A teacher at an elementary school in Washington, D.C., shows a group of fifth-graders how to engage in online learning exercises. (Photo by Linda Davidson/The Washington Post via Getty Images) 

Eric Westendorf is an unlikely tech entrepreneur. Back in 2011, he was chief academic officer of the E. L. Haynes Public Charter School in Washington, D.C. Teachers at the school kept telling him that they needed better ways to help struggling students catch up on lessons that other students had mastered. There just aren’t enough hours in the day to meet every student’s individual needs, the teachers told him. So he created LearningMatch, a tool that allows teachers to record and share video lessons. Students can watch the videos in class or at home, and they can watch each video over and over until they have absorbed its lesson. LearningMatch, in sum, offers both a way for students to learn at their own pace and a way to scale up the one-on-one teaching process.

Officials at the Bill & Melinda Gates Foundation liked LearningMatch so much that they awarded Westendorf a $250,000 grant through the foundation’s Next Generation Learning Challenges program. At the time, the foundation was keenly aware that schools across the United States would soon be reckoning with the rollout of Common Core State Standards. These new standards, along with the rigorous tests that would accompany them, would require schools to find new curriculum materials and new instructional techniques for teachers to adopt. By offering a trove of online lessons created by some of the country’s most effective teachers, foundation officials believed, LearningMatch could help schools meet this challenge.

And here is where Westendorf’s story departs from that of many similar endeavors. The Gates Foundation didn’t earmark the grant for local use only, nor did it channel the grant through Westendorf’s school. Instead, the foundation gave the grant to a new for-profit startup called Scholar Rocket, which Westendorf had created along with a business school classmate of his, Alix Guerrier. The foundation had recognized an opportunity that few traditional investors would have spotted, and it took the risk of making a grant that in some ways resembled a venture investment. Soon afterward, Westendorf and Guerrier changed the name of their company to LearnZillion, and since then it has grown rapidly. Today the company counts nearly one million teachers among its users, and those teachers can access a collection of more than 10,000 video-based lessons. (The collection even includes a complete K-8 math curriculum.)

LearnZillion is not the kind of company that venture capital firms have typically supported. In general, they have preferred to fund technology startups that target consumers and businesses, and they have shied away from funding technologies designed for use in schools, which are notoriously slow to spend money on such resources. Yet neither is LearnZillion the kind of organization that foundations have traditionally funded. Although philanthropic support for projects aimed at improving student achievement, teacher effectiveness, and school quality has increased in recent years, relatively few foundations have been willing to underwrite the development of technologies that serve the same purpose. In part, that is because technology companies (unlike most traditional grantees) tend to be for-profit entities.

But in the past few years, these dynamics have shifted. Some venture capital firms have begun to show an interest in how technology can help solve social problems in areas such as public education, and they have drawn encouragement from public policies and behavioral changes that have made schools more receptive to technological innovation. Foundations, meanwhile, have become more willing to direct resources—either as grants or as return-seeking investments—to for-profit companies whose products or services have the potential to meet urgent social needs.

As a result, more and more ed-tech companies are now able to pursue funding strategies that involve philanthropic as well as private capital. (See “Ed-Tech Companies and Their Funders” on page 43.) We use the term “blended capital” to describe this set of emerging approaches. In a blended capital model, an ed-tech company accepts funding of different types, including both grants and equity investments, and its funders can include both impact-first and finance-first investors. In many cases, ed-tech companies also draw support from venture funds that focus exclusively on serving the education market.

To date, for example, LearnZillion has raised more than $23 million, and that money has come from a broad array of funders. About a year after receiving the Next Generation Learning Challenges grant, Westendorf and his team raised a formal seed round of $2.4 million from impact investors and traditional venture investors. A year later, LearnZillion put together a $7 million Series A round in which DCM Ventures, a global venture capital firm, was the lead investor. And in late 2015, the company raised a $13 million Series B round from traditional venture funds and from impact investors such as Learn Capital and the Omidyar Network. Other funders of LearnZillion include NewSchools Venture Fund (NSVF) and Owl Ventures, both of which specialize in supporting innovative education companies. (NSVF invested in both rounds; Owl joined the Series B round.)

