Supporting Superman (and Woman)

April 4, 2011

How does NewSchools support education entrepreneurs?  I get this question more than any other and not just from those outside the education community so I wanted to give some real examples of how NewSchools helps entrepreneurs.

Education venture philanthropy came on the scene in 1999 when then Stanford GSB student Kim Smith, legendary venture capitalist John Doerr of Kleiner Perkins Caufield & Byers and a few others (including Brook Byers and Dave Whorton) incubated the idea of a nonprofit investment fund focused on a single but complex sector: K-12 public education.  Kim and John wanted to bring some of the hands-on investment practices from the venture capital industry to bear in the growing world of education startups.  Because they wanted to support the best solutions regardless of legal configuration, they structured the firm to allow both nonprofit and for-profit investments, with any financial returns going back into the Fund for reinvestment in entrepreneurs.

At the time, money was largely flowing into the education nonprofit sector through foundation grants. Program officers disbursed grant dollars with only sporadic contact with entrepreneurs. Grantees reported their progress to their funders in annual reports. As you can imagine, this was not a process that encouraged transparency and candor since it was in the best interests of the entrepreneur to only report what their funders wanted to hear in order to keep the grant money flowing (see The Nonprofit Starvation Cycle by Ann Goggins Gregory and Don Howard). While no doubt the startup money was appreciated, most funders didn’t have an intimate working relationship with their grantees.

As for for-profits in the late 90’s, some traditional venture capital money was trickling into for-profit education startups but most were bootstrapping, due to lack of investor interest.

Kim and John had a very different idea for how to support education entrepreneurs. The NewSchools co-founders decided the organization would support education entrepreneurs much the same way John and his partners at Kleiner Perkins support their portfolio companies, but in the specialized context of the K-12 education market with all of its peculiarities.   Entrepreneurs need a lot of support—financially, yes, but in a myriad of other ways, too. It takes a superhuman effort to start a company—just ask Don Shalvey, Alex Bernadotte, Alex Grodd or Anthony Kim. As Dave Weiden of Khosla Ventures has noted, “starting a company is somewhere between impossible and almost impossible.”

NewSchools is a financial investor, but also a partner to entrepreneurs. Most of the time, we take a board seat alongside our financial investment where high-level strategy is worked through—at least for high-functioning boards. But it’s the day to day help where investors can really make an impact.  Here are some examples of the types of support NewSchools provides:

  • Recruiting – Hiring top talent is one of the greatest challenges to scale a startup.  Good investors are skilled at tapping their networks to find and match talent for growing startups.   For example, when Achievement Network was searching for a CEO to scale John Maycock’s vision, NewSchools connected the Achievement Network’s Board with Ted Preston who has led the organization since 2008.
  • Access to customers – Securing an early base of customers can make or break a startup.  Founders need to be close to their customers, co-developing their ideas with schools and students. This is particularly challenging in education, as Paul Graham of YC recently wrote, “The problem with starting a startup to build things for schools is that no school districts are early adopters.” Access to schools, especially charter schools which are natural pilot sites, is critical.  This was useful for Alex Grodd when he was rolling out BetterLesson.  He piloted his product within the NewSchools portfolio and gained valuable feedback on what was working and what wasn’t.
  • Brand cover – Recruiting and finding early customers is made much easier if you have a recognized investor behind you, which may be even more important in K-12 schools where the default is suspicion of outside vendors.
  • Market Awareness – Investors like NewSchools meet a lot of entrepreneurs and see a lot of product demos. This market awareness is helpful when working with entrepreneurs on market strategy and is also a useful network for connecting a startup with potential partners and customers.  When Alex Bernadotte of Beyond 12 was developing her strategy around college preparedness, I had seen a demo of a new adaptive technology platform designed to prepare students for college placement exams. I made the connection and it has figured into Beyond 12’s strategy.
  • Network effect— In Silicon Valley, the technology entrepreneur ecosystem is denser than anywhere in the world.  Walk into Coupa Café in Palo Alto and see the entrepreneurs in action — pitching to funders, sharing with advisors and persuading (read begging, these days) engineers to join their teams.  Education entrepreneurship on the other hand, is diffuse and fragmented, just like education.  Over the years, NewSchools has built a network of entrepreneurs through convening leaders, both formally through our annual May Summit and informally via individual connections.  Many of our entrepreneurs rely on each other for advice, support, customer introductions and even product partnerships.

Investors generally take a lot of pride in their level of engagement with entrepreneurs, pointing to their “value-add.” However, as any entrepreneur who has raised money before will tell you, investor engagement can vary widely. For some investors, that means attending quarterly board meetings. For others it means working hard to really understand the organization (product, vision, customers, challenges, needs), developing a trusting relationship with the CEO and hustling to support them.  (For example, The Draper Richards Kaplan Foundation has a great reputation as a hands-on venture philanthropy investor. As a Board Member of a DRK grantee I’ve witnessed firsthand the hard work of their team and resulting benefits to their entrepreneurs.) When Kim Smith and John Doerr founded NewSchools, they knew that these new education entrepreneurs needed investors who understood their unique challenges and would jump in and help in meaningful ways. The more of these type of engaged investors we can get behind innovative education entrepreneurs, the better the chances of building great organizations that can really make a significant impact in education.