California Venture Group Seeks To Fund Charter School ‘Brands’

April 10, 2002

A nonprofit venture-capital fund in Silicon Valley has raised $25 million to invest in networks of charter schools, independent public schools that are seen as a promising approach to education but have suffered from lack of management expertise and access to capital.

The New Schools Venture Fund hopes to raise $50 million to create as many as six nonprofit charter-school management organizations, each with a unique “brand” identity. Within five years, the fund expects the networks will run a total of 80 schools serving 30,000 students.

Los Angeles billionaire Eli Broad, through his foundation, pledged as much as $10.5 million for the charter-school management effort and promised millions more to launch a revolving fund to finance facilities for charter schools. Charter schools receive state funding based on student enrollment but generally don’t have access to school buildings or other state-funded facilities.

Mr. Broad, founder of the SunAmerica insurance company, now a unit of American International Group Inc., and the home builder now known as KB Home, last month committed an additional $300 million to the Broad Foundation, which has invested in leadership development in public school districts. In an interview, Mr. Broad said traditional public schools will benefit from competition with charter schools.

“We do believe in competition and that people should have a choice and so you have to increase capacity,” he said.

More than 2,400 charter schools in 35 states have been established since the first charters were issued about a decade ago. According to Jon Schroeder, director of Charter Friends National Network, a clearinghouse in St. Paul, Minn., the schools serve 580,000 students and have an additional 250,000 on waiting lists.

“There is a need for professional management and economies of scale in charter schools,” Mr. Schroeder said. He said many states and communities are resistant to the for-profit chains that manage large numbers of charter schools, but that nonprofit organizations with only one or two schools aren’t able to invest sufficient resources.

Kim Smith, chief executive of the New Schools Venture Fund, said the recent failure of several charter schools highlighted the need for more professional management organizations with greater accountability. In its first round of funding, New Schools backed the nonprofit Aspire Public Schools, which now operates seven charter schools in Northern California. In this round, Ms. Smith hopes to create additional “brands.” For example, one network might offer highly structured schools, while another could take a more student-centered approach. “When you create choice, different groups of parents and teachers will come together around different models,” she said.

The revolving fund to build charter-school facilities was Mr. Broad’s idea. The organization would purchase and renovate buildings and lease them for use as schoolhouses. Schools would be encouraged to purchase the buildings, and the purchase price would be returned to the fund to finance new acquisitions.