The Promise of Technology

Certainly, there is an enormous need for tools and resources that can improve the performance of US public schools. These schools receive significant taxpayer dollars and serve a fundamental social purpose. Yet the outcomes that they produce for the neediest students are mediocre or worse: Among fourth-graders who come from low-income families, only one in five is proficient in reading (compared with half of fourth-graders who come from high-income families).1 Just three-quarters of low-income students graduate from high school on time, and only one-fourth of low-income students who plan to earn a bachelor’s degree manage to do so.2

Can education technologies help teachers and students improve this situation? Not surprisingly, the growing use of ed-tech solutions has drawn the attention of skeptics. They worry about the privacy risks inherent in placing a significant amount of student data online and in the hands of for-profit companies. Or they fear that computerbased instruction will supplant human interaction. Some skeptics argue that only affluent students will be able to take advantage of educational technology—or, conversely, that schools will use inexpensive screens to occupy poor children while their wealthier peers engage with live teachers.

It’s clear, moreover, that technology on its own can do only so much to improve outcomes. A 2011 report by Boston Consulting Group described the problem with some forms of ed-tech implementation: “We’ve placed computers and interactive whiteboards in the classroom and plugged them into the Internet, but we have done little to leverage this technology to restructure the school day, the classroom, the curriculum, or the ways students engage with teachers.”3

Yet according to an emerging body of evidence, the use of technology can indeed improve student outcomes. A study of Teach to One, a technology-rich instructional model for middle-school math, found that the model improves mathematics skills at a greater-than-average rate (particularly among students who most need help) in urban public schools that serve a high proportion of low-income and minority students.4 And a recent study of charter and district schools that received grants from the Gates Foundation to implement personalized learning (a model that uses technology to tailor instruction to individual student needs and interests) found that those schools achieved higher performance gains than comparable schools—particularly in early grades, in mathematics, and among struggling students.5

The Evolving Ed-Tech Field

Education technology entrepreneurs can demonstrate the merit of their products and services only if they are able to launch and expand their businesses. Until a few years ago, it was remarkably difficult for them to do so. Even in the best of circumstances, building an effective ed-tech company is no easy feat. These entrepreneurs must balance engineering and business savvy with learning science, and they must do so while navigating the complexities of the public sector.

What’s more, education buyers are fragmented into thousands of districts and schools, and they often regard technology with considerable skepticism. “The return on investment mindset that drives other sectors to replace expensive labor with technology, and that sees the logic of scaling such efficiencies rapidly, does not come naturally to K-12 [administrators],” Larry Berger and David Stevenson noted in a paper that they delivered at a 2007 conference.6 (Berger founded Wireless Generation, a mobile assessment company that raised $17 million in blended capital. In 2010, News Corporation acquired the company for $390 million. Stevenson was vice president of business development and government affairs at Wireless Generation.)

For rising ed-tech companies, the quest for financial support can be especially challenging. The standard route for a high-growth startup involves raising money from venture capital firms, which in return take an ownership stake in the company. Venture capitalists hope to make their money back by “exiting” an investment through a sale of the company or an initial public offering. That model relies on pursuing “home runs”: The expectation is that a small fraction of investments will earn enormous sums—and that the vast majority of them will falter or fail. Such home runs have long been a rarity in the education sector: In the late 1990s, venture capitalists experimented with investing in for-profit charter school chains and in technology platforms that mostly involved storing education data for administrative use. At the peak of that trend, in 1999, investors poured $1.3 billion into 106 education-related deals. Most of the companies funded by those deals went bust. In fact, fewer than 25 percent of the 106 deals achieved meaningful financial returns. That experience led many venture investors to lose interest in the ed-tech field.

