December 5, 2011

Encouraging Social Innovation Through Capital: Using Technology to Address Barriers

By By Bryan Hassel, Julie Petersen, and Kim Smith

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What will it take to make a significant difference in public school students’ outcomes—and in the ability of their schools to serve them well and cost-effectively? This simple question is at the heart of the many conversations taking place about education innovation, yet its answer remains elusive, with a wide range of people and institutions forming a complicated “ecosystem” around this innovation, sometimes ushering it along but just as often slowing it down. This paper examines the application of a specific lever—technology—to a particularly challenging aspect of that ecosystem: the flow of investment capital to fuel innovation. How can technology optimize the investment resources available from private, philanthropic, and public sectors so they more effectively identify and support innovations in ways that help achieve the public good of improving students’ outcomes and educational productivity?

This paper builds upon the Innovation for the Public Good project’s first publication, “Steering Capital: Optimizing Financial Support for Innovation in Public Education,” which examined what it would take to foster a robust capital market for public education innovation. For example, effective markets require clarity and agreement on the goals and metrics for success, along with relevant data about these metrics, but education has historically lacked this clarity and data—rendering the market unable to incent or reward quality. Moreover, many have noted that effective markets flourish in evidence-based cultures, where incentives and infrastructure are aligned. The lack of such a culture in education makes for a volatile business environment, and scares away many potential entrepreneurs, not to mention investors and donors.

But what role can technology play in addressing these market failures? Throughout society, technology has demonstrated a capacity for: connecting people and organizations; facilitating communication; capturing, analyzing, and presenting rich data and information; and shaping human behavior in response to these connections and insights. Bellwether Education Partners and Public Impact set out to examine how we might marry these technology strengths with specific gaps in the education market, including the difficulty of identifying and screening high-potential ventures, the challenge of connecting donors with investors to syndicate and sequence their capital, and the need to streamline the funding (and fundraising) process so we can minimize the burden of raising capital and shift that energy toward serving students and schools. We conducted an in-depth examination of tools and platforms related to investments and giving, both within K-12 education and outside the sector, and interviewed more than two dozen stakeholders, including entrepreneurs, private investors, philanthropic donors, intermediaries that connect funders with entrepreneurs, and developers of investing tools and platforms.

What we found is that there is a need to better leverage technology to address key gaps in the capital market, particularly among individual donors and “angel” investors, who provide a great deal of the fuel that drives early-stage entrepreneurial innovation yet are rarely intentionally coordinated in support of a public goal. A cacophony of technology-based investment and donation Web sites and software products have emerged to serve these capital providers’ needs, but there is little effective connection or coherence within or between these efforts—and a significant dearth of quality information and expert insight about education organizations and ventures within them.

Therefore, we recommend building upon existing efforts in three primary ways:

  • Strengthening content: Enhance content to help investors gain knowledge about the field, especially in ways that will incent them to align around common outcome goals and to target specific ventures and deals most likely to achieve those goals. This means clarifying and communicating the metrics and data that correspond with these goals, making that data available and actionable, and complementing that data with expert judgment about who is best positioned to achieve that impact.
  • Connecting technology efforts with existing face-to-face networks: Support initiatives that seek to build and strengthen trusted networks of investors or donors, who can combine efforts, leverage one another’s due diligence, and co-invest in promising ventures and deals. Both education giving and investing are social endeavors in which individuals rely heavily on information and insight from their peers, and technological solutions need to tap into that behavioral tendency.
  • Streamlining transactions: Streamline the process of receiving and vetting business plans and grant proposals, find ways to support better monitoring of portfolio performance, and facilitate more-complex transactions, such as informing and creating connections among investors and donors interested in sequencing and layering capital for socially minded for-profits and capital-intensive nonprofit efforts.

Such efforts could go a long way in supporting the kind of rational, evidence-based culture in public education that attracts capital, steers it toward the best ideas and approaches, and ultimately improves student achievement and school productivity.

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