How to start an edtech company: A founder's roadmap

Starting an edtech company is an exciting venture that combines a passion for education and technology with business acumen. The global edtech market is worth billions, with consistent demand for mobile payment solutions in schools, universities, and private tutoring centers.

This guide will take you through the practical steps to validate your business concept, secure funding, obtain necessary permits, and build your team to help you launch a successful edtech company in the U.S.

Step 1: Plan and validate your business idea

Conduct market research

Start by running targeted surveys on platforms like SurveyMonkey with educators, students, or parents. Focus groups also provide deep insights into their daily challenges and needs. This direct feedback is invaluable.

For broader market trends, look at reports from HolonIQ and articles on EdSurge. These resources give you a solid view of the industry landscape and where it is headed.

Analyze your competition

Once you know the market, check out who is already in it. Use platforms like G2 and Capterra to read user reviews. This tells you what customers love and hate about existing products.

A frequent oversight is to focus only on direct rivals. You should also analyze indirect competitors who solve the same problem differently. This can reveal unique opportunities for your product.

Map out your startup costs

Speaking of costs, a minimum viable product (MVP) can range from $25,000 to $75,000. Legal setup might cost $2,000 to $5,000, with initial marketing around $5,000 to $10,000.

This means you might need between $50,000 and $100,000 to get started. A clear budget from day one helps you make smarter decisions and manage your cash flow effectively.

Here are 3 immediate steps to take:

• Draft a 10-question survey for your target audience.
• Identify three direct and two indirect competitors to analyze on G2.
• Create a preliminary budget spreadsheet with estimated costs for development, legal, and marketing.

Step 2: Set up your legal structure and licensing

Choose your business structure

You might want to consider a Limited Liability Company (LLC) to start. It protects your personal assets and offers pass-through taxation, which simplifies your tax filings. An LLC can cost between $50 and $500 to form, depending on your state.

If you plan to seek venture capital funding soon, a C Corporation is a better fit. Investors prefer this structure. A mistake many founders make is to start as a C Corp too early, which adds tax complexity before it is needed.

Get the right permits and licenses

With your structure decided, you need a federal Employer Identification Number (EIN). You can get this for free from the IRS website in minutes. You will also need a state and possibly a local business license, which can take a few weeks and cost up to $400.

Understand industry regulations

Edtech companies handle sensitive data, so you must follow specific rules. The two main regulations are the Family Educational Rights and Privacy Act (FERPA) and the Children's Online Privacy Protection Act (COPPA). Familiarize yourself with their requirements to avoid heavy fines.

Here are 4 immediate steps to take:

• Decide between an LLC and a C Corp for your business.
• Apply for a free Employer Identification Number (EIN) online.
• Check your state's Secretary of State website for business license costs.
• Read the FTC's compliance guide for COPPA.

Step 3: Protect your company with the right insurance

Key insurance policies for edtech

Your first move is to secure General Liability and Professional Liability (also called Errors & Omissions) insurance. Plan for about $1 million in coverage for each. Annual premiums typically run from $400 to $700 for general liability and $1,000 to $3,000 for professional liability.

Cyber Liability insurance is another non-negotiable for edtech. A data breach involving student information can be devastating. A policy with $1 million in coverage might cost between $1,500 and $5,000 annually. A mistake founders often make is to skip this, assuming they are too small to be a target.

If you hire employees, you will also need Workers' Compensation insurance. The cost varies by state and payroll size. With these policies in mind, your next step is to find the right provider. Look for insurers that specialize in technology companies, such as Hiscox, Embroker, or The Hartford.

A specialist broker understands the unique risks of handling student data. They can find policies that cover FERPA and COPPA compliance issues, which a general agent might overlook.

Here are 4 immediate steps to take:

• Get quotes for $1M in General and Professional Liability coverage.
• Research Cyber Liability policies that specifically mention FERPA/COPPA.
• Check your state's requirements for Workers' Compensation insurance.
• Contact an insurance broker who specializes in tech startups.

Step 4: Set up your location and equipment

Decide on your workspace

Many edtech startups begin fully remote to keep overhead low. If you need a physical space, consider a co-working membership. This gives you flexibility without a long-term commitment. Prices can range from $200 to $500 per person per month.

