A Sector of Interest: Institutions & Schools

By Mitch Leventhal and Ina Tang

In our first article, we briefly described the industry sectors comprising the Eduspace.  We divided the industry into six (6) sectors and seventeen (17) subsectors. In this installment, we are going to focus on the sector which is most associated with the industry in popular consciousness –Institutions and Schools.  To better categorize this sector, we have further divided it into four (4) subsectors, distinguished by level of instruction:

Early Education and Childcare

This subsector consists of businesses that provide early education and childcare.  Examples include Brightside Academy, Acelero Learning and Childtime Childcare.

K-12 Schools

K-12 schools provide classroom and/or online instruction to school age students.  These compete with the public education system, and tend to serve a specific demographic group such as dropouts, high achievers, religious students and the affluent who opt out of the public system.  Examples of K-12 schools include the Avenues World School, Educational Services of America and Camelot Education.

Charter Schools and Charter Management Organizations

Charter management organizations are for-profits or non-profits that run and manage publicly funded independent schools.  Many of them have received private money from nonprofit ventures that invest philanthropic capital in education.  Some representative charter management organizations include Achievement First, KIPP Schools, and Rocketship Education.

Higher Ed Schools

Higher Ed schools are nationally or regionally accredited, private, for-profit institutions that offer education beyond high school, such as vocational schools, trade schools, and degree granting institutions. Examples include Capella University, DeVry University, University of Phoenix, Laureate Education and Education Corporation of America.

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Of the 266 U.S. private equity firms that we identified as of July 2013, 161 have made investments in Institutions and Schools.  Some of the most active firms in this sector are specialized nonprofit investment ventures such as CharterSchool Growth Fund, NewSchools and Silicon Valley Social Venture Fund.  CharterSchool Growth Fund, as indicated by its name, specializes in charter school investment. This fund has 40 companies serving more than 160,000 students in its portfolio.  For-profit funds in this sector, ranked by number of education investments, include Providence Equity Partners, Quad Ventures, Sterling Partners, Palm Ventures and Leeds Equity Partners.

Based on our examination of publicly available sources, these capital providers have together invested in approximately 200 institutions and schools. Among companies receiving funding, higher ed institutions dominate the interest of equity investors.  This should come as no surprise, given the enormity of the for-profit higher education industry and its global growth potential.  Charter schools and related management companies come in second, as more investors focus on improving public education.

Although Institutions and Schools currently constitute the most popular sector for investment in the Eduspace, we are not very optimistic about its future.  For-profit higher education continues to face regulatory challenges and structural changes, which have chilled investor interest.  As online learning becomes more prevalent, and as ‘MOOC mania” advances, students have increased options to take courses from renowned non-profit institutions rather than from for-profits.  Public K-12 does offer significant profit potential, but not from institutions and schools themselves.  Profit is more likely to derive from service providers that offer curriculum, educational software, and student assessments.  To attract potential investors, institutions and schools will need to be uniquely innovative while working on building a strong brand and lowering costs.

@ 2013 Mitch Leventhal and Ina Tang

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