Efforts to secure funding from philanthropists can entail big challenges as well. Historically, foundations have made grants almost exclusively to nonprofit organizations. In part, that’s because few foundations have the ability or the willingness to engage in investment activity. Only 3,200 of the more than 86,000 foundations in the United States employ paid staff members, and many of those that have paid staff employ just one or two people. By training, foundation staff members are able to evaluate whether a given organization can achieve certain social outcomes; they aren’t equipped to evaluate an organization’s business models or its likely financial returns. In general, moreover, foundations are notoriously risk-averse. “Few other actors are better positioned to take risks and try new things that might yield outsized and transformative rewards. Yet most funders fail to do so,” Katherine Fulton, Gabriel Kasper, and Barbara Kibbe argued in a 2010 report. “Because they understandably want the gratification of knowing they made a difference, or are concerned not to waste precious dollars, they focus on short-term, measurable results.”7

The ed-tech field has changed considerably in recent years. Technology has entered schools from the bottom up. A new generation of “digital natives” who serve as teachers and administrators are incorporating technology into classroom work, and an increasing number of students are arriving at school with an Internet-connected device in their backpack. At the same time, public policies have encouraged technology adoption in schools. The federal E-Rate plan, for example, has expanded broadband Internet access in schools, and state policies are shifting textbook adoption away from print and toward digital content. In addition, the implementation of new standards has opened up a national market for more sophisticated curriculum materials.

Spurred by these developments, venture capitalists in 2014 plowed $1.87 billion into 350 rounds of funding for education companies. In 2009, by comparison, they invested just $385 million in 82 education- related deals.8 A similar shift is under way in the philanthropic realm. In recent decades, philanthropists have channeled funds into charter school development, improved teacher training, and common standards and assessments. These investments in turn have fueled demand for technologies that have the potential to increase student engagement and teacher effectiveness.

In addition, foundations have begun to invest in private companies that align with their mission. They have done so partly through program-related investments (PRIs) that earn below-market rates of return and that come from the 5 percent of assets they must pay out each year. Increasingly, though, foundations are also making mission-related investments (MRIs) using capital from their endowments that they would otherwise direct toward standard financial instruments. MRIs offer foundations an opportunity to achieve positive social impact as well as market-rate returns.

As a result of these developments, foundation leaders are now exploring ways that they can invest directly or indirectly in education technology.

The Role of Direct Philanthropic Investment

To some extent, people in the philanthropic world have continued to focus on the demand side of the ed-tech equation. In a 2013 guidebook for education donors, for example, the Philanthropy Roundtable notably did not advise foundations or individuals to make direct investments in private companies. Instead, the guidebook describes how donors might provide grant funding to help educators deploy technology in innovative ways, or how they might underwrite research, advocacy, and other efforts related to promoting ed-tech adoption. “The general consensus is that what philanthropy can most usefully do is build a big market for intelligent products,” Laura Vanderkam, the author of the guidebook, wrote. “Boost demand, the argument goes, and supply will appear.”9



Some foundations, however, are working to build a supply of education technology products by investing directly in companies that develop those products. Large foundations, in particular, have both the capital and the staffing resources needed to enter this arena. Two of the most active players in that regard are the Gates Foundation and the Michael & Susan Dell Foundation. So far, these foundations have made only a handful of direct education technology investments, and those investments—which take the form of PRIs—are modest in comparison with the millions of dollars in grants that they make each year in the education sector. Still, officials at both foundations consider these investments to be a useful way to achieve programmatic goals.

In 2009, the Gates Foundation piloted a $400 million PRI program, and since then the size of the program has increased to $1.5 billion. The main area of emphasis in that program (as in the foundation’s overall giving) has been global health. In education, the foundation has focused on providing capital to fill gaps in the market for curriculum resources and for teacher development tools. Toward that end, the foundation contributed $4.9 million toward Series A and B rounds in BloomBoard, a company that provides evaluation and professional development software. Birchmere Ventures, a traditional venture firm, led both rounds (which totaled $12.2 million). Gates Foundation officials believe that BloomBoard’s product fills an important need. “We were eager to make sure that high-quality tools to support classroom observation and feedback were widely available to states and districts,” says Sara Allan, deputy director of K-12 programs for the foundation.

