Impact Sector: K-12 Educations

The K-12 Education Team

Good morning! We continue the WIIP sector features with K-12 Education. The K-12 Education team includes first year Investment Associates Won-Mo, Kavita, Kushal, Nate, Elizabeth, and Jason as well as undergrad Investment Analyst Marina. 

Industry Overview

Despite growing investment in education– last year saw $1.8B flow into ed-tech in the US alone[1] – there is still much to be done to improve the quality of education. Access to quality education is limited for many children, and that, in turn, widens the socioeconomic gap between the rich and poor. Education systems have not evolved with economies, leaving students unprepared for the demands of a technology-focused job market. Given fundamental gaps in education, the industry is primed for innovation and investment within the student, teacher, and enterprise sub-sectors.

Key Impact Goals

K-12 education investments should achieve three primary goals:

  1. Quality: The innovation improves student outcomes and enhances / disrupts the market
  2. Scalability/Reach: The innovation has sufficient market demand and can scale to impact a large number of beneficiaries
  3. Economic Viability: The innovation is affordable for consumers and its benefits outweigh its costs

By evaluating the sector with these goals in mind, we are better able to gauge the level of impact of the investments sourced.

Education Landscape

Many layers exist within the broader K-12 education system, suggesting that multiple stakeholders need to be engaged by successful players.  Furthermore, wide variation between and within each constituency suggests varying needs for products and services. There are four main levels at which decision-making occurs in the US K-12 education system:

  1. Federal: Includes the Department of Education as well as the Department of Agriculture (school lunch).
    • Budget notes: Responsible for over $40B (13%) of annual K-12 education funding, over half of which comes in the form of Title I (for low-income students) and IDEA Special Education grants.[2]
  2. State: Includes all 50 state governments (plus Washington D.C. and other US territories) and their state-level education institutions.
    • Budget notes: Varies from a low of 31% to 86% of all education funding. There is variation in funding both across and within states; e.g., New Jersey recently spent annually $16,271 per student, whereas Utah spent only $6,356.[3]
  3. Districts: There are roughly 13,600 autonomous school districts led by a board and superintendent; in some cases, failing districts have been taken over by mayors and/or states.[4]
    • Budget notes: Funding often depends on property taxes, leading to major disparities in per-student spending: in Illinois, New Trier Township High School District spent nearly $20,000 per student, while certain other IL districts spent less than $7,000. Figure 1 below illustrates the average spending per district in the US.[5]
  4. Schools: Close to 100,000 public schools and 31,000 private schools, staffed by 3.5 million teachers and 100,000 principals
    • Budget notes: Resources are rarely distributed pro rata across schools; lower-needs schools tend to receive comparatively greater resources, suggesting these have greatest ability to pay but likely among the lowest potential for impact. Often, >80% of public school budgets go to personnel and benefits.
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Collectively, schools serve approximately 50 million public school students and 10 million private school students. Most students (84%) attend traditional public schools, with a further 3% in public charter schools. The remainder is split roughly evenly among homeschooling and parochial and non-parochial private schools. 

Per the National Center for Education Statistics, enrollment in K-12 schools is expected to grow modestly (0.55% annually) across the US between 2010 and 2020. Ten districts account for 8% of all US K-12 students (thus indicating relatively low concentration overall). The largest 2% of districts – with >25,000 students – account for over a third of students, and the largest 6% – with >10,000 students – for more than half.

Sub-sector Deep Dives

The K-12 education sector naturally breaks down into three sub-sectors: Students, Teachers, and Schools/Enterprises. Within each sector, we have created categories / subdivisions to further clarify the definition of each sector.

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Students

Definition

Students are children of K-12 age. In fall of 2016, approximately 50 million students entered public schools in the US while about 10 million entered private schools.[6],[7] The Student subsector captures innovations directly targeted at students and their caregivers.

Categories

  1. Content Creation: Creators / producers of educational content
  2. Aggregators/Content Delivery: Innovations that focus on enhancing student access to content

Trends

Unequal access to education is a key challenge. A recent report shows that students in the wealthiest districts are >4 grade levels ahead of those in the poorest districts, and high-income families spend seven times more on education enrichment than low income families.[viii] As the student population is becoming more culturally, racially, and socioeconomically diverse, troubling disparities remain persistent. Although 87% of white students graduate from high school on time, that number falls to 76% for Hispanics and 73% for African Americans.[9] Additionally, the number of homeless students doubled to approximately 1.3 million from 2006-07 to 2013-14.[10] Thus, innovation within this subsector tends to focus on increasing accessibility and enhancing efficacy of education for all students.