If you prefer a private office, look for a short-term lease of 1-2 years. A trap some founders fall into is signing a 5-year lease they cannot escape. For a small team, 500-800 square feet in a commercially zoned building is a good start.

Get the right hardware and software

Your team will need reliable laptops. Budget $1,500 to $2,500 for each developer-grade machine, like a MacBook Pro. Add another $300 to $500 per person for a quality external monitor to improve productivity.

For software, you can start for free. Use Asana or Jira for project management and Slack for team communication. Your biggest recurring cost will be cloud services from providers like Amazon Web Services (AWS) or Google Cloud, so monitor your usage closely.

Here are 4 immediate steps to take:

• Compare monthly costs for a co-working space versus a 1-year office lease.
• Create a hardware budget for laptops and monitors for your founding team.
• Sign up for the free tiers of Asana and Slack to manage projects.
• Set up a billing alert on your chosen cloud platform, like AWS or Google Cloud.

Step 5: Set up payment processing

Choose your payment solution

Your edtech product will need a way to accept payments. For a subscription model, you need a system that handles recurring billing. For one-off course sales, a simple payment gateway works. Look for solutions with strong security and low transaction fees.

Many founders underestimate how much payment fees can affect revenue. Most processors charge around 2.9% plus $0.30 for every online transaction. Finding a provider with a lower rate can significantly improve your profit margins over time.

Accepting in-person payments

For payments on-site or on-the-go, JIM offers a streamlined solution. You can accept debit, credit, and digital wallets directly through your smartphone. Just tap and the payment is done. It is particularly useful for collecting fees at school events or for private tutoring sessions.

At just 1.99% per transaction with no hidden costs or extra hardware, JIM is more affordable than the industry average. Getting started is straightforward.

• Get Started: Download JIM app for iOS.
• Make a Sale: Type the sales amount, hit sell, and ask your customer to tap their card or device on your phone.
• Access Funds: Your money is available right on your JIM card as soon as the sale is done - no waiting for bank transfers.

Here are 3 immediate steps to take:

• List your payment needs, such as recurring billing or one-time sales.
• Compare the transaction fees of at least two payment processors.
• Download the JIM app to see how it works for in-person payments.

Step 6: Fund your company and manage finances

Secure your initial funding

For equity funding, focus on venture capital firms that specialize in edtech. Firms like Owl Ventures and Reach Capital understand the market. A typical seed round can range from $500,000 to $2 million. Angel investors with a background in education are another great source.

You should also explore non-dilutive funding through grants. The Small Business Innovation Research (SBIR) program, run by the Department of Education, is a popular option. These grants do not require you to give up any ownership of your company.

Manage your working capital

Plan for at least six months of operating expenses. This could be anywhere from $100,000 to $250,000, depending on your team size and development costs. Open a separate business bank account immediately to track every dollar.

A mistake many founders make is to underestimate the long sales cycles in education. School districts can take 6 to 18 months to approve a purchase. Your financial projections must account for this delay to avoid a cash crunch before you land your first major contract.

Here are 4 immediate steps to take:

• Research three edtech-focused VCs like Owl Ventures or Reach Capital.
• Review the SBIR grant requirements on the Department of Education website.
• Calculate your 6-month burn rate based on your budget spreadsheet.
• Open a dedicated business bank account to separate personal and business finances.

Step 7: Build your team and operations

Hire your founding team

Your first hires are critical. You will likely need a Full-Stack Developer to build the product and an Instructional Designer to create the educational content. Expect to offer a salary of $110,000-$160,000 for a developer and $70,000-$95,000 for an instructional designer.

Focus on portfolios over formal certifications. A developer’s GitHub repository or a designer’s past projects are more telling. For an instructional designer, a background in education is a significant advantage. Many founders make the mistake of hiring a sales team too early, so handle initial sales yourself.

Establish your operational rhythm

With your team in place, set up a workflow. Use a platform like Jira or Asana to manage two-week development sprints. This rhythm helps you build, test, and iterate on your product quickly. It keeps everyone aligned and focused on the most important tasks.

