Fund Raising for Education Innovation

By Alex Hernandez and Tom Vander Ark
Last Wednesday, we led a #SXSWedu conversation about funding and fund raising in education.  Yesterday we discussed the investing side of the equation.  Below we tried to quickly answer 15 questions we received at the end of the session.
How do I find 3-6 months to develop my idea?

  • There are lots of new options like Mind Trust (Indy), CityBridge Fellowship (DC), 4pt0 Schools (NOLA), and Charter School Growth Fund (national).
  • Think about what types of support you need and how much.
  • If you work for a district, ask for a partial release (teacher on special assignment) and commit to building a plan.

How do I fund my pre-k early learning startup?

How do I fund my game-based elementary curriculum?

  • It’s hard.  Games are expensive to build and it is hard to get the right balance of fun and efficacy.  Validate your idea in bite-sized chunks on low-cost, development platforms. Once the customer validation is there, you can attract bigger dollars to build out more content. Have a strategy to drive content cost down.
  • A free core product with premium options (freemium) is one way to gain traction but it’s hard to charge a lot with all the free options out there.
  • MIND Research Institute, a nonprofit with 900 math games, works hard to raise national and local donations for product development and scaling.  For profit platforms have struggled with fund raising and profitability.

I’m from the UK. Do I need to move the States to get my game-based startup funded?

  • Probably, or at least spend enough time in (and researching) Bay Area funders willing to do an international deal.
  • Mangahigh, London-based middle grade math game developer, bootstrapped the launch and build a mixed base of US and UK investors.

What about direct to consumer?

  • It’s challenging.  There are a few scaled successes with old web-based subscription models; these are not likely to be replicated.
  • The learning app explosion is a new B2C opportunity, particularly in early learning, but discoverability is key.  A good review from Common Sense can help, as can favorable reviews from mommy bloggers.
  • But, it’s great to have the opportunity to develop products by focusing 100% on students without the noise of institutional feedback that may be off the mark. Optimize product for students, optimize reporting for educators.

How do I build a new facility for my nonprofit?

  • That requires a focused local capital campaign and neither of us know anything about it.  Is there anyway to avoid building a building by focusing more on online services and/or leasing?

How to pay for citywide wifi?

  • Build a partnership with the school district, city and provider for discounted access and hundreds of hotspots.
  • Measure city council and chamber of commerce interest, but be ready to dedicate five years of advocacy for universal access.
  • Philanthropy goes in waves. Keep your antenna up for trends that intersect with your narrative around universal access. Do the work upfront so you can be opportunistic later.

How to fund an accelerated essential skills program for over-aged, under-credited students?  Related question: How to fund a blended early college high school program teaching entrepreneurship through apprenticeship?

  • There are several blended for-profit networks like AdvancePath (where I’m a director) and Nexus (Connections), and Flex (K12). There are a number of online credit recovery options like American Academy, Apex, and K12.  As a result, to raise money for a new for-profit network, it would need to be highly differentiated with a straight line to multiple locations and stable funding.
  • There are a growing number of grant sources for new blended high schools including Next Generation Learning Challenges, local funders that belong to CEE-Trust, and state initiatives like T3IF of Educate Texas.
  • Be clear on what “success” looks like.  We’re surprised that over-aged, under-credited programs do not track student achievement growth in clear, understandable ways—it depresses funding for the entire sector.

We have award winning online resources; who would pay to make them bilingual?

Would it be possible to mix for-profit angel investors and philanthropic investors in a for-profit investment?

  • It’s happening more frequently. Kellogg has been making mission related equity investments for several year.  Dell Family Foundation recently led the second round of funding for MasteryConnect. Charter School Growth Fund is an investor in Dreambox Learning (Here’s a paper I co-authored on impact investing.)
  • Foundations are also making (expenditure responsibility) grants to for-profits more frequently.
  • Need to be careful to keep the “cap” table as clean and simple as possible. Edtech companies will probably seek traditional venture capital / private equity down the road as they need bigger dollars to scale. Traditional for-profit investors don’t like complexity.

Do investors (angel, seed, venture) in the US seek ventures that only affect the US education or are they open to global innovations?

  • Most angels stick close to home. Venture investors may cast a wider net but like to be involved so they tend to geo-cluster.
  • Local context and regular contact are really important, so you won’t see many early stage investors wandering far from home without a known investment partner or a repeat entrepreneur.
  • Many US edtech companies find that 25+% of their users are from other countries. Global offers new avenues for growth without banging your head against school districts.

Do potential investors lean toward first year startups more than existing companies?

  • Angel and venture investors invest in early stage companies; private equity firms fund growth companies.
  • It’s important to match your sector, stage, and geography with potential investors.
  • Lots of seed dollars available and Series A rounds seem to be getting done. More to prove though to trigger larger B, C and D rounds.

We have a widely used curriculum alignment system that is proven to raise test scores and we need capital to grow. Any ideas?

  • If Common Core aligned, it should be fundable—as a for-profit or nonprofit–particularly if there is a business model.
  • Curricular alignment will become more important as education resources become more modularized and education “playlists” become more pervasive.

How to fund expansion of language learning centers?

  • The first step is making sure the first center has great results—tests and testimonials would help.  You could commission a ‘research lite’ results summary from a friendly research shop comparing the cost, speed, and utility of your programs to alternatives.
  • Next step is a sound business model and marketing plan that shows how quickly the next few centers will get to profitability.  Taping into certification programs may help tap into funding streams.
  • With strong results and a sound plan, a network of language learning centers may be fundable—but it probably won’t have venture potential with out an online app that could quickly reach thousands of customers.
  • Language learning was one of the few opportunities receiving venture funding before edtech’s latest resurgence.

Should I invest in an individual learning plan app for K-8?

  • Individual learning plan apps probably have more appeal for high school and college students where they have more choices/options.
  • An elementary learning plan could be linked to a competency-tracking system with an achievement recognition system (like badges) that would help guide regular parent-student-teacher conversations.
  • Goalbook uses special education as an entry point where there is a larger opportunity in the short term, knowing that every student will have a more personalized plan in the long term.

What advice can you offer about approaching foundations?

  • Do your homework. Many foundations these days have clearly stated approaches and focus areas.
  • Find a friendly way in if you can find one. Careful not to upset the gatekeepers.
  • Demonstrate competence and capacity (We get it and can get it done)
  • Expose a big ambition for impact but be measured in the first request. Set the stage for future investments if you reach early milestones.
  • Be concise. Stay focused on most important parts of your plan.
  • Many foundations really want to invest their money. Don’t make it hard for them to do so (e.g., too much complexity early on, poor founding team, etc.).
  • Don’t force an investment when the match isn’t there. It’s better to have happy investors than to talk your way into short-term money.
  • Don’t take bad money; bad money takes you off your path—it’s a distraction.  Good money accelerates your progress.

Is there a resource to find investors that fund in specialize in certain sectors?

Thanks for all the great questions!

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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