NewSchools Venture Fund likes to do things differently, from being an early funder of charter schools to jumpstarting edtech investing. Now it's come up with a new way to bolster its coffers through an innovative deal with venture firm, Rethink Education.
At the annual NewSchools Summit, which takes place on Wednesday in Burlingame, Rethink Education will announce that it plans to contribute a “significant portion of the fund’s carried interest” to NewSchools Venture Fund. That means Rethink plans to hand over an unspecified percentage of its profits from its investments, which are typically realized when the companies get acquired or go public.
Private venture capital firms aren’t exactly known for charitable donations to unaffiliated organizations, especially without strings. This potential bounty for NewSchools, which is celebrating its 15th anniversary, will come in the form of unrestricted dollars, which means it can spend the money at its own discretion.
NewSchools president and CEO, Ted Mitchell, stressed that the foundation of this partnership was built upon “a deeply-held common belief in social impact that can be achieved within the market and profit models.” The funds will go towards what he sees as the riskiest challenges in education. “Right now, the hardest work is to support very small education companies focused on selling into schools and districts, and those providing tools to low-income families. Both of these have great capital challenges, and we expect to put resources here.” He also added that “it’s equally important to consider early-stage entrepreneurs in teacher training and professional development.”
Based in White Plains, NY, Rethink Education joined the small club of education-focused investment firms in May 2012 with a $50 million fund. (It is currently raising more.) To date, it has invested $15 million in nine companies. NewSchools Venture Fund was an early investor in four of these companies (Education Elements, Ellevation, Engrade, and Hapara).
Over the past year, Rethink Education and NewSchools representatives found themselves frequently crossing paths--sometimes when they were courted by the same entrepreneurs at the same conferences and other times when they carried out their due diligence on the same companies.
The generous (or lack of) terms in this partnership signals Rethink Education’s vote of confidence in NewSchools’ ability to spot and incubate promising ideas and talent. The NewSchools Seed Fund, launched in January 2012 and led by Jennifer Carolan, has become an attractive wellspring of capital for early-stage startups hoping to achieve the famed “hockey stick” of user growth while still fleshing out revenue plans. To date, the Seed Fund has supported 18 companies. (Disclosure: EdSurge is one of them.)
On the other hand, Rethink Education prefers to play at the Series A and B stages, with companies that are more mature, with better-defined business models that can convert user growth into a steady stream of revenue.
“We are well aware that [NewSchools] is very good at cultivating the education ecosystem and early-stage startups, and we’ve benefited from some of the work that they’re doing,” shared Rethink Education vice president, Brandon Avrutin. Venture partner, Michael Walden, added: “This partnership with NewSchools makes sense as our lens is different from theirs. We need people like them to make the smaller bets in the market. Our job is to find which one of these that meet our criteria as sustainable businesses.”
Sustainability and--perhaps more importantly--profitably are two things that Rethink Education’s managing partners, Rick Segal and Matt Greenfield, know a thing or two about. They earned their chops as early investors in Wireless Generation (acquired by News Corp. for $360 million) and Schoolnet (sold to Pearson for $230 million). Both are personally active angel investors in edtech startups such as Goalbook, which NewSchools has also invested in.
Both sides emphasize that the partnership is more than a one-way money funnel from one coast to the other. More important for them is the opportunity to create and strengthen connections between and among investors and entrepreneurs, educators and policymakers. Starting this summer, Rethink and NewSchools will alternate organizing “home-and-home” trips where investors and entrepreneurs in their respective networks will travel and spend a few days at one another’s stomping grounds.
“We need to do a better job connecting the dots in the ecosystem,” said Walden. “Even though the education investment community is small, we’re still surprised by the number of entrepreneurs who travel from one coast to the other and have no idea about who to meet or reach out to.”
The partnership is designed to last through 2020, the lifetime of Rethink Education’s fund. Neither side was willing estimate how much NewSchools might eventually get, which is unsurprising given that the companies in Rethink Education’s portfolio are still relatively young.
And, as Mitchell admitted: “It would be folly to predict the return on a venture fund.”