Notable trends that address these challenges include:

  • Personalized learning: With increasing student diversity and the Department of Education contributing over $500M to research in the field,[11] demand for personalized learning is growing. With the rise of machine learning and predictive analytics, schools are focused on creating classes that adapt to learners’ specific needs and provide them with the necessary skills, instruction, and resources to master key concepts.
  • Technology in school: With 20% of US schools having a device-to-student ratio of 1:1 and with adoption of mobile computing devices forecasted to reach 45% of K-12 students and teachers by the end of 2016, students have greater access to technology in school than ever before.[12]
  • Computer science: Over the past two years, the number of US states with computer science as a graduation requirement has doubled. As developed economies across the world continue to shift toward a service and technology model and as jobs within the computer and math related fields continue to grow (jobs within these fields are expected to reach 1.3 million positions 2022), computer science education is expected to expand accordingly.[13]
  • Social-emotional learning techniques through online gaming: The recent federal education law, Every Student Succeeds Act, placed “social-emotional, non-cognitive” needs at the forefront of educator goals, as demonstrated by a California initiative that will begin testing for character this year. Online gaming tools allow students to identify and address their needs in this area.[14]  These tools help students build character strengths, including people management, teamwork, critical thinking / problem solving, negotiation, leadership, decision-making, and judgement.
  • Bilingual education: Over 25% of public school students are expected to be English language-learners (“ELL”) by 2025.[15] In fact, the expected approval of Proposition 58 in California in November would end a ban on English-only instruction and allow educators to develop ELL programs, creating a market of 1.4 million English learners in California and nearly 5 million in the US for bilingual instructional content.[16],[17]

Social and Financial Metrics

  • Social Impact Metrics
    • Increased student skillset and improved academic results (e.g. increased graduation rates, improved test scores, etc.)
    • Enhanced post-secondary achievement (e.g. college, employment, etc.)
  • Financial Impact Metrics
    • Lower cost per student

Teachers

Definition

Teachers, numbering approximately 3.5 million in the US as of fall 2016, are the people who facilitate K-12 student learning.[18] This subsector captures products and services that aid the efficiency and quality of teaching.

Categories

  1. Professional Development: Resources for teachers to develop their skill sets, improve their teaching, and gain additional relevant qualifications
  2. Curriculum and Lesson Planning: Products / services that provide teachers with curriculum development resources and assistance planning and delivering lessons
  3. Classroom Management: Systems that allow teachers to better manage classrooms and tailor their offerings to student needs (in-class and remotely)
  4. Parent Management: Tools that connect parents to teachers to help parents track and understand the progress and educational needs of their student

Trends

A 2013 report from the National Council on Teacher Quality found that approximately 70% of teaching programs are not training elementary school candidates with adequate and up-to-date training.[19]  Meanwhile, increasing fiscal pressures on municipal and state governments necessitate cost-cutting. Together, these trends have put a squeeze on teachers’ attempts to provide higher-quality education and attend to students’ individual needs.

Notable trends that address these challenges include:

  • Digitization: Over 90% of teachers experience only traditional, workshop-based professional development, even though research shows that this is extremely ineffective. These short, one-shot workshops are not ongoing and do not teach teachers how to implement new approaches. Digital platforms improve access to professional development and tools for teaching, self and peer assessment, classroom management, parent management, and administration.[20]
  • Collaboration: Technology allows teachers to collaborate more extensively with peers, allowing more effective creation and dissemination of best practices.[21]
  • Big Data: The ease of collection and analysis of data allows teachers to make more evidence-based decisions regarding a host of issues such as curriculum development and management of each student’s engagement in the classroom.[22]

Social and Financial Metrics

  • Social Impact Metrics
    • Increased number of teachers trained and certified
    • Improved quality and efficiency of curriculum design
    • Improved student-teacher relationships
    • Enhanced parental inclusion
  • Financial Metrics
    • Reduced teacher attrition rate / reduced training costs
    • Reduced management hours spent per student
    • Reduced operational spend per parental engagement

Schools / Enterprises

Definition

Schools are institutions that provide a learning environment for students. 

Categories

  1. Student Information and Learning Management Analytics: Enables schools to better collect, analyze and act on data on student progress and achievement, thereby facilitating personalized learning
  2. Administrative Management Tools: Supports schools’ administrative aspects (finances, recruiting and retaining talent, recruiting students, marketing, and day-to-day operations)

Trends

As use of technology by students, teachers, and government increases, schools face greater expectations for utilizing data to better handle student information, student learning, and administrative tasks.

Notable trends that address these challenges include:

  • Micro-schools: With personalized learning and alternative curricula, these for-profit institutions have emerged across the US and abroad, with an especially high concentration in the Bay Area.[23]
  • Digital infrastructure: Schools are opting for digital systems that handle administrative, financial and operational data. Frequently, these systems are cloud-based and have a variety of benefits, including streamlining operations, improving communication, and reducing staff required. The market is expanding rapidly - by 2017, cloud computing is expected to make up 35% of the IT budget in K-12 education.[24]

Social and Financial Metrics

  • Social Impact Metrics
    • Improved school culture
    • Increased student skill sets
    • Improved academic results
    • Enhanced post-secondary achievement (e.g. college, employment, etc.)
    • Increased educational access
  • Financial Metrics
    • Lower operational costs and fixed costs
    • Increased revenue (for private schools)

Limitations to an effective market

The following chart highlights a few limitations that hinder the market from effectively matching consumers (students/parents, teachers, and schools) and sellers.

