Wednesday, April 02, 2014

Is There Money in Public Education? Yes, There Is

Do hedge funder managers and big investors like the Koch brothers and others invest just for the heck of it?  No, they want to make money and lots of it.  Public education is just that mother lode.

From Education Week:

It's already been a banner year for ed-tech startups, and we've only closed the first quarter.

Ninety-nine startups in education have raised more than $500 million, a record in the past five years, according to TechCrunch, citing statistics from its CrunchBase database of technology companies, people, and investors.

That compares to 20 companies raising more than $64 million during the same period five years ago. 

However, it's not the greatest number of companies to be funded in a given quarter. Over the past five years, that happened in the second quarter of 2013, when 120 companies raised a total of $319 million.

(There's an interactive map in the article.  In Seattle, there's a company called Actively Learn - anyone ever heard of them?)

The hot ed-tech market has prompted many to raise the question: Is a "bubble" brewing similar to the one that burst in Internet startups more than a decade ago? Matt Greenfield, the managing director of Rethink Education, a venture fund focused exclusively on early- and growth-stage education technology startups, argues that there isn't—at least for "businesses that actually make sense." For instance, Greenfield wrote that there are 42 digital textbook platforms, a number that is likely unsustainable.

From Edutopia, comes an article, "5 Tips for EdTech Entrepreneurs."   It's things like "visit schools to get a 'trial of your product' set up", "talk to teachers", "talk to students", "be open to change" and "is it cool or is it effective?"

First, parents, know that this is coming.  More and more entities not only want your students' data - they want to come to your schools and talk to anyone and everyone to get their product in the door.  Trouble is, those adults in the building are there to teach, not to field-test new products. 

Second, I hope no edtech entrepreneurs are approaching students without talking to administrators or parents. 

Third, yes, please, is your product just another app or something that will make a difference in the classroom? 

From Education Next, another article, this one called, "For Education Entrepreneurs, Innovation Yields High Returns."  

Meanwhile, few sectors are more desperate for new ideas than the $600 billion system of K–12 public education. Many intrepid entrepreneurs have waded into the waters, hoping to improve outcomes for students. And many have failed or faltered in attempting to address an institution that “alienates creative problem solvers while erecting bureaucratic barriers against those who would devise new solutions,” as Frederick Hess and Chester Finn wrote in these pages a few years back (“What Innovators Can, and Cannot, Do,” forum, Spring 2007).

You noted that figure, right? $600 Billion.  And yes, I'm sure that each and every one of these entrepreneurs have teaching and learning at heart.

The author advises creating a non-profit over a for-profit because:

Those who take the for-profit route face mistrust on the part of policymakers and many parents, and for-profit ventures have consequently been prevented from participating in federal grant programs like Investing in Innovation (i3) and barred from operating charter schools in some states.

Darn those pesky parents and elected officials.

By most accounts, however, the economics of education investing are changing. Schools are now wired and have accountability incentives to invest in technology to boost student achievement, while teachers are ready to experiment with new tools. For start-ups, hardware costs have come down and software is cheaper than ever to develop. Longtime education banker Michael Moe of GSV Capital says a higher quality of entrepreneurs is entering the space. Consequently, education technology companies raised $1.1 billion in funding from venture capitalists in 2012, more than double the amount raised the prior year and nearly 10 times as much as a decade earlier.  

The author profiles three investors:

- the data guys - Larry Berger and Jonathan Harber

They quickly found that in order to succeed in public education, they would need to be attentive to public policies that would drive demand and funding for their products. Wireless Generation employees pored over the No Child Left Behind Act (NCLB) the night it was signed, looking for potential opportunities, and found that the act’s Reading First component “created an unusual amount of liquidity centralized at the state level (about $200 million per year) that did not already have a bureaucracy trained to spend it,” as Berger has written. Wireless Generation went on to secure at least 18 state contracts, including those of New Mexico and Ohio.

One interesting statement:

“I was amazed to hear [superintendents] talk about the achievement gap,” recalls Harber. “Some would say, ‘I have no idea how many students I have, let alone what they’re achieving,’ and others would say, ‘achievement isn’t my job.’ They had a ton of data, but it was designed for compliance purposes, not achievement.”