For BloomBoard, participation by the Gates Foundation has helped open doors with state- and district-level education customers. In addition, the foundation has shared market information that has informed the company’s strategy and pricing. “If you’d asked [school] superintendents what their top three technology spending priorities would be, almost none would have said ‘professional development for teachers.’ That wasn’t capturing a lot of mind share,” says Ned Renzi, a partner at Birchmere. “We and the foundation needed to help the company get across this gap.” According to Jason Lange, founder of BloomBoard, traditional venture capitalists like Renzi add value to his company by sharing their experience with building technology products and developing business models. And yet, Renzi notes, few venture capital firms have a deep knowledge of how education buyers make spending decisions. Education program officers at foundations understand that process and can help companies navigate it.

The Michael & Susan Dell Foundation began using PRIs back in 2006. (Its initial foray into this area involved using PRIs as a tool for catalyzing the urban microfinance sector in India.) Its first direct education investment in the United States came in 2013 as part of a $4.125 million Series A round in MasteryConnect, a provider of software that helps teachers track student progress. A year earlier, the foundation’s education program team had worked with its head of mission-related investing to conduct a market analysis of various organizations in the education sector that might—regardless of their corporate structure—align with the foundation’s education goals. “We wanted to help teachers understand whether students were learning on a daily and weekly basis,” says Micah Sagebiel, education program officer at the foundation. Of the handful of potential companies that emerged from that analysis, MasteryConnect stood out because it combined several important qualities: It had a team with business and education expertise, it had a product that was already gaining traction with customers, and it was ready to take advantage of new funding. Over the past two years, the foundation has committed a total of $2.6 million to the company.

MasteryConnect has raised about $29 million from a combination of angel investors, impact-focused funds, and traditional venture firms. Trinity Ventures, a technology investing firm, led a $20 million Series B round that also included Zuckerberg Education Ventures, a venture fund that invests on behalf of Mark Zuckerberg and Priscilla Chan. The potential of technology to transform education had put several ed-tech companies on Trinity’s radar, but only MasteryConnect had the demonstrated revenue growth, the sophisticated management, and the broad product appeal to warrant a commitment from the firm’s $325 million fund. “There are quite a few education companies with worthy products, missions, and founders who have domain expertise, but most of them do not have rock-star management teams with demonstrated outcomes,” says Larry Orr, a general partner at Trinity, who joined MasteryConnect’s board in conjunction with the investment. “When you look at the average business savvy of people in education technology, it’s not always up to the same level we see in the best software companies.”

In some cases, foundations make grants to for-profit companies in order to underwrite a particular project or product. In 2014, for example, the Michael & Susan Dell Foundation provided a $250,000 grant to Schoolzilla, which offers a software platform that allows K-12 administrators to visualize and manage data about school operations and student learning. The grant supported a pilot project that involved implementing a data standard called Ed-Fi. (Schoolzilla subsequently integrated Ed-Fi compliance into its main product.) In another instance, the same foundation made a $200,000 grant to Ellevation, a company that develops software for schools and teachers to manage instruction for ELL (English language learner) students. The purpose of that grant was to help Ellevation adapt the software for the education market in Texas, where the foundation has its headquarters. “Texas is now our fastest-growing market,” says Jordan Meranus, founder of Ellevation. “We’re in 75 districts there now, and that wouldn’t have taken place—[at least] at the speed it has—without that initial grant.”

The Benefits of Foundation Involvement

Financial support from foundations can be vital to a fledgling education technology company. Westendorf, for example, emphasizes the make-or-break nature of the initial grant that LearnZillion received from the Gates Foundation. “I can’t imagine how I would have raised a seed round otherwise,” he says. “When you’re working day in and day out in a school, you can put only so much time into a side project.” (The foundation has since granted an additional $1.5 million to LearnZillion but has not made any direct equity investments in the company.)

But the advantages that come with foundation involvement in education technology go beyond financial considerations. One premise behind such involvement is that foundations can encourage ed-tech entrepreneurs to develop products that serve students in needy urban and rural areas. “New companies looking to break into the sector will not automatically train their attention on the pressing needs of students, families, and educators in our nation’s low-income communities. Nor will traditional venture capital (with its pure focus on financial returns) be likely to back them if they do,” Sagebiel wrote in a post at the Michael & Susan Dell Foundation website.10 By making their capital and connections available to private sector companies, foundations are able not only to support those companies but also to attract other entrepreneurs and investors to the market.

