Venture Capital Firm Invests in Innovative Education Companies

By Stacy Redd

New Markets How would you explain your job to someone outside venture capital?

Frank Bonsal: My firm, New Markets Venture Partners, is a diversified investor. We put things into three buckets: IT, business services and education. We're a fairly capital-efficient, back-to-basics investor. There aren't a lot of places where our one million to two million bite-size investments fit, but education is a good place. We're looking for scalable software and service solutions that we think can help change the game in terms of innovation and productivity. How do you (or your firm) choose which education investments to make?

FB: Sometimes they just ask me. It has to do with the management team, the market, the product/technology, the timing and the potential ramp in scale. It's a complex process. We look at 150 companies and invest in one. Do you seek out potential companies, do they come to you, or is it a combination?

FB: It's a combination. My coming to this conference is me proactively seeking innovation. I didn't come in here to find something to close an investment on in the next three months. I troll around and try to understand what end-users are looking for and what providers are innovating. With education, how do you balance the social good a project can create with its financial viability? Do you look at both sides of it?

FB: We do. If we can't make education better, if we can't make the world better, then we shouldn't be here. Do you ever work with companies to get them where they need to be?

FB: Yeah. These are expensive relationships both for the entrepreneur and the investor. But at the end of the day, we know our role. We're not trying to run companies. We believe that if we've done our job - if we've picked companies at the right time - a lot will take care of itself. Right now is a challenging time, but sometimes you've got to let some folks go and cut expenses for a little bit. The best way to grow a company is organically. If you're overspending and the market is not as accepting of the growth as you thought it would be, then you were wrong. Do you see things getting better financially any time soon?

FB: No, I don't. I don't know whether the Fed is going to help out at all. I think it'll try. I think Race to the Top was good for K-12. I think recalibration of the Higher Ed Act was good. I think there are some good things going on at the federal level, but at the end of the day we're driven by state laws and state funding. But you get through it. In some ways, we'll see some really incredible companies form in this time. How did you get interested in open education?

FB: I first came to know of it fairly virally; I tripped over the idea. At first I thought there were no business models there, but I tracked it across time and I thought this was the year. I'm here because I believe that openness is happening. As a former educator, what do you think of OER?

FB: I think it's critical; it's a really important part of the pedagogical shift. I think innately teachers are pretty open and willing to share, but the way education worked prior to 2000 made it really hard. Today you see more and more businesses wrapped around that sharing idea. We're a big proponent of that. I think it's a great time to be in education. Is there anything at the conference you found really surprising or anything you're especially excited about?

FB: Some of the OCW/OER models embedded in something very tangible like Open High School make a lot of sense. I think there are some incredible ideas that aren't venture-worthy, but they might be someday. There's been a lot of talk at this conference about how there's a lot of content created but there's really no infrastructure to bring users to what they need. Does someone in your position view problems like that as an opportunity?

FB: We do. We don't necessarily incubate companies; we try to find opportunities at the right time. Since 2007 we've been tracking open textbooks and I very much believe there are business models there. Tell us about your relationship with Flat World Knowledge.

FB: My legacy investment partnership has an investment with Flat World. Flat World is very focused on serving the student as well as the instructor. It's the most interesting disruptive publishing model I'm aware of. The debt load that students take on is ridiculous. I think if Flat World spends some time around policy and state budgets, they can think about how institutions can help adopt what they're doing.

We believe there's a lot of pedagogical disruption taking place, and that Web services are a huge part of that. But pedagogy has to come first - we can't have technology for technology's sake. OER is just that. It has to find relevant business models, attract dollars and move by scale. 'It takes a village,' and venture capital is one part of that village.

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