Investing in Education

Nov 3, 2015 3:30:00 PM Jessica Beidelman Education Trends

As public school systems seek an auspicious goal - high-quality education for all children - they are increasingly turning to the private sector and nonprofit organizations to provide innovations in education. Private-public partnerships in education have been studied extensively by a number of reputable sources, most notably the World Bank. Private Public Partnerships (PPPs) can increase efficiency and choice and expand access to education services, particularly for households that tend to be poorly served by traditional schools (Patrinos, 2009). 

Due to the stagnation of aid and global conflicts, the international funding gap in education has increased to an estimated $26 billion. Some industry experts see impact investing as an to opportunity to augment this financial deficit and spur growth and innovation for social good - while making a profit. Impact investments are defined as "investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return" (GIIN).

According to McKinsey, U.S. education is a $1.5 trillion industry, growing at an estimated 5 percent annually. The number of annual private-equity deals has more than doubled, from 30 between 2007-2010 to about 70 between 2012-2014. Venture-capital investments in education hit a record high in 2014 of $1.87 billion. Impact investors have the potential to proivde startup, nonprofit and government entities with the required capital to advance education entrepreneurship. 

The innovations that will revolutionize education at scale will need to be supplemented by ample investment, a prime opportunity for investors. Companies like NewSchools Venture Fund, Rethink Education and Learn Capital are revolutionizing how we view the interplay between business and education, raising capital from prominent investors (including the Bill and Melinda Gates Foundation) and then investing those funds to support education entrepreneurs who are truly transforming public education. Investment portfolios of these venture capital organizations include: The Achievement Network, Aspire Public Schools, ClassDojo, Families For Excellent Schools, KIPP, MATCH Teacher Residency, Relay Graduate School of Education, Teach For America, Smarterer, NoRedInk and more. 

Where is the solution to the education crisis? Revolutions in public administration, charter school organizations and new private school models (including AltSchool, among others) provide an opportunity for innovations in education, and coupled with genuine, community-led engagement, can spur the growth required to prepare students for success in the 21st century. 

 

Sources

Patrinos, H., Barrera-Osorio, F., Guaqueta, J. (2009). The Role and Impact of Public-Private Partnerships in Education. The World Bank.

Bryant, J., Sarakatsannis, J. (2015). Why US education is ready for investment. McKinsey and Company, Insights. 

Greenfield, Matt and Vander Ark, Tom. (2014). Boosting Impact: Why Foundations Should Invest in Education Venture Funds. Getting Smart.