Foundation leaders can also add value to a company in its formative stages by helping to refine its product and by connecting the company with potential users who can validate that product. “We bring to the table a deep focus on user-centered design, and we have funded a lot of market research around teacher needs,” says Allan. By way of example, she cites a network of “product test bed” locations that the Gates Foundation has funded. At those locations, teachers and other school personnel can test and evaluate a variety of ed-tech products. Cory Reid, CEO of MasteryConnect, acknowledges the value that such experience and expertise can provide. “If you can get a foundation to commit to an equity investment, it’s a big win because the foundation is likely to understand education really well,” he says.

As well-informed, long-term investors, moreover, foundations can provide companies with a long runway for growth. “We’re positioned to make investments that are perceived as higher risk, and our capital can be very patient as a company builds toward scale with sustainability,” says Sagebiel. That logic explains why some entrepreneurs have steered away from working with traditional venture firms. “It can take 7 to 10 years to build a great company in education—a time horizon that may not be a good fit for most traditional venture capitalists,” says Meranus, who has raised funds for Ellevation primarily by targeting individuals and impact-investing organizations. Chris Gabrieli, chairman of Empower Schools, a nonprofit provider of technical assistance and school turnaround services, echoes that point: “We live in an era in venture capital when people will risk squandering a lot to pursue big outcomes, but education is like health care: You can’t spend a lot of money fast and well.” (Gabrieli is a former partner at Bessemer Venture Partners, and he was also an angel investor in Ellevation.)

The need for patience also explains the strategy that Schoolzilla has pursued. Like LearnZillion, Schoolzilla emerged from a charter school organization. Executives and educators from Aspire Public Schools—a nonprofit corporation that operates 38 schools and serves more than 15,000 students in California and Tennessee—spent nearly five years building the Schoolzilla platform before spinning it out in 2013. Aspire leaders wanted the platform to have national impact. To achieve that goal, and to ensure that the new organization could tap a wide array of funders, the Schoolzilla team chose to form a socially minded for-profit B Corporation.

Schoolzilla has opted not to raise any funding from traditional venture capital firms. Instead, it has raised capital from an array of impact investors and foundations. To date, the company has raised $8.5 million, and that money has come from impact-oriented organizations— including the Charles and Helen Schwab Foundation, the Impact America Fund, Kapor Capital, NSVF, Reach Capital, and Serious Change LP—and from individual angel investors. (Aspire retains a 15 percent stake.)

Lynzi Ziegenhagen, CEO of Schoolzilla, says that in raising early-stage capital for the company, she talked with people from about 70 funding institutions, including many traditional venture firms. She was leery of selling a stake in the business—let alone giving a board seat—to any funder that might seek a quick exit. “In the end, I wanted only people who had some structural reason to care about impact, whether it’s because they’re a foundation or because their funding is dedicated to double-bottom-line organizations,” she says. “If we have to make a trade-off between mission and money, or if an acquirer comes along that wouldn’t be good for kids, I want investors who will be on the side of mission.”

The Limitations of Foundation Involvement

Direct philanthropic investment in ed-tech startups brings challenges as well as benefits. The work of selecting a company and deploying capital into it, for instance, requires foundations to move outside their comfort zone. When for-profit companies raise money, they pitch dozens of potential investors over the course of a few months and then quickly arrive at decisions on participating investors and investment amounts (and on the equity stake that each investor will receive). This process requires more cross-investor communication than the slow and self-contained process that foundations usually follow. “When you invest in ventures, it’s a club sport, and you’ve got to work with other members of the club,” Gabrieli notes.

Venture capitalists tend to do relatively quick diligence and then to work closely with companies as board members or as mentors. People in foundations often take the opposite approach. Typically, they subject companies that they fund to extensive diligence inquiries and to complex reporting processes. Those efforts can divert entrepreneurs’ attention from the day-to-day work of building a company. “If you’re deploying PRI dollars directly in a company, there are a lot of restrictions that can be new and overwhelming to an entrepreneur, who at that stage should be singularly focused on building a team and delighting customers,” says Tory Patterson, a cofounder and partner at Owl Ventures.

