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Paying the Price

When it’s sweltering in Silicon Valley, no breeze blows in East Palo Alto. But there’s not even a murmur of complaint under the noontime sun at Eastside College Preparatory School, where eight graduating seniors make their way across the luxuriant lawn to an open stage. Parents, siblings, teachers and friends, clustered in folding chairs under canvas umbrellas, give a sustained ovation. It rolls on and on, an offering to the little miracle unfolding here.

Just four years ago, this private school was hardly more than a dream, a migrant band of teachers and students using tattered textbooks and squatting in borrowed space in the town’s Whiskey Gulch, a troubled section in an economically prostrate community. Ever since Ravenswood High School was shut down as part of a desegregation plan in 1976, high school students in East Palo Alto had been bused out of their neighborhood to schools where their dropout rate ran as high as 65 percent.

For 70 students at Eastside today, the future looks far brighter. Founders Chris Bischof and Helen Kim, both Stanford University graduates, have taken a small vacant lot and turned it into a full-fledged private school for kids in grades six to 12. There are modular classrooms, a new gymnasium, devoted faculty, supportive parents and impressive academic results. The eight graduates in the pioneer class, a dignified line of gangly African-American teenagers clad in heavy burgundy robes and mortarboards, have all been accepted to four-year colleges.

At the core of Eastside is a simple principle: press students to achieve and then help them attain their ambitions. Students are required to take four years of math, science, English, history and foreign language. School runs from 8 a.m. to 5 p.m. every weekday, and many nights and weekends students and teachers stick around until 10 p.m. to power through their work. “We do it to show the kids that we take their education seriously,” says Bischof.

Kiazi Malonga, a talented graduating senior with a large, expressive face and hair twined in neat cornrows, says his teachers nurtured his interests in engineering and computer science. “They just wouldn’t let you fall through the cracks,” says Malonga, who himself begins life as a Stanford student this fall. By contrast, he says, plenty of his friends from the neighborhood “aren’t going to college – some aren’t working, some are in jail.”

The early results from Eastside suggest that gaps in academic achievement, gaps rooted in ethnicity and class, can be bridged. But Eastside serves as another kind of model as well – a real-world reminder that bridging these gaps requires more than a quick fix.

Much of the credit for Eastside’s success goes to the determination of its founders, teachers and students. But the school also benefits from its location at the epicenter of the new economy. Since 1996 Bischof and Kim have raised $2 million to run the school – and more than $4 million for an endowment. Contributors include corporations such as Intuit (INTU) and Hewlett-Packard (HWP) as well as venture capitalists Gib Myers (the Mayfield Fund), Bruce Dunlevie (Benchmark Capital), and Jim Anderson and Bill Elmore (Foundation Capital).

Some high-tech donors are giving their time as well. Nancy Anderson served as general manager of HP’s computer systems division and as CEO of Trade Inc., a Web-based startup. Two years ago, she decided that business “just didn’t light my fire anymore.” After 30 years in the industry, she began working full-time as an unpaid volunteer at Eastside – teaching a photography course, managing the yearbook, launching the newspaper. “I was looking for something interesting to work on where I thought I could make a real difference,” Anderson says. “I considered doing something in the Palo Alto public schools, where my son was enrolled, but in a way that seemed like it would be giving back to the rich.” Anderson also has made substantial annual contributions and, like Dunlevie, Anderson and Elmore, sits on the school’s board.

Bischof is grateful for this support. But he also confesses, at the end of a long interview, that he’s worried about raising enough funds to keep the school on its upward arc. If he proceeds with plans to double the size of the student body over the next few years, Eastside’s annual budget of $850,000 will climb well above $1 million. Bischof is a reluctant complainer, quick to blame himself for any difficulty – “Maybe we haven’t gotten the word out well enough,” he says quietly – but, when pressed, he finally admits: “We’ve not had much luck in reaching the dot-com world” for serious financial support.

The admission is surprising, especially given the emergence of a new trend in giving, what’s been dubbed “venture philanthropy.” Venture philanthropists apply the standards of business and entrepreneurship when evaluating charitable contributions. Given that advocates of venture philanthropy tend to be the same folks who insist that K-12 education is their top priority, you might expect overwhelming support for Eastside – and for scores of other experiments like it.
The discomfiting truth, though, is that this famously risk-hungry bunch has shown only modest interest in confronting the challenge of failing schools. Surveys show that those who’ve earned their wealth in new-economy industries provide just a small fraction of the roughly $22 billion donated annually to educational programs in this country. And even $22 billion won’t go very far toward building a reform movement for a national education system that costs taxpayers $340 billion a year.

