philanthropy’s essential role in k-12 edtech and strategies for impact

October 2014

Philanthropy's Essential role in K-12 Edtech & Strategies for Impact

Technology is

Technology is enabling the

shift from one-size-fits-all to individualized instruction

Sources: http://gettingsmart.com/wp-content/uploads/2012/12/Digital-Learning-Deeper-Learning-Full-White-Paper.pdf and BrightBytes Survey

Technology helps teachers do more by creating

new learning environments that leverage teacher talent

of teachers agree that technology use in the classroom can enhance student learning

Majority of Edtech Funding is from Traditional Investors, but gaps exist

Private capital accounts for of K-12 edtech funding. It is concentrated at the early stages.

Funding gaps exist at the later stages, within specialized markets, and for school solutions.

Source: h"p://www.newschools.org/blog/closer-‐look-‐2013

Philanthropic capital is needed to realize the full potential of edtech

With their focus on impact and long view of

the market, foundations are uniquely positioned to fill edtech funding gaps.

Traditional investors are unlikely to provide

sufficient funding for high quality tools for Special needs and underserved students.

Executive Summary

•  Limited expertise in for-profit investing •  Belief that VCs are better equipped

•  Preference to fund non-profit orgs. •  Restrictions and challenges with

investing vehicles

•  Lack of alignment with mission/strategy

•  Invest through intermediaries •  Target underfunded areas

•  Conduct RFPs/Challenges •  Fund research and efficacy studies

•  Develop an accelerator partnership •  Fund districts for specific edtech usage

How can Foundations increase Their Support of K-12 edtech ?

AGENDA Funding landscape of foundations and K-12 edtech since 2013

Barriers to foundations funding edtech

Next Steps for foundations interested in edtech

Potential Solutions to address edtech funding barriers

1. Funding Landscape

51% of investments are in Non-profits

80% of invested dollars are in the form of grants

Majority of Foundation edtech funding has been to Non-Profits and in the form of grants

Source: Publicly available data from grants databases of various foundations: http://bit.ly/1s2hsD1 Note: Does not include LP positions in for-profit edtech funds


$5M

$8M

$21M

$4M

$4M

$1M

$0.5 M $6M

Largest category of Foundation edtech funding is School Operations

Source: Publicly available data from grants databases of various foundations: http://bit.ly/1s2hsD1 Note: Intermediary category does not include LP positions in for-profit edtech funds Categories based on EdSurge Index- https://www.edsurge.com/products/

Curriculum Products

Teacher Needs

School Operations

Sites and Resources

Resource Discovery, Curation & Lesson Planning

Games

College and Career

Intermediary

Foundations Have Varying levels of interest and activity in funding K-12 edtech

Trailblazers

Enthusiasts

Up-And-Comers

Thinkers

No Interest**

My foundation is an active investor in K-12 edtech and it’s part of our

strategy 4+

2-3

1-2

0

0

I am interested in K-12 edtech and am finding ways to align it with my

foundation’s overall strategy

My foundation has made a few one-off investments in K-12 edtech, but it

is not core to our strategy

I have heard that other foundations invest in K-12 edtech, but I do not

know where to start

I am interested in supporting education, but not K-12 edtech


*Since 2013 **Foundations with “No interest” were not included in this research

Grant Request for

Proposal

Mission Related

Investment

Program Related

Investment Research/

Efficacy Study

Limited Partner

Investment

Bill and Melinda Gates Foundation � � � � � � Michael and Susan Dell Foundation � � ECMC Foundation � � �

Joyce Foundation � � W.K. Kellogg Foundation � � �


Trailblazers & Enthusiasts have Funded edtech through a variety of channels

2. Barriers

We asked Foundations what prevents them from funding edtech and this is what we

heard…

Limited expertise in for-profit investing

Foundations want scalable and sustainable solutions [in edtech], but have

a lack of knowledge on how to do it.

2. Barriers

Belief that traditional investors are better equipped

2. Barriers

VCs start out with much more money dedicated to this area, so it doesn’t make sense for foundations to give small

amounts and ask companies to pitch them.