Foundation leaders also shy away from actively coaching grantees. “Once a grant has been made, the foundation assumes an oversight role to uncover poor management rather than a partnering role to develop capable management and adaptive strategies,” Christine W. Letts, William P. Ryan, and Allen S. Grossman wrote in Harvard Business Review nearly two decades ago. “Most foundations never take a seat on a nonprofit board or act as mentors or partners: in fact, they believe that such involvement would be intrusive.”11

Some entrepreneurs note that foundation involvement can create a perception that their company’s business prospects aren’t strong enough to merit private investment. Indeed, they worry that foundation participation in early funding can hamper future fundraising efforts. Reid, when he set out to raise capital for MasteryConnect, was skeptical about working with the Michael & Susan Dell Foundation because he worried that its support would come in the form of a grant. “I am opposed to grants as a means of funding a company in lieu of venture capital and believe that [accepting grants] makes your chances of raising venture capital practically zero,” he says. “Foundations move at a different pace from venture capital firms and may have different goals or timelines, so some venture capital firms are reluctant to get involved with a company that has only financed [itself through] grants.”

Other observers point out that when foundations subsidize a particular solution, they can tilt the playing field away from potentially worthy alternatives. “The educational market, like others, is best served by having lots of options and competition,” Vanderkam argued in the report that she wrote for the Philanthropy Roundtable. By way of example, she cited the Khan Academy, an online video-based learning resource developed by Salman Khan: “The last thing a donor would want to do is prevent other Sal Khans who have great ideas for helping kids from starting new companies because they have to compete with an entrenched, philanthropy-subsidized entity that is free.”12

A related concern is that foundations, with their emphasis on achieving certain social impact goals, can have a distorting effect on any company that they fund. They might, for example, favor developing a specific product at the expense of supporting an entrepreneur’s long-term vision. Experienced venture firms, by contrast, will give due weight to the business savvy of a company’s management team, its long-term potential for generating revenue and profit, and its prospect for reaching a significant scale. Focusing on short-term impact, in other words, may lead foundations to back solutions that aren’t sustainable over time. “If you’re a for-profit company trying to build a business, the number-one priority is [figuring out] who will give you a check now,” says Gabrieli. “But to the extent that you have choices, there are enormous advantages to working with professional investors who have experience with growth [companies].”

One other limitation of relying on direct investment by foundations is simply that such support tends to be insufficient. Foundations that offer seed money to startups are often reluctant to extend that commitment further. This limitation, in fact, is one that they share with capital firms. A study of “seed orphans” by the industry analysis firm CB Insights illustrates the scale of this problem. CB Insights defines a seed orphan as a company that, 13 months after its initial funding round, has yet to raise a Series A round. As of 2014, according to the study, there were more than 60 such companies in the education sector.13 And companies that make it through the Series A crunch find that raising later rounds can be even more challenging. For this reason, some entrepreneurs suggest that foundations should direct their assets toward later-stage investments that will help proven companies grow. To date, however, foundation officials have not shown any eagerness to adopt that strategy.

The Rise of Specialized Venture Funds

Recognizing the potential social impact of investing in education technology and the challenges of doing so directly, an increasing number of foundations are making investments through sectorspecific venture funds that align with their mission. These foundations are directing both programmatic dollars and endowment dollars toward such funds. This approach is indirect, and it entails forgoing trustee control over specific investments, but it comes with significant advantages: It allows foundations to pool capital with other organizations, to draw on the expertise of professional investors, and to avoid responsibility for selecting and monitoring funded companies. “It’s been vital for us to have finance experts on our team to complement our program officers’ education and nonprofit experience,” says Allan. “But the deep, ongoing engagement that a venture fund can provide at the earliest stages to a whole portfolio of companies—we just aren’t set up for that.”

