evaluating new ventures for non-tuition revenue

© 2002

Market Intelligence for the Education Economy1

Evaluating New Ventures for Non-Tuition Revenue

Peter J. Stokes, Ph.D.Eduventures, Inc.

Independent Schools Financing SymposiumNovember 23-24, 2002

Herndon, VA

© 2002


Agenda

• Introduction• An Industry Perspective• Opportunities for Independent

Schools• Discussion

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About Eduventures

• Research and advisory firm covering learning markets since 1993

• Assisting institutions in thinking strategically about products & services investments

• Helping providers drive growth• Delivering an independent view on key

market issues

© 2002


Purpose of this Discussion

• See what the for-profit market can provide in the way of comparables and models

• Brainstorm and pressure test these ideas

• Identify areas for further investigation

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The Challenges

• Is there really a financing problem here?– If so, is it something you would risk your brand to fix?

• Getting out of the either/or box– E.g., raise prices or reduce expenses– Moving to a both/and view of the possibilities

• The tension between mission and money– Every species’ mission is to reproduce itself (status quo)– But doing it successfully can require adaptation to

environmental changes (new value proposition / ROI)• The tension between provocation and practicality

– For-profit models will have limited applicability if you believe there is no need to adapt

– Or, for-profits may signal how the environment is changing

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Agenda

• Introduction• Industry Perspective• Opportunities for Independent


© 2002


Education Industry

Childcare

K-12 Schools

Publishing

Tutor/Test Prep

Technology

Procurement

Prof. Dev.

Pre-K-12

Postsecondary Education

Publishing

Technology

Procurement

Language Training

Postsecondary

Instructor-Led

E-Learning Content

Publishing

Synchronous E-Learn

E-Learn Platforms

Testing/Assessment

Corporate

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Industry Avg. 5.5% Growth

Education Industry Revenues

$93$99 $102 $106

$113$121

$-

$20

$40

$60

$80

$100

$120

$140

1999 2000 2001 2002F 2003F 2004F

bil

lio

ns

Source: Eduventures

© 2002


Pre-K-12 Revenue $58 Billion

Pre-K-12 Revenues by Market 2001 (billions)

$23.7

$6.7$7.0

$4.3

$7.1

$7.9$1.5

Childcare

Education

Publishing

Testing Services

Technology

Procurement

ProfessionalDevelopmentSource: Eduventures

© 2002


Venture Capital Decline

Venture Capital Investment Across All Industries By Quarter

$17,300

$25,800$23,900

$17,200

$10,600

$6,100 $5,100$3,700

$6,200$6,700

$11,900

$27,200

$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

Q41999

Q12000

Q22000

Q32000

Q42000

Q12001

Q22001

Q32001

Q42001

Q12002

Q22002

Q32002

mill

ion

s

Source: VentureWire

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Industry Investment Decline

Education Industry Private Investment By Quarter

$878 $932$814

$732

$396$311

$247

$58$160

$48$178

$29

$-

$200

$400

$600

$800

$1,000

Q41999

Q12000

Q22000

Q32000

Q42000

Q12001

Q22001

Q32001

Q42001

Q12002

Q22002

Q32002

mill

ion

s

Source: Eduventures

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End of Irrational Exuberance

Education Industry Private InvestmentBy Year

$30 $24 $64$598

$93$333

$1,050

$447$793

$2,943

$776$350

$2,567

$-$500

$1,000$1,500$2,000$2,500$3,000$3,500

mil

lio

ns

Source: Eduventures

© 2002


K-12 Investment Declines

K-12 E-Learning Investment

$98$175

$345

$723

$202

$-

$100

$200

$300

$400

$500

$600

$700

$800

1997 1998 1999 2000 2001

mil

lio

ns

Source: Eduventures

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Industry Avg. 2.5% of Total

Education Industry Investment as a Percentage of Overall U.S. VC Investment

0.0%1.0%2.0%3.0%4.0%5.0%6.0%

pe

rce

nt

Source: Eduventures, VentureWire

© 2002


What It Means for Schools

• K-12 market increasingly entrepreneurial as education reform and technology converge

• “No Child Left Behind” Act driving growth / creating new opportunities following the venture bust

• For-profits bringing a new kind of commercial and educational expertise to market

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Agenda

• Introduction• Industry Perspective• Opportunities for Independent


© 2002


Coping with Ripple Effects

Financing Pressure Points• Weakened global economy• Tuition discounting• Increases in restricted

philanthropy• Growing reliance on debt

Have you bled all of the inefficiencies out of the cost side of the equation? Are there business processes you can outsource? Financial aid? Human Resources? Etc.

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New Opportunities

• Diversify income streams through entrepreneurial efforts

• The three I’s:– Intellectual property– Incorporation– Internationalization

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Opportunity Map

SCHOOLS

Debt

Philanthropy

Tuition

Sale of Assets

Curriculum Assessment

Tutoring Recruitment

DistanceLearning

Reselling

Internationalization

Incorporation

Core StreamsToday

Opportunities to ProductizeIntellectualCapital

Reaching New Markets & Aggregating Buyers

Risks grow with movement away from the core.

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Defining Opportunities

Opportunity Definition Rationale

IntellectualProperty

Incorporation

International

Productization of assets in the form of expertise around curricula,assessment, recruitment, pedagogy, etc.

Leveraging assets and entrepreneurial skills to reach foreign markets and bring U.S. content, technology and services to new markets.

Schools are not monetizing the assets they possess, especially with respect to human and intellectual capital.Protects traditional value proposition while creating new opportunities to leverage intellectual property.

Deepens and broadens target customer pool while creating opportunities to scale entrepreneurial activities.

Entrepreneurial efforts to diversify organizational structure, revenue streams and market reach.

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Intellectual Property

• Cf. Edison Schools– After-school & summer programs– Affiliates program

– Benchmark Assessments– Achievement Management System– Achievement Advisor– Professional Development

– Projecting $100 million in three years

• For more information, visit www.edisonschools.com

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Incorporation

• British Columbia, Canada– School Act Legislation amended this year– Districts able to form corporations as

adjuncts to school boards• Designed to protect schools engaged in business

around Pacific Rim (especially distance learning)• Creates new opportunities for schools to “do

business” at home and overseas

• Contact for more information: Russ Pacey, Associate Superintendent, Westminster School District

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Internationalization

• Enhancing value of service in local market through international partnerships– Cf. Nobel Learning Communities & South Ocean

Development Group• Aggregate international buyers and act as reseller /

sales channel for your assets or U.S. businesses looking to expand internationally– Cf. Westminster School District

• For more information, “A Global Education Market? Global Businesses Building Local Markets” at www.eduventures.com

• World Education Market conference 2003, Lisbon, Portugal

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Risks

• Intellectual property assets are not truly unique• Entrepreneurial culture change difficult to manage• Business development skills necessary to establish sales

strategy may not be available• Sales channels difficult to establish• Chicken or egg problem: how to aggregate buyers

without product and service partnerships / how to establish partnerships without having first aggregated buyers

• Dilution of core value proposition and erosion of quality of service

• Result: another set of ripple effects to cope with in addition to those pressures you already struggle with

© 2002


ContactPeter J. StokesExecutive Vice PresidentEduventures, Inc.20 Park Plaza, Suite 1300Boston, MA 02116617-426-5622 Fax [email protected]

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