High-tech executives began sounding a steady alarm about the deteriorating state of public education in the early 1990s. Much of the initial response focused on technology. The nonprofit Smart Valley, under the leadership of Network Associates (NETA) founder Harry Saal, connected 500 K-12 schools to the Internet. Cisco Systems (CSCO) and other large companies stepped forward with donations of computers, software, Internet wiring and training in computer skills – in Silicon Valley and around the globe.

But members of the high-tech elite soon realized that computer giveaways and training programs could not solve the problems of poorly performing schools. Led by Hewlett-Packard, a few dozen corporations (including Adobe, Apple, Novell (NOVL) and Sun Microsystems (SUNW) ) created Challenge 2000, an initiative under the umbrella of a nonprofit called Joint Venture Silicon Valley. In the last four years, Challenge 2000 has granted $13.3 million to public schools in California’s San Mateo and Santa Clara counties.

Support from dot-com entrepreneurs for such efforts has been spotty, though. When approached to make contributions for K-12 programs, the newly rich express dueling, even self-canceling inclinations. Digital donors “want to give more to education, because education is prevention,” explains Peter Hero, president of the Community Foundation Silicon Valley in San Jose, a nonprofit with assets of $400 million that gave away $35 million in grants last year.

At the same time, many entrepreneurs are wary of becoming involved. “People are afraid of the K-12 space because they hate the bureaucracy. That’s enemy No. 1,” says Kim Smith, who has been working on business-education partnerships since 1989. “One donor said to me: ‘I don’t want to throw a bucket of water in the river.’”

Not that the newly wealthy have been tumbling out of the gate when it comes to philanthropy of any kind, as Paulina Borsook points out in her recent book, Cyberselfish. “High tech is so much more inclined toward offering expertise (propagandizing new converts) than coughing up cash,” she writes. A survey a few years ago on behalf of Community Foundation Silicon Valley found that one-third of the executives making more than $100,000 per year were donating $1,000 or less to charity.

Of course, there have been some big donations in education, but these megagrants often go to higher education, usually the alma maters of the high-tech wealthy. Jim Clark, founder of Silicon Graphics (SGI) , Netscape, Healtheon and MyCFO, recently gave $150 million to Stanford University for a biomedical engineering center. Kenan Sahin, who founded Kenan Systems in 1982 with $1,000 and sold it last year to Lucent Technologies (LU) for $1.5 billion, handed over an unrestricted gift of $100 million to MIT. In the K-12 world, Jim Barksdale made headlines when he ponied up $100 million to improve reading in Mississippi, and industrialist Walter Annenberg over the past five years has forked over half a billion dollars to fund what he calls “challenge grants” for innovative work in public education in nine cities.

When digital donors do give to K-12 education, they like to judge programs on familiar business terms. They want results, fast. They want to know how the results can be leveraged. Are the suggested projects scalable? (Translation: Can they be expanded at hyperspeed?) These are often foreign considerations for teachers and administrators beset by the drama of a real school day, struggling with the quirks and constraints that define life in the classroom.

Therein lies an important gap – between venture philanthropists and the educators they’d like to help. “The business people are saying, ‘Results, results, results.’ They tend to think that if it matters, it can be measured,” explains Smith. “The educators are saying, ‘Kids, relationships, cognitive and emotional development.’”

Schools welcome the interest of the new wealthy, but some experts warn that the values of venture philanthropy – speed and scalability – could undercut programs that have proven effective. “Education is a child-by-child game,” says Mike Kirst, a professor of education at Stanford who specializes in K-12 programs. A good education, he says, has to be personalized: “The more pressure there is in education reform to take things to scale quickly, the greater the danger that this important quality can get lost.”

When John Doerr and Brook Byers, venture capitalists with Kleiner Perkins Caufield & Byers, launched the New Schools Venture Fund two years ago, they swiftly attracted fellow members of the techno-elite. Jim and Sally Barksdale from Netscape signed on, as did John and Elaine Chambers from Cisco, Steven Merrill from Benchmark Capital, Jim and Nancy Clark from Helix, Ann Bowers from the Noyce Foundation and Reed Hastings from NetFlix.com. They proposed in a mission statement to invest in “10 to 20 of the most promising, scalable education ventures in the country.”

