Great Q&A with Kim Smith from Investor’s Circle. I had the good fortune to work with Kim for about 7 years. She hired great people,made great investments, and incubated great charter networks. The important role of private capital in producing and scaling innovation and the improving investment conditions Kim references are the basis for Learn Capital, our learning venture fund.
Investors’ Circle is thrilled to be partnering with education incubator Starl to co-produce a venture fair at the upcoming Educaiton Innovation Forum, which will be held January 19-21st in Washington, DC (learn more here). In advance of the event, Kim Smith, educational entrepreneur, investor, and thought-leader, has agreed to share her perspective on the landscape and opportunities in edcuational investment. Kim is co-founder of Bellwether Education Partners, a non-profit organization working to improve educational outcomes for low-income students. You can learn more about Kim below.
Q. Our members are probably most familiar with you for your work at NewSchools Venture Fund. Can you give us an overview of your experience in education and particularly in educational investing?
A. I guess I’m what you would call a “serial social entrepreneur,” having helped start a number of for-profit and non-profit organizations. As the daughter of two educators I’ve always been really passionate about the need to dramatically improve public education so that it serves all children well, and I have always believed in the need to tap the best thinking and practices from across the public, private and nonprofit sectors. In 1998, while getting my MBA at Stanford, I was lucky enough to team up with two successful venture capitalists, Brook Byers and John Doerr. They had seen entrepreneurs make incredible advances in technology, medical devices, biotechnology, and energy, and in fact had been instrumental in supporting and growing those efforts. Together, we set out to figure out how to unleash that same energy in public education by seeding and supporting entrepreneurs as they created and built organizations that would carry out their vision. Since then, NewSchools has raised more than $180 million and invested in more than 40 entrepreneurial for-profit and non-profit organizations, including charter school management organizations, school turnaround providers, teacher and principal training organizations, and technology tools and services. NewSchools supports these organizations by providing both significant capital and hands-on guidance (usually including a board seat) to a portfolio of organizations and by connecting their work to larger structural change in public education through publishing, events, and policy advocacy. We have supported a numbers of terrific entrepreneurs who are building great companies, including Acelero Learning, Revolution Foods, Wireless Generation, Teachscape, and a few that are getting up and running as we speak.
Q. Can you describe the current educational investing landscape? What are you most excited about in K12 investments?
A. I’m really thrilled to see that there is real investing momentum toward K-12 education by both philanthropists and private investors, and of course by the public sector. A successful public education can put low-income students on the path out of poverty, and I think that potential to change someone’s life trajectory creates real excitement about education investments. At the same time, private investors in particular have really shied away from K-12 investment in the last few decades, scared away by its complexity, its fragmentation, its political volatility, and the way the sector so often values stability over results. It’s not an easy place to make money or to make an impact, honestly. But a few trends are starting to make that equation more palatable for investors: technology advances are bringing down the cost of doing business, forthcoming common core state standards and assessments are making it more possible and cost-effective to develop and scale new products (and overcome the historical sales channel control of the big publishers), parents (and to some extent states and districts) are really interested in technology tools that help them personalize and customize learning for students, and new teachers and administrators are looking for technology tools that improve their own productivity. It also seems like “learning” and “schooling” are finally connecting with each other as investment areas, with “good” games (that use sophisticated learning algorithms and assessment engines) making their way into schools and schools finding ways to harness students’ out-of-school interests in the ways they teach.
Combine all of that with the public conversation around “Waiting for ‘Superman,'” the US Department of Education’s recent “Race to the Top” competition and related major state reforms that finally enable a useful data infrastructure, and the mainstream media’s coverage of entrepreneurs like Wendy Kopp, Mike Feinberg, Michelle Rhee and Doug Lemov, and you have a really important moment for K-12 transformation. This moment is moving us toward a system based more on evidence, data and outcomes,and less on ideology that shifts with the political winds; this shift should create a really different investment context than we have seen before in K-12 education. The challenge for investors (and policymakers) is to take this promising moment and use it to develop a strong marketplace and ecosystem with real incentives and rewards for innovation.
Q. What industry trends are you seeing right now?
A. To the points above, I’d add two others. One is the increased investment activity by traditional venture capitalists and private equity investors in online learning, with hundreds of millions of dollars going into the sector in the last year (check out the recent report by Michael Moe of neXtup at http://www.nextupresearch.com/Site/Archives_files/neXtup%2012.5.10.pdf). The online space is ripe for innovation in my opinion because the first wave of players who primarily only provided convenience are now being challenged to show they can also provide a better learning experience and real outcomes, and this makes room for new players who innovate better on the process and tools of online learning. Another is how economic pressure has made it possible — and in fact necessary — for public school systems to finally begin to rethink changes to their major cost centers, like labor/staffing models, that were heretofore untouchable. This will also create new opportunities for innovation.
