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NewSchools Fund Attracts More Capital

NewSchools Venture Fund, a nonprofit that started out channeling philanthropic donations to charter schools and that now invests in a range of education groups and businesses, is entering into a partnership with a new venture capital fund that could result in millions more in financing.

At a time when venture capital interest in education technology companies is growing rapidly, Rethink Education Fund, founded last year to focus on education start-ups, has agreed to give part of its profits to NewSchools, based in Oakland, Calif., so the fund can invest the money in various projects.

NewSchools is well known for its financing of charter management organizations, including Aspire Public Schools, KIPP and Rocketship Education, as well as groups like the New Teacher Project, which recruits midcareer professionals into teaching, and Khan Academy, which creates online video lessons.

The fund, which has invested about $260 million over 15 years, receives financing from high-profile education donors like the Broad Foundation, the Bill & Melinda Gates Foundation and the Walton Foundation. On its board are Silicon Valley leaders including John Doerr, partner in the venture capital firm Kleiner Perkins Caulfield & Byers, and Dave Goldberg, chief executive of Survey Monkey (and husband of Sheryl Sandberg, Facebook’s chief operating officer).

In linking with Rethink Education, founded by Richard Segal, a prominent fund-raiser for President Obama and chief executive of Seavest Investment Group, and Matt Greenfield, an angel investor in education technology companies, NewSchools hopes to generate further financing for its projects. Rethink has committed to giving an undisclosed portion of the profits it generates on its investments to NewSchools.

“There may not be a need for another venture firm to fund e-commerce businesses that sell high-fashion clothing,” Mr. Greenfield said. “But in education there is a real shortage of capital for the things we think matters.” Rethink has raised $40 million and invested in nine companies.

Interest in education investments has exploded recently. According to the MoneyTree Report, an analysis of Thomson Reuters data by PriceWaterhouse Coopers and the National Venture Capital Alliance, venture capital investment in education businesses has grown 80 percent since 2005 to more than $632 million last year.

NewSchools has itself begun investing in for-profit ventures, including Engrade, which develops online grading programs for teachers, and Grockit, a social media test-preparation business.

Critics worry that businesses have motives other than the best interests of students. “I don’t think the public is paying taxes for education on the assumption that investors are going to make money,” said Diane Ravitch, the education historian and co-founder of the Network for Public Education, which advocates against high-stakes testing, charter schools and tenure changes.

Ted Mitchell, chief executive of NewSchools, said there was a role for companies in public education. “We are attempting to direct philanthropic dollars at innovations that are going to do the most for poor kids and for the system as a whole,” he said. “We believe for-profit entities have just as much capacity to do that as not-for-profits, and they ought to take a run at it.”