One example of a specialized venture fund is the Seed Fund, a $12 million initiative that NSVF created in 2012 to help jumpstart new companies and to make sure that they target the needs of urban schools. The fund drew financial support from the Michael & Susan Dell Foundation, the Gates Foundation, the Sobrato Family Foundation, and the Wasserman Foundation, as well as many individual angel investors. Sagebiel explains his foundation’s motivation for supporting this fund: “We were positioned to be Series A funders, but there was still a need to support entrepreneurs with great and exciting ideas at earlier stages. Our funding strategy is very focused and our staff doesn’t have the capacity to make seed-scale investments. We saw the Seed Fund as being uniquely able to help early-stage entrepreneurs think through their business model and the ways in which they could serve low-income school districts.” In early 2015, the Seed Fund spun out to become Reach NewSchools Capital, a joint venture that invests in seed- and early-stage deals. In October, Reach Capital announced that it had raised a $53 million fund from philanthropic sources (including the Gates Foundation and the Michael & Susan Dell Foundation), education companies (including TAL Education Group, a Chinese tutoring provider), and individuals.

Owl Ventures, which raised a $100 million fund in 2015, is another example of this trend. “Education is so nuanced, with 14,000 customers and 150,000 schools and all their idiosyncrasies, that our pattern recognition is so much stronger [than that of non-specialized funds],” says Patterson. Once companies reach a certain scale of operation, he notes, they may be able to raise capital from traditional investors, but in the meantime firms like Owl can provide a counterpoint to traditional venture capital. “There is a very rational fear that venture capitalists will just back adoption [of technologies] that make class easier or more fun but don’t actually solve the problems of student learning,” Patterson argues. “Our investment thesis is that the stuff that will monetize at scale will be tied to improvements in teaching and learning.”

Other education-focused investors make a similar argument. Tom Vander Ark is a partner at Learn Capital, and Matt Greenfield is a managing partner at Rethink Education. Both of those firms invest exclusively in companies that serve the K-12 and higher-education markets. (Learn Capital draws its funding from Pearson, the international media conglomerate, and other limited partners. Rethink Education has raised funding from limited partners that include the W. K. Kellogg Foundation and the Lumina Foundation.) “Because social impact venture funds focus on unsolved social problems, they are much less likely than most venture funds are to follow the herd and invest in ‘me too’ startups,” Vander Ark and Greenfield wrote in a 2014 paper.14 Greenfield, in an interview, cites the cautionary example of generalist venture capital firms that have invested hundreds of millions of dollars in “next generation” textbooks. “Anybody who is serious about education knows textbooks are going away,” he says.

Many foundations agree that allocating funds to mission-oriented or sector-focused venture funds may provide more bang for their buck than investing in companies directly. “In K-12, because it’s a big market with many segments, we’ll achieve greater impact by focusing a significant percentage of program investments through funds,” says Allan. Smaller foundations are also excited about the potential of specialized funds to extend their impact without requiring them to engage in expensive diligence efforts. The W. Clement and Jessie V. Stone Foundation, for example, has made several MRIs in this area, including an investment in the new fund raised by Owl Ventures.

Gabrieli urges officials in the philanthropic sector to move in this direction. “A whole bunch more foundations should be writing limited partner checks into funds,” he says. “You get a portfolio of companies, your money gets matched by other investors, and you help build both professional investors and companies—which is good for the field.”

The Blended Capital Imperative

The combination of philanthropic and venture funding has resulted in some important developments. First, there are more ed-tech companies than ever before that prioritize the needs of students in lowincome communities—and not merely the needs of those from well-off communities—thanks in part to venture capital firms and foundations that have directed capital toward this field. Second, the use of blended capital increases the likelihood that funded companies will be able to scale up to the point of profitability and sustained impact.

It is imperative that philanthropic and private investors continue to blend their resources to develop a strong marketplace of education technologies. By expanding the assets available to ed-tech startups and by widening the overall ed-tech marketplace, foundations can help drive the development of a promising form of social innovation. At the same time, venture capital support for these efforts is critical to creating robust technology businesses that can scale up to meet the evolving needs of teachers and students.

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