Q. What do you believe is the role/opportunity for public-private partnerships in educational investing?
A. I really believe that every sector has its strengths, and that creating real and sustainable change in education requires us to glean the best of all of them — the attention to equity and purpose that the public sector brings, the deep passion for human progress and a willingness to subsidize important users or needs that won’t get met by the market that the nonprofit and philanthropic sector brings, and the sharp focus on innovation to improve productivity (better results for equal or less money) and the attention to scale that the private sector brings. I think what we really need to do is find ways of bringing those strengths together and playing them off one another to create a culture of continuous improvement and innovation in education. Things have changed (and will continue to change) quickly, so our old models no longer work. To get there, I think the public sector can keep stepping up to provide clarity on goals/outcomes for public education (not to mention metrics for assessing progress), the private sector should keep doubling down on technology tools that enhance productivity and personalize learning, and the nonprofit sector (especially foundations) need to focus more of their flexible capital and endowment capital on high-risk opportunities that require more nimbleness than the public sector can handle and more risk or subsidy than the private sector is ready for.
Q. What are the most exciting opportunities for investors right now? What advice would you give to investors who are interested in investing in the education space for the first time?
A. Three investment opportunities I’d recommend taking a closer look at are teacher education, technology-based productivity tools, and a radically better approach to assessments that gets beyond Carnegie units into real mastery-based systems. First, teacher education is a huge but fundamentally broken system and is beginning to face real policy pressure to reorient itself around performance metrics. This is the time to develop better approaches to that structure and get ready to take advantage of that policy shift. On technology, along the lines of what’s above, I think there’s a great opportunity for investors to help build useful, usable tools that can replace the outdated legacy systems in schools – systems that can’t talk to each other and can’t answer any of the questions the new policy world is asking (how effective is the money we spend, how effective are our people, how efficient are we running?). And finally, the new common core standards put content and especially assessment back on the list for potential investments, and I hope that someone makes a bold move to truly transform assessments into a mastery-based system that is easy to use and Web-enabled in a way that allows educators to get beyond old notions of schooling and Carnegie units.
As for the humble advice: First, remember you’re not the first one here. Learn from what others – educators, entrepreneurs, other investors – have done, whenever you can. Not only that, listen closely and carefully to what education’s stakeholders — parents, students, educators — want and need, and focus all your energy on creating better long-term outcomes for kids. It really is possible to build great companies and get good returns and change lives and communities at the same time. How great is that? Also, create incentives for quality by rewarding organizations and people that improve results for those kids, especially low-income and minority students who won’t otherwise get a leg up; put some real capital toward helping them measure results with real, robust and useful assessments; and either change or discontinue programs and policies that just don’t work. At the same time, be patient. Progress in education longer than in other industries. Education is a huge market with great potential for return, but it isn’t a great market for investors looking for businesses that are built to flip.
Kim Smith is co-founder and CEO of Bellwether Education Partners, a non-profit organization working to improve educational outcomes for low-income students. She is widely recognized as an innovative and entrepreneurial leader in education, and was featured in Newsweek’s report on the “Women of the 21st Century” as “the kind of woman who will shape America’s new century.” After serving as a founding team member at Teach For America, she went on to found and lead an AmeriCorps program for community-based leaders in education as well as a business start-up and worked in marketing for online learning. After completing her M.B.A. at Stanford University, she co-founded and led NewSchools Venture Fund, a venture philanthropy firm focused on transforming public education, where she helped to create a new, bipartisan, cross-sector community of entrepreneurial change agents.
Ms. Smith has helped to incubate numerous education and social change organizations and has served on a range of boards, which currently include those of Bellwether, NewSchools, Rocketship Education, ROADS Charter School, and ImpactAssets. She has authored a number of publications about the entrepreneurial education landscape, including “What Is Educational Entrepreneurship?” in Education Entrepreneurship: Realities, Challenges, Possibilities, “Social Purpose Capital Markets in K–12” in The Future of Educational Entrepreneurship: Possibilities for School Reform, “Creating Responsive Supply in Education” in More Than Just Schools: Rethinking the Demand for Educational Entrepreneurship and “Innovation in Education: Problems and Opportunities.” She is based in the San Francisco Bay Area, where she lives with her husband and two daughters.