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Investors go back to school: Venture capital votes yes on charter schools

New Schools Venture Fund seeks investors to look for gains in education

A venture capital firm not looking for a profit? Have the gods gone crazy? The New Schools Venture Fund, headed by Kim Smith, is a not-for-profit fund investing solely in early-stage K-12 profit and not-for-profit companies. The profits of these startups, which would normally go into the pockets of the investors or partners, are directed back into the fund for use in future ventures.

In order to be considered, companies must address the needs of students, parents and educators not already met by the present system. After passing this valuation, “we go into the more traditional [procedure] of evaluating the business model, and whether or not the team is able to execute the plan,” Smith says.
New Schools has received $20 million in investments from individuals such as Jim Barksdale,CEO of Netscape; Brook Byers, John and Ann Doerr and Dave and Lisa Whorton, all part of VC firm Kleiner Perkins Caufield & Byers; and Scott Cook, founder and CEO of Intuit (INTU), among others.

New Schools says it hopes to draw more attention through its investments — five to date — to not-for-profit funds in the education marketplace.

GreatSchools.net is an example of one of these investments. A not-for-profit company founded in September 1998, GreatSchools aims to be the third-party source through which parents can access information that will help them analyze different educational options and consequently choose the one that best fits the needs of their children. The company’s website provides a profile of all K-12 schools in Arizona and California. Information about enrollment, test scores, teacher qualifications, student demographics and financial figures is provided by the Department of Education. Other supporters of GreatSchools.net include the Pisces Foundation, the Stuart Foundation and the William and Flora Hewlett Foundation.

New Schools also invested in University Public Schools, which Don Shalvey, the former superintendent of the San Carlos, Calif., school district, co-founded with Silicon Valley entrepreneur Reed Hastings in January 1999. University Public Schools strives to add choice to the K-12 school system by developing a statewide network of not-for-profit charter schools. Its strategy involves focusing on building brand name in order to take advantage of the economic scale, much in the same way as a for-profit venture.

Smith recognizes that the success of New Schools’ investments is significant for the future of the fund, but says it must leverage this with the need to take a few risky investments in order to lead the way for traditional venture capital firms weary of an untested educational market.