May 15, 2011

Steering Capital: Optimizing Financial Support for Innovation in Public Education

By By Kim Smith and Julie Petersen

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Public education has reached a moment of rare consensus: something must be done about the sorry state of our public schools, particularly in urban and low-income areas, and that the solution must deliver better results at scale – and without significant additional resources. Other fields like medicine and communications have embraced innovation – a new approach that achieves a better result – as the best means to this end. But education innovation has not yet lived up to its promise. In this paper, education entrepreneur Kim Smith and innovation writer Julie Petersen chart a path forward for how the public, private and nonprofit sectors can work together to advance education innovation by steering capital toward products, services and approaches that improve educators’ productivity and students’ learning outcomes.

Today, the educational ecosystem is not set up to support meaningful and widespread innovation. The policy and investment context that defines the flow of capital in education can either encourage or inhibit this innovation, and today it does much more of the latter than the former. Public policies and regulations favor compliance over excellence, rarely allow state or district buyers to choose flexibly between a range of high-quality product or service options, inhibit the flow of information that would allow buyers to anticipate or measure performance improvements, and offering few meaningful incentives for these buyers to adopt better products and services. The philanthropic capital market similarly provides few mechanisms for rewarding dramatically improved outcomes (including little funding for the scale-up of successful organizations), instead favoring small doses of funding across many organizations. Private investors shy away from fueling education innovation, intimidated by policies that restrict the work of for-profit providers in education, frequent policy volatility at the local level, market domination by a few large publishers that feel little pressure from competition or from their customers to really innovate, and a slow, relationship-based sales cycle that rarely measures or rewards quality.

However, there is inspiration to be drawn from the wider social change landscape. A growing number of social entrepreneurs have embraced the idea that they can make a difference by creating new organizations that bring visionary approaches to life. The philanthropic and investment landscape has grown and shifted in ways that make it possible to accomplish social and financial returns. And government agencies are experimenting with promising new approaches for steering the private market for public goods to meet key needs.

In that context, this paper considers how to improve the provision of capital for innovation in public education. Capital is one of the most important levers in aligning in this innovation ecosystem, but it is a force that can both influence the way innovation takes hold – and can in turn be influenced by other forces in the wider ecosystem, including public policy.

In order to enable effective capital market dynamics to support innovation, the public, private and philanthropic sectors must work together to make the education ecosystem more innovation-friendly, including:

  1. Establishing clarity and agreement on the problems, goals and metrics for success;
  2. Creating an effective research and development (R&D) system;
  3. Developing a culture that is evidence-based, with incentives and infrastructure aligned for continuous improvement;
  4. Capturing and sharing data that are transparent, available, comparable and useful;
  5. Ensuring the availability robust, diverse and aligned investment capital.

The paper assesses progress along those dimensions, and concludes with a series of actionable recommendations for how to most effectively support innovation in education, including the appropriate roles of the public, private and philanthropic sectors. Together, these sectors must work together to steer the educational capital markets in a more productive direction: toward the rapid and widespread educational innovation and improvement that our economy so desperately needs and that our children so clearly deserve.

Click here to download the full report as a PDF.

 Additional resources:

  • Innovation in Education: Problems and Opportunities, by Kim Smith for NewSchools Venture Fund,
  • Social Purpose Capital Markets: Financial Capital for Social Entrepreneurs in Education, by Kim Smith and Julie Petersen for Harvard Education Press


This paper is the first publication from the Innovation for the Public Good: A Case Study of US Education project, supported by the Rockefeller Foundation. Innovation in the public sector happens at the nexus of policy, research, capital, and practice. This project analyzes some of the key aspects of an emerging ecosystem for innovation in public education in the US, including the flow of investment capital for such efforts, the uptake of innovations by buyers and users, federal efforts to stimulate and scale innovation, and ways that technology could facilitate innovation investment and practice. Drawing on surveys, interviews, and working groups, the project highlights recent efforts to fuel and steer more innovation, and frames the remaining challenges that lie ahead for the public, private, and philanthropic sectors. For more on this project and its publications, visit innovation-public-good-case-study-us-education-2011

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