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Bibliography

[1] "Christmas Bonus! US Edtech Sets Record With $1.85 Billion Raised in 2015." EdSurge. 10 July 2016. https://www.edsurge.com/news/2015-12-21-christmas-bonus-us-edtech-sets-record-with-1-85-billion-raised-in-2015

[2] “School Finance.” EdCentral Edcyclopedia. Accessed 7 Nov. 2016. http://www.edcentral.org/edcyclopedia/school-finance/

[3] “School Budgets 101. American Association of School Administrators. Accessed 7 November 2016. https://www.aasa.org/uploadedFiles/Policy_and_Advocacy/files/SchoolBudgetBriefFINAL.pdf

[4] McKinsey study on the U.S. education system.

[5] “Why America’s Schools Have A Money Problem.” NPR. 18 April 2016. http://www.npr.org/2016/04/18/474256366/why-americas-schools-have-a-money-problem

[6] "Table 105.10. - National Center for Education Statistics." U.S. Department of Education. 2016. Accessed 1 November 2016. https://nces.ed.gov/programs/digest/d15/tables/dt15_105.10.asp?current=yes

[7] "Back to school statistics - Fast Facts." U.S. Department of Education. 2016. Accessed 1 November 2016. http://nces.ed.gov/fastfacts/display.asp?id=372

[8] “2016 EdTech Capital.” Reach Capital, 2016. Accessed 1 November 2016. http://reachcap.com/assets/uploads/2016edtechoutlookfinal-160525165120.pdf

[9] “The Challenge of Educational Inequality.” The Atlantic. 19 May 2016. http://www.theatlantic.com/education/archive/2016/05/education-inequality-takes-center-stage/483405/

[10] “Schools struggle to find and support homeless youth.” Education Dive. 16 June 2016. http://www.educationdive.com/news/schools-struggle-to-find-and-support-homeless-youth/420974

[11] “Personalized Learning: What Does the Research Say?” Education Week. 18 October 2016. http://www.edweek.org/ew/articles/2016/10/19/personalized-learning-what-does-the-research-say.html

[12] “Computer Science (Not Just Coding) Needs a Bigger Role in STEM Education.” 4 October 2016. http://www.edtechmagazine.com/k12/article/2016/10/computer-science-not-just-coding-needs-bigger-role-stem-education

[13]  “Computer Science (Not Just Coding) Needs a Bigger Role in STEM Education.” 4 October 2016. http://www.edtechmagazine.com/k12/article/2016/10/computer-science-not-just-coding-needs-bigger-role-stem-education

[14]  “The Every Student Succeeds Act: An ESSA Overview.” Education Week. 31 March 2016. http://www.edweek.org/ew/issues/every-student-succeeds-act/index.html?intc=content-exlaineressa

[15] “2016 EdTech Capital.” Reach Capital. 2016. http://reachcap.com/assets/uploads/2016edtechoutlookfinal-160525165120.pdf

[16] “Californians weigh repealing English-only education measure.” Education Week. 10 October 2016. http://www.edweek.org/ew/articles/2016/10/08/californians-weigh-repealing-english-only-education-measure_ap.html

[17] “Teaching America’s English-Language Learners.” Education Week. 11 May 2016.  http://www.edweek.org/ew/collections/english-language-learners/index.html

[18] "Back to school statistics - Fast Facts" U.S. Department of Education. 2016. Accessed 1 November 2016. http://nces.ed.gov/fastfacts/display.asp?id=372

[19] "Are Teachers Being Adequately Trained for the Classroom?" PBS. 2014. 18 June 2013. http://www.pbs.org/newshour/bb/education-jan-june13-teacher_06-18/

[20] “Teaching the Teachers: Effective Professional Development in an Era of High Stakes Accountability.” Center for Public Education. Accessed 1 November 2016. http://www.centerforpubliceducation.org/teachingtheteachers

[21] "9 Ways to Plan Transformational Lessons: Planning the Best." Edutopia. 27 June 2016. https://www.edutopia.org/blog/9-ways-plan-transformational-lessons-todd-finley

[22] "The Future of Big Data and Analytics in K-12 Education." Education Week. 11 January 2016. http://www.edweek.org/ew/articles/2016/01/13/the-future-of-big-data-and-analytics.html

[23] “The Rise of AltSchool and Other Micro-schools.” Education Next. Volume 15, No. 3, Summer 2015. Accessed 1 November 2016. http://educationnext.org/rise-micro-schools/

[24] "Cloud Computing To Make Up 35% of K-12 IT Budgets in 4 Years." The Journal.  19 February 2016. https://thejournal.com/articles/2013/02/19/cloud-computing-to-make-up-35-of-k12-it-budgets-in-4-years.aspx