‘Impact Investing’ Forum Features Education Companies
Making a social impact by investing in education anchored a discussion at the Aspen Institute Thursday, when executives from three education enterprises presented an overview of their business models, the markets they serve, and their challenges.
They told their companies’ stories to a room with more than 100 professionals invited to learn about their plans and the impact they hope to have as they work to expand their reach. For the financiers in the audience, it was an opportunity to learn how the companies have funded their businesses, and to see how they could join forces with other education enterprises to have an impact.
Two of the businesses—String Theory Schools, a nonprofit management company of charter schools based in Philadelphia, and Tales2Go, an audiobook app that streams books from leading publishers and storytellers to mobile devices—focus on the K-12 marketplace. The third, StraighterLine, a Baltimore, Md.-based ed-tech company that provides low-cost general education courses online, is higher-ed focused. It offers “101-level” subjects at prices below the tuition charged by community colleges for the same courses. More than 80 colleges accept these credits in their degree programs.
The audience also learned about how String Theory Schools issued impact bonds to finance the Philadelphia Performing Arts Charter School. The founders are preparing to open another school in Georgia, and looking at markets in California, Florida, and Tennessee as well, said Jason Corosanite, co-founder and chief innovation officer of the schools.
Corosanite attended the event with his investment banker, Jason Appelt, who is senior vice president of George K. Baum & Co., an underwriter of education bond issues. Appelt explained how a $55.5 million bond was structured for the Philadelphia Performing Arts Charter School.
Appelt described the process of educating investors about the charter school model, and showing them that “this is a model that is sustainable.” That was no small order, beause there is a 30-year timeframe for paying back the bond for the Philadelphia charter, but charter renewals are only granted for five-year periods, he explained. “It’s a big hurdle, but it’s one that a lot of investors out there have gotten beyond,” Appelt said.
Once the investors understood the value proposition of the charter schools, the deal came together.
“We were able to fund nearly 100 percent of the cost of the project,” he said. “The school put in approximately $1.5 million to fund interest in the first year and a half.” Appelt said his bank attracted several investors, including one from the Standard & Poor’s rating service who had helped write the criteria for grading charter schools. “He had some interest in [the school], but some reservations,” said Appelt. “When he came and visited the school, that’s when it all changed.” An estimated $3 million to $4 million commitment from the investor grew to a $10 million commitment based on that visit.
William Weil, co-founder and CEO of Bethesda, Md.-based Tales2Go, described his company as a Netflix‐like service that streams thousands of audiobook titles from leading publishers to desktops, laptops, and mobile devices. The company raised $1.6 million to date, and is backed by the NewSchools Venture Fund and the Maryland Venture Fund, which Weil said provided “patient capital,” meaning that investors are not expecting returns in a short timeframe. That’s one of the main challenges the company has faced: the slowness and difficulty in selling to the school market.
“We’ve been at this five years, and we nearly tripled our bookings year-over-year last year, but it takes time,” he said. Once schools adopt your product, they are likely to keep it, Weil said. Tales2Go is currently available in nearly 600 schools, he said, including the 265,400-student Broward County, Fla., school district. A pilot is underway in the Los Angeles Unified School District, the country’s second-largest school system with 655,000 students, and the company’s largest customer is in Iowa. The next round of funding the company receives will allow it to do a “giant study” of the effectiveness of the program, according to Weil.
Besides education, the gathering of entrepreneurs, government officials, financiers, and philanthropists focused on health, conservation, finance, and energy. The four sectors are all areas where “government has a major role to play in funding and policy,” and where philanthropies are involved, too, said Ashley Allen, the founder and CEO of i2 Capital Group, a Chevy Chase, Md.-based merchant banking firm that co-sponsored the impactDEALS Forum.