School fund charters new territory with $22M gift

July 4, 2003

A venture capital fund based in San Francisco has received $22 million from the Bill & Melinda Gates Foundation to invest in creating charter schools in the Bay Area, Southern California and other states.

NewSchools Venture Fund will use the Gates investment to start charter management organizations — nonprofit organizations that create and manage a system of charter schools.

The grant is seed money to help develop at least five charter management organizations that will then create 20 new schools, from kindergarten to high school, serving about 8,000 students within the first two years of operation.

By the 10th year, each organization will have launched 20 schools. Once the schools are off the ground, they operate with public funds.

The model the NewSchools fund invests in is based around an entrepreneur creating a charter management organization.

It “is an opportunity to build a system where the governance, management and the teachers, parents and students come together,” said Kim Smith, co-founder and CEO of NewSchools Venture Fund. “It’s a charter environment, so everyone chooses to be a part of it. In a public school district, it’s a struggle to get the different constituencies aligned.”

The fund was founded in 1998 by Smith and John Doerr, a venture capitalist and partner with Kleiner Perkins Caufield & Byers in Menlo Park. Smith helped start Teach for America, a national corps recruiting recent college grads to teach in public schools. She got involved with venture financing for education after receiving a degree from the Stanford University Graduate School of Business.

Marie Groark, a spokeswoman for the foundation started by Microsoft’s co-founder and his wife, called the size of the grant to the NewSchools Venture Fund “significant.”

In the last three years, the foundation has invested more than $475 million to create more than 1,200 small high schools around the country.

The Seattle-based Gates foundation, which also funds global health initiatives and libraries, has an endowment of approximately $24 billion.

The NewSchools Venture Fund’s strategies are in line with the foundation’s objectives, Groark said, because the group funds entrepreneurs who run charter management organizations. The organizations operate a number of charter schools on a similar business plan though the schools may emphasize different themes.

“If you look at the history of charter schools, they have had mixed results because they are mom-and-pop organizations that don’t have the support they need to be successful,” Groark said. “Charter management organizations are important to improve the effectiveness of charter schools.”

Money from the Gates grant has not yet been distributed, and Smith is working to identify entrepreneurs who have ideas for running charter management organizations.

Including the grant from the Gates fund, NewSchools Venture Fund has raised about $60 million to invest in charter school ventures.

It has already made investments in Aspire Public Schools, a charter management organization that operates seven schools in Northern California, Leadership Public Schools, which is opening a school in Richmond this fall, and Green Dot Public Schools, a charter management organization that has started schools in Southern California.