Beyond VC: Alternative Investment Models For Education Startups

In the evolving education landscape, traditional private investment models too often fail to support the game-changing startups that are needed to revolutionize learning.

In the move toward a more learner-centered paradigm, traditional funding mechanisms aren’t designed to nurture the growth and sustainability of impact-focused educational ventures in the places where they can be most transformational. New alternative investment models are needed.

The Capital Markets Conundrum

Traditional capital markets prioritize rapid, substantial returns and often sideline startups with long-term, transformational potential. This issue is particularly acute in education, where I’ve seen the search for a big homerun sideline small but solid companies making a difference.

That’s in part because new innovations in education might take anywhere from 10 to 20 years (at least) to realize their impact. And the most transformational education innovations must take root in areas far outside the mainstream system where they can grow and hone themselves in new value networks where the initial addressable market sizes are small—think microschools in the United States or Imagine Worldwide’s work building literacy and numeracy in developing countries.

Traditional venture capital (VC), however, is structured around quick, big exits, typically within a five- to seven-year window. There’s an argument to be made that the rise of technology businesses that, as Ben Thompson has argued, enjoy “minimal marginal costs” and the creation of VC firms after World War II, were not just synergistic but dependent—in the sense that the outsize and relatively rapid VC returns only worked for businesses that “could earn theoretically unlimited returns at scale.”

This model often doesn’t align with the slow, steady growth outside of the mainstream necessary for meaningful education transformation.