What impact can a foundation have on such a large market with relatively small

philanthropic investments?

Preference to fund non-profit organizations

Markets direct for-profit edtech companies away from their focus on impact.

Foundations don’t want to be perceived as making returns off of schools/teachers/

students.

2. Barriers

Restrictions And Challenges with investing vehicles

A PRI IS a hassle and requires that a foundation bring in lawyers.

Studies show that organizations are more successful when they receive general operating

support, but grants are restricted for a particular purpose.

2. Barriers

Lack of mission & Strategy Alignment

Many edtech investments help the education sector at-large, but

few investments are targeted at a foundation’s

specific region and/or populations.

2. Barriers

3. solutions

Investing through intermediaries allows foundations to learn how to invest in edtech

1- Nellie Mae is an LP in Rethink Education 2- ECMC is an LP in New Markets Venture Partners and Rethink Education 3- MSDF, Gates Foundation, Sobrato Family Foundation, and J.A. and Kathryn Albertson Foundation have funded the NewSchools Seed Fund

Can leverage existing expertise

Can “sit at the table” and learn the investing process

Not building in-house capacity

Investments not as tightly aligned to strategy and metrics

3. solutions

Targeting underfunded areas addresses needs unlikely to be met by traditional investors

1- Michael and Susan Dell Foundation gave a grant to Ellevation to adapt their English Language Learner product for Texas standards/regulatory processes

2- Stuart Foundation gave a grant to Goalbook to improve the educational opportunities for students in foster care

Less overlap with VCs as special populations written off as too niche Opportunity to focus edtech on specific populations and go deeper Can signal market opportunities

Overcapitalization early on could lead to unsustainable business models

3. solutions

Conducting RFPs/challenges is a great way to Identify and select Mission Aligned solutions

1- Gates Foundation launched the Literacy Courseware Challenge for the creation and development of web-based literacy courseware

2- Robin Hood Foundation launched the College Success Challenge to fund the development of solutions to address remedial graduation rates

Defined goal of intended impact

Selection of best solutions

Surface unknown opportunities

Limited only to applicants Could force early stage startups to expend all resources on the challenge Requires expertise in crafting challenges and capacity to run them

3. solutions

Funding Research and efficacy studies provides objective metrics and benefits the entire sector

Noyce Foundation funded a controlled experiment to determine if Motion Math improves a child’s fractions knowledge and attitudes

Studies benefit entire field

Can align study to mission and strategy

Unintended results from study

Requires different methods like Developmental Evaluation

May not have applicability/scalability to other regions or populations

3. solutions

Developing Accelerator partnerships leverages expertise and builds edtech network

1- Zynga.org partnered with NewSchools to launch Co.lab, an accelerator for startups using the power of games to transform education

2- Foundations have supported edtech accelerators like Imagine K-12, LearnLaunchX, 4.0 Schools and Kaplan TechStars

Selection of best applicants

Partners typically complementary

Risk of brand image with partnership

Cost of physical space/resources

Needs to be targeted or may not provide enough value to startups

3. solutions

Funding districts for specific edtech usage allows for targeted impact in A region

J.A. and Kathryn Albertson Foundation funded a statewide pilot of Khan Academy in Idaho

Can fund a targeted region or district of interest

Can influence districts to improve procurement processes

More tangible student outcomes

Only expands existing edtech vs. driving new innovation Can distort demand and alter edtech product design May not be sustainable since funding has to be renewed

4. Next Steps

Foundations at all interest levels can take steps to accelerate edtech innovation 1 - Identify barriers specific to your foundation and determine solutions which are most suitable given your mission and capacity

2 - Build knowledge of impact investing vehicles: PRI, MRI, Expenditure Responsibility http://www.forbes.com/sites/ashoka/2013/02/21/why-program-related-investments-are-not-risky-business/ http://www.nafoa.org/pdf/Mission-Related-Investing.pdf http://www.irs.gov/Charities-&-Non-Profits/Private-Foundations/Grants-by-Private-Foundations:-Expenditure-Responsibility

