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PSG sees AI's value in education with Packback investment

Note: This article originally appeared in PE Hub on April 10th, 2024.

'In our view, we are at the front end of a transformative period in education,' says PSG's Rick Essex.

AI is front and center in PSG Equity's investment strategy. The Boston-based private equity firm looks for innovative B2B software and technology companies operating in large, growing markets that have demonstrated a strong product-market fit. It makes AI an attractive feature to pursue when looking for potential targets.

PSG announced in March it had made a strategic growth investment in Packback. Based in Chicago, Packback is an AI-powered student engagement and academic platform.

PE Hub spoke to Rick Essex, managing director at PSG, about what drew PSG to Packback and the firm's interest in AI within the targets it pursues.

Packback is a digital writing coach that uses generative AI. It does not write for students. As students work on assignments, Packback's AI provides individualized feedback in real time. The service focuses on grammar, sentence structure, quality of sources selected, tone and topical relevance. Additionally, Packback automates reminders for teachers to engage with students who may need additional support.

As of the end of 2023, Packback served over 365 educational institutions across grades K-12 and higher education. Since its founding in 2013, the product has been used by over 1.5 million students and over 10,000 instructors in various courses.

"Packback was very attractive to us given the strength of its products, value proposition and growth trajectory in an addressable market," Essex told PE Hub. "Packback was purpose-built for education, using a thoughtful combination of instructional AI and human moderation, which has allowed the company to uniquely deliver the support administrators, educators and students are seeking. The platform has demonstrated an ability to drive positive outcomes at scale for all constituents involved in the educational process, which was a significant driver of our interest in the company."

Making a difference

In 2021, Packback surveyed 10 institutions in a multi-semester study. The research revealed three things.

First, students using Packback wrote more detailed posts and cited sources twice as often compared with students in the control group using learning management system (LMS) discussion boards. Second, students on Packback engaged with other posts more often and more consistently. Finally, students saw improved final course grades, having received more A, B and C grades, and fewer D, F and W grades than the control group.

"Packback's proven ability to help drive positive outcomes is the foundation of our investment thesis," Essex said.

Essex sees an opportunity to help Packback drive broader adoption of the technology by amplifying awareness of the product and outreach to higher education and K-12 institutions. He also sees an opportunity to develop value-added partnerships.

"In our view, we are at the front end of a transformative period in education where students and educators are looking to adopt the right AI technologies that foster personalized learning without sacrificing privacy and security," he added.

Embracing AI

AI is a noted feature of the target companies that PSG has pursued recently. Essex said 82 percent of PSG's portfolio companies are incorporating AI into their processes.

The firm has made some deals recently involving companies that, like Packback, use AI in their business. This includes AirWorks, in which the firm invested in October 2023. AirWorks is a Boston-based provider of geospatial data processing and analytics.

The firm also invested in e-commerce software company AppHub in August 2023. AppHub is based in New York and San Francisco. At the same time, AppHub made an add-on deal, acquiring AI-powered search and discovery tool Boost.

"We're continuing to partner with management teams to advise on the most valuable ways to embrace AI's capabilities in their products and operations, including in software development, customer service, predictive analytics, and business communication," Essex added.

Read the original article on PE Hub here.

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