The $20 million fund serves primarily as a kind of “bilingual translator” between education entrepreneurs and new-economy philanthropists, says Kim Smith, who is NSVF’s founding president. “We’re trying a hybrid, the best of both worlds. … There’s the head and the heart. Business people are better at the head, and educators are better at the heart.”

Working from donated cubicle space in the ExciteAtHome offices in Redwood City, Smith and her small staff evaluate scores of projects each quarter according to strict entrepreneurial standards. In 1998 GreatSchools.com received the first grant, $200,000, to expand a nonprofit Web operation that provides comparative information and analysis to parents of public school children in California and Arizona. One million dollars in seed money went to a network of charter schools founded by Don Shalvey, formerly superintendent of schools in San Carlos, Calif.; another $1 million to Learn Now, a for-profit management company in New York that plans to open charter schools for inner-city kids; $500,000 to Carnegie Learning, which markets a system for teaching algebra without textbooks; and a $1 million loan to Success for All, a Baltimore-based “early intervention” program that serves at-risk youngsters in elementary schools across the country.

These projects emphasize school choice and core subjects like math and science. And they’re all scalable, says Smith. Determining how fast and how much to expand a project is no simple calculation, though. Especially bedeviling is figuring out how to judge success. These considerations – scaling and benchmarks – are subjects of considerable agitation among donors to the fund, Smith acknowledges. Dot-com investors are accustomed to hard data and speedy cycles of return. Says Smith: “They think about short-term results; that’s something we’re still working through.”

Nobody is doing what we’re doing,” says Gib Myers, chairman of the Mayfield Fund, which, like Kleiner Perkins, is a VC firm based in Menlo Park, Calif. He leans across a glistening conference table in an elegant suite of offices just off Interstate 280 at Sand Hill Road. The windows offer sweeping views of Jasper Ridge Biological Preserve. “Everybody else seems to be program-oriented. Our view is that there are plenty of products in the world. We have to find more good people to use the products well.”

It’s been nearly three years since Myers created the Entrepreneurs Foundation. The mission: to support the leadership of existing nonprofit organizations “in much the way you do in the venture world.” From the beginning, Myers and the staff of the foundation confronted intertwined problems: The new wealthy are busy, they’re often cash-strapped and stock-rich, and they know little about nonprofits or local community needs.

Myers thought he could convince entrepreneurs to work philanthropy into the early practice of their startup firms. So he designed a foundation that serves as a one-stop clearinghouse, an outsourced service for would-be philanthropists. The foundation’s staff has signed up 71 companies and linked them with nonprofits operating in their communities. The companies also pledged equity to the foundation. Twelve firms have contributed stock now valued at more than $12 million. Myers’ goal is to sign on hundreds of startups and generate $200 million for the foundation over the next several years.

The first grant, $325,000, was given last year to Partners in Schools, a San Francisco nonprofit run by Julien Phillips, a former partner at McKinsey & Company. Partners in Schools, which is part of the national AmeriCorps program, has relationships with 14 public schools from Oakland to Redwood City. It wants to help raise literacy levels by placing AmeriCorps members, often new college graduates, in the classrooms.

This year the foundation will more than double its investment in Partners in Schools, ramping up to $750,000. Myers himself joined the Partners board and used his connections to get help for the organization from high-powered advisers in financial management and organizational development.

Garfield Elementary, a predominantly Latino K-8 charter school in Redwood City, is one of the schools that receives assistance from the Partners program. In the last year, five AmeriCorps volunteers, overseen by a Partners coordinator, worked at the school – organizing parent meetings, covering for absent teachers, revamping courses. The cost runs about $160,000 a year.

One day last June, an AmeriCorps worker sat in Garfield’s computer room surrounded by 34 empty iMac boxes. His job: push the computer curriculum to the next level, train teachers and students on the Internet, move networked PCs into the classroom. Down the hall, Carter Graham, an energetic young woman who is just finishing her two-year stint at the school, talked of how she works with the permanent faculty to “deepen the fluency” of bilingual students. Graham had this warning, though, for anybody seeking snap results: “It’s not going to be fast, it’s not going to be easy,” she said stiffly. “And if it’s an impulsive effort, never mind because it’s not going to work.”

It’s only 30 minutes by car from Garfield Elementary to the string of Internet startups stretching along a bucolic country road in Los Gatos, but it might as well be a world away. In the headquarters of NetFlix.com, which offers DVD rentals over the Web, entrepreneur Reed Hastings echoes the message from Carter Graham. “I avoid the one-shot people,” says Hastings, stroking a neatly trimmed goatee and smoothing his rumpled blue cotton shirt. “If we’re successful, it’ll be because we take it step-by-step, don’t oversell anybody. You’re not going to change education completely if you just write one check.”

