CapEx Thinking

We’re beginning to see CapEx thinking in education. You may recall from Intro to Finance that capital expenditures are supposed produce positive cash flows (costs savings or net revenues) producing a return on investment higher than the cost of capital.
School districts aren’t well-positioned to make productivity seeking CapEx. They raise money to build schools and receive money to operate schools, but most can’t raise money to invest in productivity improvement. That’s why private capital plays an important role.
This week I attended the Berkery/Startl VC in Education Summit, a conference on Latin American public-private partnerships, and visited with an urban district cabinet, a team starting a charter, a publisher, and a virtual school operator. These conversations illustrated the important role that private equity and philanthropy play in supporting productivity improving investments in education.
Here’s six of the productivity improving CapEx entry points:

1.New schools, particularly managed charter networks in the US, provide a high-fidelity operating environment to pilot new products and services. Given financial pressure, all CMOs are considering operating efficiency strategies and are happy to talk to folks that can help them save money and improve student learning.
2.School improvement grants provide districts an opportunity to transform struggling schools.
3.Cost reduction strategies are one of the few pitches that superintendents will listen to these days and it’s likely to remain that way for two years.
4.Alternative and special education are very expensive. Districts are often frustrated with outcomes and often open to discussing opportunity for a better/cheaper approach.
5.Online learning continues to double every 2-3 years with students driving the trend. Online learning provides districts with an opportunity to increasing offerings, provide consistent quality, and reduce costs.
6.Open content and freemium business models with viral free core offerings are beginning to displace traditional sales/purchasing patterns.

These entry points, fit into the broader context of the 3×5 learning revolution

1.Tech drivers: cheap access devices, powerful application development platforms, adaptive platforms (e.g., Facebook, Amazon, iPhone);
2.Learning shifts: age cohorts to personalization, print to digital, sequential to adaptive, annual tests to instant feedback, and institutions to networks;
3.Market variables: global markets, emerging economies, social networks, fiscal crisis and stimulus spending, and digital natives.
It’s encouraging to see a growing number of investors—philanthropic and venture—interested in improving education and willing to make CapEx.

Tom Vander Ark

Tom Vander Ark is the CEO of Getting Smart. He has written or co-authored more than 50 books and papers including Getting Smart, Smart Cities, Smart Parents, Better Together, The Power of Place and Difference Making. He served as a public school superintendent and the first Executive Director of Education for the Bill & Melinda Gates Foundation.

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