IP strategy which provides a framework for protecting (e.g. patenting inventions, securing copyright materials, registering trade-marks and securing domain names), valuing and enforcing intellectual property. The strategy will also inform when a business should seek to own intellectual property developed by a third party on its behalf (e.g. outsourced application development), or when a licence to use the developed intellectual property will be sufficient, as well as how to approach co-development of intellectual property e.g. in partnership with a customer, or a not for profit or academic institution.

Develop a robust supply chain 

As EdTech businesses scale, they will typically put in place agreements with a range of vendors and service providers which may include equipment supply, IT infrastructure support, website hosting, cloud computing, communications (e.g. telephony, WAN), and software development and maintenance, as well as a wide range of services such as office cleaning, catering, training, accounting, and human resources. In addition to the standard contract provisions (liability, indemnity, termination and the like), supply chain contracts should also cover important issues such as data privacy, information security, performance standards, business continuity, supply chain transparency (modern slavery, anti-bribery etc.) and audit.

Other considerations

Other c-suite issues to consider from an operational and supply chain perspective include the impact of COVID-19, Brexit and other black swan events. And, as EdTech businesses scale, the founders should also keep an eye on their personal affairs, including tax and estate planning.

Please don’t hesitate to contact any of the authors, or your usual Fladgate contact, if you would like to discuss any of the issues raised in this note.

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