Since selling his first company, Pure Software, for $750 million, Hastings has emerged as a leader among the new entrepreneurs interested in education reform. He’s invested about $10 million of his own money. He gave $1 million to Don Shalvey’s network of charter schools because, he says, it’s satisfying to walk into classrooms “and know that the money made a tremendous difference to these kids.” He joined the boards of the New Schools fund and Community Foundation Silicon Valley. Earlier this year, Hastings was appointed to the California Board of Education, where he helps to steer a system of more than 5 million students and a budget of $38 billion.

As Hastings spent more time thinking about education, he grew less convinced that philanthropy – venture philanthropy or otherwise – was enough. Charitable giving can only “prove the viability” of innovative experiments, he says. It’s the government’s role to take over when innovation turns to large-scale implementation. Says Hastings: “I’ve become convinced, since California invests nearly $40 billion a year in K-12, that to make a difference in how that is spent completely dwarfs any possible direct philanthropy I can do.”

So Hastings has turned to politics. He lined up early against the November ballot initiative backed by venture capitalist Tim Draper to provide publicly funded vouchers for use in private schools. [See “The Politics of Education”.] Vouchers could “trigger a Soviet-style collapse and devastation” in the public education system, Hastings warns. Instead, Hastings has put his support behind a rival measure, Proposition 39, that would lower the threshold for approval of school bonds and make it easier for charter schools to secure public school buildings. “We’ve got these regional monopolies called school districts and there’s not much incentive for them to change. It’s the kids who are getting screwed,” Hastings says. “If we want a rapidly evolving and improving education system, we have to decentralize it and allow schools to compete for children.”

NVSF co-founder Doerr is also raising money for Prop 39. In a spirited pitch for support to two dozen entrepreneurs at The Industry Standard’s Internet Summit in July, Doerr pleaded – in language his colleagues could well appreciate – for $1 million commitments on the spot. “A $1 million investment will yield a billion dollars in support for the schools,” through new bonds that voters would pass under the revamped rules, he said in a hushed voice. “It’s very rare to find a high return in education. This is a 1,000-point return in 90 days.”

Back at Eastside Prep, the question for Chris Bischof is whether his school is scalable in the sense that would naturally draw the attention of startup entrepreneurs. Can it be replicated? How quickly? How widely can its essential quality be spread? Bischof laughs, stretching his lanky legs and tilting his head. He drums on the table, like a student called on in class who can’t quite come up with the answer. So he asks for clarification: “Is it scalable within the school, or is it scalable as a model for other schools?”

Size, he points out, is a critical factor. New studies put the optimum high school student body at 400, large enough to provide a critical mass for intellectual and social stimulation, but not so big that individuals get lost in the crowd. “If you have 30 students in a class and you have schools of 2,000 kids – to be perfectly honest, those schools have their hands tied in so many ways,” Bischof says. “I know that we couldn’t do what we’re trying to do with 2,000 students, because of the amount of time and effort and individual attention we give each student.”

In the end, venture philanthropists looking for solutions that scale may miss this essential point. And if they do get it, they may not be much attracted to the cost and challenge of Bischof’s one-student-at-a-time approach. Even with recent budget increases for education, spending in California is just $6,265 per student this year, lagging behind other major states and a far cry from the $14,000 charged by a good private school.

“It’s very, very hard to raise this money,” admits Gib Myers. “It’s startling when you consider the overwhelming amount of money in this area. How do you break this enormous wealth loose? This ought to be the Florence or the Athens of our time. Everybody’s just too busy to give.”

I found plenty of evidence for Myers’ assertion while researching this story. I e-mailed dozens of dot-com billionaires to ask whether, and when, they were considering charitable contributions, and how they viewed K-12 education. Jeff Bezos, the founder of Amazon.com (AMZN) , issued a candid response through his director of public affairs: “When we are an important and lasting company, and our success is more assured, Jeff will be turning his thoughts to philanthropy and putting his substantial energies to work on it. Meantime, we are focused on getting big fast and executing a great shopping experience for customers,” the response read. “If we can do that, there will be philanthropic resources to reinvest in people.”

Luckily, others haven’t waited. “The new economy was built on education and knowledge,” says Hastings. “Almost all of us have prospered because of our education. And we know that without a good education, the new economy doesn’t mean very much.”

The open question is this: Will the newly rich scale up their contributions in denominations more appropriate to the task?