3 - Work with other funders to develop investment frameworks for broader publication/implementation: Mission Investors Exchange- https://www.missioninvestors.org/

4 - Stay on top of trends in edtech: https://www.edsurge.com/ http://www.edtechmagazine.com/k12/article/2013/06/2013-honor-roll-edtechs-must-read-k-12-it-blogs http://patricklowenthal.com/2013/11/educational-technology-related-education-conferences/

5 - SIGN UP to learn more and connect with foundations interested in funding edtech: https://docs.google.com/forms/d/1481dz_5DsJM0aaZISqW8ceAHXhVx4vqYOnVfNqd6HNE/viewform?usp=send_form

Recent Articles How Foundations Can Engage the Startup Community to Accelerate Impact- https://www.facebook.com/1776dc/posts/343575895796196

Boosting Impact: Why Foundations Should Invest in Education Venture Funds- http://cdno.gettingsmart.com/wp-content/uploads/2014/03/Boosting-Impact-Final.pdf

A Tale of Different Deals: Diving into Early Stage Edtech Investments- https://www.edsurge.com/n/2014-05-05-a-tale-of-different-deals-diving-into-early-stage-edtech-investments

The Re-Emerging Art of Funding Innovation- http://www.ssireview.org/articles/entry/the_re_emerging_art_of_funding_innovation

4. Next Steps

Thank you to the following leaders who took the time to make this research possible

Bill & Melinda Gates Foundation: Kai Kung, Stacey Childress

Michael & Susan Dell Foundation: Micah Sagebiel

The Joyce Foundation: Matt Muench

Nellie Mae Education Foundation: Nick Donahue

ECMC Foundation: Josh Susser

V3 Consulting: Victor Vuchic

Appendix Foundation Snapshots

New Venture Fund $12.6M grant

Pacific Charter School

Development $4M grant

Summit Public Schools $500k grant

Appendix

The Gates Foundation has led the field in approaches to edtech funding Interview Insights: RFPs are an investment vehicle for the impact that a foundation wants to see and create.

PRIs and MRIs are often misunderstood in the foundation field.

BloomBoard $3M PRI

BrightBytes $330k RFP grant

LearnZillion $1.7M grant

Urban Teacher Center $1M grant

Philadelphia School Partnership $4.5M grant

Digital Promise $300k grant

Appendix

MSDF has made several edtech grants and made its first PRI in 2011

Interview Insights: One area of focus is on promising Series A companies that might use a PRI to attract traditional investors. MSDF seeks opportunities to serve as a market signal for quality of potential student outcomes and strong business opportunity. As MSDF launched its U.S. PRI use in 2011, it decided not to build out a dedicated PRI team, but to integrate the practice into existing program officers’ tool kit.

NewSchools Venture Seed Fund $3M grant

Schoolzilla $250k grant

Mastery Connect $1.5M Series A- PRI $1M Series A1- PRI

California Student Aid Commission $98M grant

Appendix

ECMC has made edtech investments through the endowment to support its mission and generate return

Interview Insights: Intermediaries are a good way to invest endowment dollars.

PRIs can be used to invest at earlier stages (seed) and MRIs used for later stages.

Rethink Education LP position

New Markets Venture Partners LP position

Quad Learning Series B

WestEd $1.2M grant

Advance Illinois $1M grant

Appendix

The Joyce Foundation has funded a few edtech companies and is developing an overall strategy

Interview Insights: It’s unclear whether PRIs can be an efficient investment vehicle if you’re not building a full portfolio.

Absent an approach to direct investing in companies providing products/services, supporting the ecosystem through funding research and infrastructure organizations (like Digital Promise) can have broad impact.

Intermediaries and traditional investors are better equipped to do diligence than building that capacity in-house.

EdSurge $165k research grant

SRI $1.1M efficacy study

Department of Education $230k grant

Appendix

Nellie Mae Education Foundation’s Approach is to invest as an LP in education venture funds

Interview Insights: When investing as an LP in an education fund, there may be more risk on profit, but there is better alignment with the foundation’s mission.

Rethink Education LP Position