Steering Capital: Optimizing Financial Support for Innovation in Public Education

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Public education has reached a moment of rare consensus: something must be done about the sorry state of our public schools, particularly in urban and low-income areas, and that the solution must deliver better results at scale – and without significant additional resources. Other fields like medicine and communications have embraced innovation – a new approach that achieves a better result – as the best means to this end. But education innovation has not yet lived up to its promise. In this paper, education entrepreneur Kim Smith and innovation writer Julie Petersen chart a path forward for how the public, private and nonprofit sectors can work together to advance education innovation by steering capital toward products, services and approaches that improve educators’ productivity and students’ learning outcomes.

Today, the educational ecosystem is not set up to support meaningful and widespread innovation. The policy and investment context that defines the flow of capital in education can either encourage or inhibit this innovation, and today it does much more of the latter than the former. Public policies and regulations favor compliance over excellence, rarely allow state or district buyers to choose flexibly between a range of high-quality product or service options, inhibit the flow of information that would allow buyers to anticipate or measure performance improvements, and offering few meaningful incentives for these buyers to adopt better products and services. The philanthropic capital market similarly provides few mechanisms for rewarding dramatically improved outcomes (including little funding for the scale-up of successful organizations), instead favoring small doses of funding across many organizations. Private investors shy away from fueling education innovation, intimidated by policies that restrict the work of for-profit providers in education, frequent policy volatility at the local level, market domination by a few large publishers that feel little pressure from competition or from their customers to really innovate, and a slow, relationship-based sales cycle that rarely measures or rewards quality.

However, there is inspiration to be drawn from the wider social change landscape. A growing number of social entrepreneurs have embraced the idea that they can make a difference by creating new organizations that bring visionary approaches to life. The philanthropic and investment landscape has grown and shifted in ways that make it possible to accomplish social and financial returns. And government agencies are experimenting with promising new approaches for steering the private market for public goods to meet key needs.

In that context, this paper considers how to improve the provision of capital for innovation in public education. Capital is one of the most important levers in aligning in this innovation ecosystem, but it is a force that can both influence the way innovation takes hold – and can in turn be influenced by other forces in the wider ecosystem, including public policy.

In order to enable effective capital market dynamics to support innovation, the paper asserts that public, private and philanthropic sectors must work together to make the education ecosystem more innovation-friendly, including:

• Establishing clarity and agreement on the problems, goals and metrics for success;
• Creating an effective research and development (R&D) system;
• Developing a culture that is evidence-based, with incentives and infrastructure aligned for continuous improvement;
• Capturing and sharing data that are transparent, available, comparable and useful;

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