NewSchools Spins Off New, For-Profit Venture Fund


NewSchools Spins Off New, For-Profit Venture Fund

By Tony Wan     Jan 26, 2015

NewSchools Spins Off New, For-Profit Venture Fund

NewSchools Venture Fund (NSVF) is not coy about its role in reforming education, starting with championing the charter school cause. “The charter school movement might look different today had it not been for NewSchools supporting these entrepreneurs,” says chief executive, Stacey Childress.

Since 1999, the Oakland, CA-based organization has directed over $150 million to more than 300 charter schools around the country, serving over 157,000 students.

Three years ago, NSVF catalyzed another movement: a boom in edtech investing. Led by Jennifer Carolan, it designated a $1 million “Seed Fund” for startup companies. Today it has invested nearly $12 million in small, but pivotal deals in 42 startups, including EdSurge. (Editor’s note: Carolan also serves on EdSurge’s board of directors.)

Now, like a teenager heading to college, the Seed Fund is leaving the non-profit nest.

On Jan. 30, Carolan, who joined NSVF in 2006, will officially leave the non-profit to establish a for-profit investing vehicle and raise funds to support that work. The separation will give the new organization a chance to raise more money than it could have under the banner of the non-profit. And growing its resources means the organization will no longer be strictly a “seed” fund, but also able to support startups as they mature.

Just how closely the two organizations will be affiliated is a work-in-progress.

Careful observers may have seen this coming. Several months ago, the Seed Fund launched its own website, replete with its portfolio investments, a blog and newsletter. Then on Jan. 13, NewSchools CEO Stacey Childress penned a blog post clearly stating her intent to refocus her team on supporting new school models:

We’re proud that the vast majority of our investment dollars have gone to create new schools all over the country that work better for kids. We are excited to build on this legacy as we ramp up our investments in innovative schools…

The wheels were set in motion before Childress, who previously spent four years at the Bill & Melinda Gates Foundation, joined NewSchools in July 2014. Earlier that summer, as the Seed Fund was approaching the end of its coffers, the senior team and the board of directors explored next steps. Would the Seed Fund continue to operate on the existing non-profit model? Or were there other opportunities?

Here are Childress’ thoughts on these questions and the future direction of NewSchools.

EdSurge: What was the motivation for creating a separate, for-profit fund?

Childress: It will open up a new source of capital and mobilize new dollars for edtech entrepreneurs from investors who are currently sitting on the sidelines. One thing the new structure and access to additional investors can give us is the opportunity to participate in follow-on rounds for more of our seed stage companies going forward.

It’s a great signal for other investors who may only come in at later rounds. To be able to provide follow-up support signals the confidence that our investor team has, having been with a company through the seed stage It’s a signal to the market of the potential of that company.

Is there a name for the new fund?

We have some great options. It will probably end up being simple. I wish I had a name--that’d be fun to break, wouldn’t it? It’s not decided yet.

How will the change in status--from non-profit to for-profit--change the investing priorities of the new fund? How will the emphasis on "mission" in investing change?

The Seed Fund has always focused on both impact and financial returns. The focus for the new fund will be the same, and its investors will be onboard with this approach.

What is happening with the Seed Fund in the meantime?

The current Seed Fund investments will remain assets of NewSchools [the non-profit]. The new fund will have its own portfolio. Jennifer is transitioning out to do the last bit of work to figure out how the new fund is structured and organized. It’s best for her to not be an employee of a non-profit as she figures that out.

In the meantime, our Seed Fund is still active and operational. Shauntel Poulson will lead the Seed Fund for the next several months and provide management assistance, support and connections to those entrepreneurs. There are also a couple of deals in the pipeline. If those end up being good investments, we’ll do them through the existing Seed Fund.

When the new [for-profit] fund is established, Jennifer will put a team together. My prediction is it will include some great people who have been part of the Seed Fund and some new talent as well.

Where does NewSchools’ focus on school models fit among other organizations that have the same mission?

There’s appetite and energy from both the charter and district space to launch or redesign new models. But many parts of the country don’t have regional funds or a supporting intermediary like a LEAP in Chicago or a NSNO in New Orleans.

NGLC [Next Generation Learning Challenges] has been focused wisely on giving money to regional entities that run challenges to give grants to innovate school leaders. We’ll be good partners with NGLC on that front. In some regions, we will organize these challenges ourselves.

We think we can add real value by doing what some of these regional funds do but on a national scale. We’ll bring capital and management assistance and support to cities around the country. We’ll be a direct investor in schools--that’s our sweet spot. We want to have great partnerships with these regional school supporters and incubators, and often we’ll be co-investors with them.

NewSchools has focused solely on charters. What about traditional schools or districts?

Not all of the innovative work happening in schools are limited to charters. We’re open to providing some financial support to teams of educators in districts who are redesigning existing schools or launching new ones. But we’ve got a lot to figure out because this is a new area for us. We’re going to take our time.

We’ve agreed to partner with the Alliance for Excellent Education, which is mobilizing thousands of superintendents around the country though Future Ready Schools. We will work with Bob [Wise, president of the Alliance] and his team to see what a good partnership looks like and what opportunities there are for us as an investor.

Will NewSchools [the non-profit] continue to support edtech startups?

The non-profit will continue to deploy capital through grants in the edtech space. We may run a prize challenge, open to both for-profit and non-profits, to propose solutions to market gaps such as middle-school science curricula and tools that support competency-based learning models.

We’ve also supported non-profit organizations and we will continue to do so. We’re proud to have been one of Khan Academy’s early philanthropic investors. We won’t do a large volume of investments like that but we’ll be on the lookout.

Will there be any formal relationship between NewSchools and the new fund?

We’ll be affiliated in some ways. Figuring out exactly what the structure and formal connection looks like is something we’ll be working through in the next month to six weeks.

Our missions will still be aligned and connected but the two organizations will be separate entities. We’ll always have a spiritual connection, with NewSchools, the non-profit, being the original home and incubator of the Seed Fund.

What does NewSchools hope to accomplish in the next couple years?

It took us 15 years to create 157,000 charter seats. Over the next five years we’d like to create 100,000 to 150,000 more seats in schools that are organized to meet the needs of every learner, every day.

But schools like that also need great content and tools. We know that early stage seed capital is critical for a vibrant, healthy marketplace to help entrepreneurs with good ideas and good instincts for how to meet the need of teachers and kids and parents. We need lots of innovators working on the same problem at the same time, in different ways. That’s how we’re going to get a variety of options and choice for students and parents.

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