In a paper released today, Matt Greenfield, Managing Partner at Rethink Education, and I argue that foundations should invest in for-profit companies and education venture funds to increase their impact. Specifically, we recommend:
Investing a portion of the endowment in impact-oriented, dedicated education venture funds seeking market rate returns often called mission-related investments (MRIs); and
Investing a portion of annual distributions to accelerate the growth of individual companies through expenditure responsibility grants or program-related investments (PRIs) with clear charitable intent and potentially mitigated return expectations.
The premise may sound self-serving for partners in two of the small handful of dedicated education funds, but our intent is to accelerate and scale innovative products and services–key to creating next-generation learning opportunities for students worldwide.
We’ve both had the good fortune to be part of the explosion of investment and innovation in learning technology in the last five years. The groundwork was laid by philanthropic investment in school networks and talent development initiatives in the previous decade.
In Boosting Impact we argue that for-profit companies have big but different impact potential compared to nonprofits–it may take a different path to impact but can be far more scalable.
We are pleased to see foundations begin to make fund investments–In 2013, the Kellogg, Lumina, Nellie Mae and Prudential foundations invested in Rethink Education, an education venture fund. Foundations have also invested in Learn Capital companies including Bloomboard, MasteryConnect and made grants to BrightBytes and LearnZillion.
Impact investors—particularly high net worth individuals, family offices and foundations committed to education—have an essential role to play in advancing education entrepreneurship. The necessary innovation will not come solely from the non-profit or government sectors.
Riffing on an earlier impact paper, Boosting Impact concludes with five recommendations:
Embrace entrepreneurship. New tools and models often reframe old debates and intractable problems. Impact investing may yield significant public benefit, though it may be different in time and place than grantmaking. Don’t apply philanthropic guidelines to mission-related investments.
For direct investment, hire experienced professionals and plan on a mix of failure (maybe a third will require significant follow on) and success with some significant follow-on investing (maybe a third will fail).
Encourage links between program and investing staff. Create incentive systems that encourage collaboration.
Support R&D, including basic research in learning sciences, support prizes and pull mechanisms to build smart demand, and support advocacy that promotes a vision of personalized learning for students and teachers.
Invest in education venture funds with experienced managers and a commitment to impact. Support associations of innovators and investors.
Compared to limiting themselves to an agenda of non-profit investments, foundations can dramatically boost impact by investing in return seeking vehicles and dedicated education funds with experienced impact-focused managers.
Bloomboard, MasteryConnect, BrightBytes and LearnZillion are Learn Capital portfolio companies where Tom is a partner.