Following the Money in Education: Private Equity and the New Educational Economy

By Mitch Leventhal and Ina Tang

Education is an industry undergoing exciting and dramatic transformation. Some recent trends and developments in the space include: Common Core Standards, MOOCs (massive open online course), game-based learning, blended learning, and international recruiting, just to name a few.  These industry changes, along with advances in technology, have stimulated the growth of educational companies and have spurred the interest of private equity investors.

Over the last six months, we have reviewed hundreds of education companies, consulted publicly available databases, and studied numerous websites of private equity firms to better understand the role of private equity and venture capital in the new education economy. The outcome of this work is a landscape survey of over 200 U.S. private equity firms which have made significant investments in education-related companies of all types.

For the purposes of our research, we define private equity firms as those that provide capital to private companies in exchange for equity ownership. In most cases, these firms are providing early- and middle-stage capital, and are not seeking to control the companies in which they invest. In our study, we found a total of 266 U.S. private equity firms that have publicly described their investments in education.  These firms are located across the United States. Over 32% have offices in New York City, 28% have presence in the Bay Area, and 11% are located in Chicago. Some have overseas offices, as well. Many have more than one office location.

In terms of investment focus, most firms are highly diversified, investing in a range of industries, with education being just one sector of interest. Some firms which are heavily concentrated in information technology have naturally gravitated toward educational technology, and have included such companies in their portfolios.  Eleven private equity firms identified invest exclusively in education. Some major players in this category are Learn Capital, Quad Ventures, and University Ventures.  In addition to for-profit equity firms, there are a number of nonprofit ventures that invest philanthropic capital in education.  For example, NewSchools Venture Fund supports both for-profit and nonprofit education entrepreneurs who are working to improve public education.

As of now, these capital providers have together invested in over 500 education-related companies.  The most active firms ranked by the approximate number of current and prior education investments include Newschools Venture Fund (100+), Charter School Growth Fund (34), Learn Capital (30), New Market Ventures (20), Venture Philanthropy Partners (14) and Leeds Equity Partners (14).  Taken together, investment into education can be broadly classified into one or more of the sectors and subsectors described below:


Among the companies receiving funding, institutions/schools is the most popular sector, followed by educational technology and services.  Of the 500+ education companies that received investment, 36% are institutions/schools, 24% are focused on educational technology and 19% provide various services.  Within the subsectors, 18% are Higher-Education Institutions, 11% provide Content & Consumer Products and 11% are E-learning organizations. Trending in popularity with investors are online courses and institutions, online content distribution hubs and publishers, as well as e-learning platforms.

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The list of private equity firms we compiled is by no means exhaustive but it is clear from our landscape survey that private equity involvement in education is significant, yet is barely understood by most administrators and practitioners in higher education.  An increasing number of firms is capitalizing on the investment opportunities afforded by the education industry, and this trend is growing. Given that more private equity capital will be available to industry in the coming months and years, it is imperative that higher education administrators better understand these trends, and how they will affect prospects and opportunities going forward. Higher education can signal where investment should go, but it must be conscious of what its needs are in order to do so.

© 2013 Mitch Leventhal and Ina Tang