Venture Capital in Education—Education Technology and On-Line Charters Viewed as Investments

Late last week The Nation posted on-line a series of articles that will appear in the October 13, print edition of the magazine—a special issue on education.  These are in-depth pieces on issues such as the crisis in Philadelphia’s public schools, the role of teachers unions, lack of regulation in charter schools, Eva Moskowitz’s Success Academy Charters, and two articles this blog will explore today on the push by so-called “education reformers” to promote the use of technology and on-line education—including Lee Fang’s blockbuster investigation, Venture Capitalists are Poised to “Disrupt” Everything About the Education Market.  Many of the pieces were originally behind a paywall, but The Nation has now made them accessible to all readers.  As the week continues, this blog will explore some of the other articles in The Nation‘s special issue on education.

“As the articles in this issue illustrate,” write the magazine’s editors as they introduce the special issue, “the strategies pursued by education reformers frequently dovetail with those of austerity hawks.  The latter burnish their conservative credentials by cutting budgets and defunding schools.  The reformers sweep in to capitalize on the situation, introducing charter chains like Rocketship and K12, which produce no real benefits for children.  The chains do, however, generate cash for investors, as a new trove of public money is directed to private coffers.”

Pointing out that in the last quarter century, the marketplace has “carefully crafted business strategies (that) have transformed markets to create huge profits in unlikely sectors”—most notably healthcare—Fang writes, “Next year, the market size of K-12 education is projected to be $788.7 billion.  And currently, much of that money is spent in the public sector. ‘It’s really the last honeypot for Wall Street,’ says Donald Cohen, the executive director of In the Public Interest, a think tank that tracks the privatization of roads, prisons, schools and other parts of the economy.”  Fang quotes a venture capital investor who believes that “despite the opposition of ‘unions, public school bureaucracies, and parents,’ the ‘education market is ripe for disruption.'”

Noting that key staffers came to the U.S.  Department of Education straight from the  “education investment community,” Fang traces the role of the Obama Administration as promoter of the invasion by the private sector into public education.  One enormous market opportunity is emerging, for example, to provide services connected with the Common Core standards, whose expansion across the states will involve the tests themselves developed by two consortia and marketed by publishing companies, aligned textbooks and computer programs, the necessary computers or tablets by which students are to be tested on-line, and the grading and analysis of the tests. (This blog recently covered the ongoing Los Angeles iPad fiasco.)

Fang reminds readers that Ted Mitchell, recently confirmed as Under Secretary of Education, came to the Department of Education from a position as chief executive of the NewSchools Venture Fund.  Jim Shelton, Deputy Secretary, came from the Bill and Melinda Gates Foundation, and before that NewSchools Venture Fund.  Shelton is also “a longtime education investor and the former co-founder of LearnNew, a charter chain that was sold to Edison Learning, a for-profit charter management company.”  Shelton is quoted by Fang as explaining “that the Common Core standards will allow education companies to produce products that ‘can scale across many markets,’ overcoming the ‘fragmented procurement market’ that has plagued investors seeking to enter the K-12 sector.  Moreover, Shelton and his team manage an education innovation budget, awarding grants to charter schools and research centers to advance the next breakthrough in education technology.”  Shelton has predicted that education innovation will spark the next “equivalent of Google or Microsoft to lead the global learning technology market.”  Says Shelton, “I want it to be a U.S. company.”

Fang also traces a changing culture across the states including Democrats and Republicans alike in big city mayors’ offices and state legislatures, a culture that is comfortable “to divert taxpayer funding to charter schools, which are often run as for-profit companies and are more willing to embrace tech-centric classroom solutions….” Fang’s case study is K12, an on-line-virtual charter school,  “a for-profit charter behemoth that enrolls 123,259 students” and that is a darling of Wall Street, despite its notorious reputation.  K12, through its on-line affiliates across the states, enrolls children to study at home on their computers.  Despite that achievement is low and dropout rates are high, state legislators are driving money to such schools at virtually the same rate as to public schools where there is a significantly greater need for staff, transportation, and buildings in addition to other services.

Fang reports that only 27.7 percent of K-12’s on-line schools met the No Child Left Behind Adequate Yearly Progress standard, compared to a 52 percent average at brick and mortar public schools.  In Colorado, Fang reports that one study showed half of the online students at K12 left within a year. Tennessee actually closed K12’s Tennessee Virtual Academy, and recently K12’s largest on-line affiliate, Agora Cyber Charter in Pennsylvania is considering severing ties to K12 due to K12’s manipulation of data to hide the school’s dropout rate.  On Wall Street, however, K12 is promoted as a “solid investment opportunity.”  Baird Equity Research has actively pushed K12 stock because of its potential for growth, based on “K12’s success in working with state policymakers and school districts to enable the expansion of virtual schools into new states or districts.”  Investors are encouraged to learn about the amount K12 spends on advertising and lobbying. “The company has years of experience in successfully lobbying to get legislation passed to allow virtual school to operate,” says Baird in a note to its investors.

While Fang traces the waste of public funds and failure to educate children in for-profit, on-line schools, in  What Happens When Your Teacher Is a Video Game? Gordon Lafer explores the operation of Rocketship Education, a company that has been expanding from California to Texas, Tennessee, Wisconsin, and Washington, D.C.  “Corporate lobbyists are increasingly promoting a type of charter school that places an emphasis on technology instead of human teaching… Rocketship’s model is based on four principles.  First, the company cuts costs by eliminating teachers.  Starting in kindergarten, students spend about one-quarter of their class time in teacherless computer labs, using video-game-based math and reading applications.  The company has voiced hopes of increasing digital instruction to as much as 50 percent of student learning time.  Second, Rocketship relies on a corps of young, inexperienced, low-cost teachers… Third the school has narrowed its curriculum to a near exclusive focus on math and reading.  Finally, Rocketship maintains a relentless focus on teaching to the test.”  Rocketship investors include Reed Hastings, CEO of Netflix, and venture capitalist John Doerr.  Hastings has become well-known as a national spokesman for the elimination of locally elected boards of education, and Lafer explains the reason: “As Hastings explains, ‘School districts [are hard] to sell to because [they] are really reacting to voter forces more than to market forces.'” “By contrast, public-school curricula are set by officials who are accountable to a locally elected board prohibited from any financial relationship with vendors.”

Lafer emphasizes that experimentation with technology-driven schooling is currently an inner-city phenomenon:  “Sixty years after Brown v. Board of Education, a new type of segregation is spreading across the urban landscape.  The U.S. Chamber of Commerce, the American Legislative Exchange Council (ALEC), Americans for Prosperity and their legislative allies are promoting an ambitious, two-pronged agenda for poor cities: replace public schools with privately run charter schools and replace teachers with technology… The destruction of public schooling starts in poor cities because this is where parents are politically powerless to resist a degraded education model. But after the industry has taken over city school systems, it will move into the suburbs.  Profitable charter ventures will look to grow indefinitely, until there are no more public schools to conquer.”  “As Rocketship co-founder John Danner explains, critics shouldn’t worry about charter schools skimming the best students, because eventually ‘we’re going to educate all of the students, so there’s nothing left to skim.'”