- the School Guy, Ron Packard (he runs an online school, K12)

For-profit schools are the red-headed stepchildren of the education entrepreneurship movement, more objectionable to many than other for-profit ventures in education. It’s one thing if a profit-seeking entrepreneur wants to offer food, computers, transportation, or gym equipment, but woe to the entrepreneur who considers operating schools at a profit.

That's because those other items are commodities, not humans.

“Private involvement in public schools pushes people’s buttons. For whatever reason, it’s a sensitive topic and arouses strong feelings,” says Steven Wilson, CEO of nonprofit charter management organization Ascend Learning and former CEO of for-profit education management company Advantage Schools.

"For whatever reason?"  You mean because we are talking about children and their futures?  Maybe too much for Mr. Wilson to fathom.

It irks some stakeholder groups that the people starting for-profit schools are rarely career educators and come into education from fields like media and banking.

Like maybe they may not know what they are talking about in the industry they want to get into .  Education is NOT a business.

“K12’s aggressive student recruitment has led to dismal academic results by students and sky-high dropout rates,” activist investor Whitney Tilson noted in a presentation to other investors earlier this year, explaining why the stock is the largest “short” position (an option held with the expectation that the stock price will go down) in his portfolio, despite its strong performance to date.

"The Takeaway" the article offers:

 “A key determinant of success is the ability to hire, retain, and excite great people,” says Greenfield. Education banker Moe says the prospects for such “hybrid” teams are only improving as the entrepreneurial education ecosystem matures, with new start-ups able to hire managers who have ascended the ranks of Teach For America or KIPP, received leadership and management grooming from the Broad Center or Education Pioneers, or run even larger operations at Blackboard or Kaplan.

✔ Pull an end run around schools themselves. Technologies with the greatest wide-scale success tend to sell to individuals rather than businesses (or, heaven forbid, public agencies). While many of K12’s revenues come from states and districts today, the company’s scale came through addressing the demand among home schoolers for a strong curriculum. Even Wireless Generation and SchoolNet credit some of their success to pursuing bigger fish than schools and districts, whether that’s the state-level contracts that SchoolNet secured via Race to the Top or the development contract that the Bill & Melinda Gates Foundation awarded Wireless Generation (now Amplify) for work on its inBloom student-data framework.

Push (and pay) for policy change. Every successful education company has managed to tap a significant new revenue stream made possible by public policy. In the case of K12, which relied more than others on state-level policies, that translated into significant spending on lobbying and government relations, although Wireless Generation and SchoolNet executives also spent time testifying in front of Congress in support of various policies.

Finally, fly low—or be ready for bullets. There are a variety of successful entrepreneurial personalities out there. Several observers characterize Berger and Harber as easygoing and cooperative, which has suited them in their behind-the-scenes work building data platforms that did not thrust them into the public eye. Eventually, though, both systems reached significant enough scale to raise the hackles of privacy advocates (as with the inBloom project that Amplify is working on) and other local activists (like those who questioned whether cities should spend millions on SchoolNet systems amid budget struggles). 

Yes, ed entrepeneurs, you do "raise the hackles" of those who want to protect children and their data.  Call us crazy or dreamers or even advocates.  

As for those of us concerned about where public education dollars go, you can call us taxpaying citizens.  


mirmac1 said...

Ooowiie! They're hitching their car to the gravy train.

Anonymous said...

Let the barbarians rot outside the gates of our schools. Say, no, hell no, and not on your life, you blood-sucking vampires to any and all of the conniving, Ed Reform hucksters. They are a dime a dozen, do far more harm than good, and do nothing but find "efficiencies" that line their pockets by short-changing and diminishing the experiences of our kids.

The entire "Non-Profit" game is a scam anyways. In NY, a so-called "non-profit" charter operator pockets over $500k per year overseeing 1000 kids in her "portfolio" of schools. (Yes, that's what they call them. I kid you not.) With salaries like that for the owners, managers and operators of those "non-profits," of course there's no "profit" left over at the end of the year; they've already taken it all in the form of exhorbitant salaries.

SPS Parents: Don't be fooled by the charlatans, no matter what ostensible "gifts" they bring. It's no different than time-share or siding salesman offering a mythical !0% discount. You'll pay much more, with your kids lives and educations, if you fall for it. So don't.


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