As you start to generate revenue, a healthy benchmark to aim for is $150,000 to $250,000 in annual recurring revenue (ARR) per employee. This metric helps you make smart decisions about when to expand your team without overextending your finances.

Here are 4 immediate steps to take:

• Draft job descriptions for a Full-Stack Developer and an Instructional Designer.
• Research salary benchmarks for these roles on Glassdoor or AngelList.
• Set up a project board in Jira or Asana for your first two development sprints.
• Calculate your target ARR per employee to guide future hiring plans.

Step 8: Market your product and acquire customers

Focus on a bottom-up approach by targeting individual teachers first. A freemium model can be very effective here. When teachers love your product, they become your best advocates inside the school system.

Start a blog or newsletter with content that genuinely helps educators. This builds trust and establishes your brand as an authority. You can offer a free guide or webinar to capture email addresses for your marketing list.

With a small email list, you can offer free pilot programs to a few schools. This is your chance to get testimonials and case studies. A mistake founders often make is running pilots without clear success metrics. Agree on these goals beforehand.

Keep a close watch on your Customer Acquisition Cost (CAC), which can be $200-$500 per school. For your pilot program landing page, a 5-10% conversion rate is a good target. These metrics will guide your marketing budget.

Once you have some initial traction, attending edtech conferences like ISTE or ASU+GSV can be a game-changer. You do not need an expensive booth to start. Simply attending to network can open many doors.

Here are 4 immediate steps to take:

• Outline three blog post topics that solve a problem for teachers.
• Draft a one-page document defining the goals for a successful pilot.
• Create a simple landing page to recruit schools for your pilot program.
• Research the attendee cost for an upcoming edtech conference like ISTE.

Step 9: Set your pricing strategy

Choose your pricing model

A popular route is the freemium model. Offer a free version for individual teachers to build a user base, then upsell to a premium plan for $10-$15 per month. This creates internal champions for your product.

For school or district-wide adoption, per-student or per-school pricing is standard. A price of $5-$10 per student per year or a flat fee of $2,000-$5,000 per school are typical starting points. Your goal should be a gross margin of 70-80%.

Find your price point

Many founders fall into the trap of simply undercutting rivals. Instead, price based on the unique value you provide. Analyze the public pricing pages of competitors to understand the market, but do not let them dictate your worth.

For direct feedback, you can run a Van Westendorp analysis survey. This asks four specific questions to identify an acceptable price range. It helps you avoid pricing so low that customers question your product's quality.

Here are 4 immediate steps to take:

• Analyze the pricing tiers of two direct competitors.
• Draft two pricing models: one for individuals and one for schools.
• Calculate your target price to achieve a 75% gross margin.
• Read a guide on how to conduct a Van Westendorp price sensitivity analysis.

Step 10: Control quality and scale your operations

Measure product quality

With your product in the market, your focus shifts to user satisfaction. Track your monthly active users (MAU) and aim for a month-over-month retention rate of 20-30%. This shows your product has staying power with educators.

You can also measure your Net Promoter Score (NPS). A score above 30 is a strong signal for a SaaS product. For data privacy standards, review the Student Privacy Pledge. Aligning with its principles builds trust with schools.

Know when to grow

Use your revenue to guide hiring. The benchmark of $150,000 to $250,000 in annual recurring revenue (ARR) per employee is a solid indicator. Another sign is when your lead developer spends over 25% of their time on management instead of coding.

Many founders buy expensive enterprise software too early. You can manage your first customer relationships with HubSpot’s free CRM. As you grow a dedicated customer success team, you might consider a platform like Gainsight.

Here are 4 immediate steps to take:

• Set up a simple dashboard to track your MAU and retention rate.
• Read the commitments of the Student Privacy Pledge.
• Calculate your current ARR per employee to assess hiring readiness.
• Create a free account on HubSpot to manage your first contacts.

Conclusion

Launching an edtech company is a journey, and you now have the map. Remember, your success will be measured by the real impact you have on teachers and students. Focus on that, and you are on the right track.

And when it comes to getting paid, keep it simple. JIM lets you accept payments on your smartphone for a flat 1.99% fee, no extra hardware needed. It is perfect for those first sales. Download JIM to see for yourself.