Unbundling capital : a venture philanthropy firm’s exploration of non-monetary investments and the organizational components that influence them

Abstract

Despite the tremendous value new ventures contribute, research shows that failure rates of new ventures are 10 times greater than the failure rates for larger, established organizations (Beaver, 2003). In public education, entrepreneurial ventures are increasingly recognized as a vital tool in the struggle to improve academic outcomes for students across the United States. Ensuring early stage venture success is vital to their continued impact; to do this, venture philanthropy couples monetary investments with intensive supports, also known as management assistance. This Capstone is an account of a venture philanthropic firm’s exploration of management assistance and the relationship to the internal organizational components that influence them. An examination of management assistance from both the point of view of the entrepreneur, an outside-in perspective, and the staff, an inside-out perspective, reveals insights into the complex systems of the organization and the necessary components to develop and sustain effective management assistance practices. Entrepreneurism in public education is increasingly recognized as a vital tool in the struggle to improve academic outcomes for students across the United States; yet, the investment in and nurturing of new, innovative ideas is a complex activity. One way innovative ideas have gained a foothold in public education is through the founding and growth of entrepreneurial ventures; however, the success of new ventures is highly variable. Despite the tremendous value new ventures contribute, the research shows that failure rates of new ventures are 10 times greater than the failure rates for larger, established organizations (Beaver, 2003). It is with this in mind that this Capstone explores what one organization learned about the supports contributing to venture success. I explore the work of a venture philanthropic firm dedicated to investing in early stage ventures and committed to coupling their investments with strategic support. I seek to understand what supports and structures are necessary to promote venture growth and success. NewSchools Venture Fund (NewSchools) was created in 1998, a decade during which venture capital was seen as a more promising alternative to generating innovation than what were formally centralized R&D processes (Gompers & Lerner, 2001). Social entrepreneur Kim Smith and venture capitalists John Doerr and Brook Byers founded NewSchools with a vision to apply the venture capital model to public education. Having “witnessed the power visionary entrepreneurs held to create dramatic change in other sectors, such as technology,” they believed that education entrepreneurs could have a similar impact (“Investment History,” n.d., para. 1). NewSchools’ founders believed that education entrepreneurs could bring about much-needed change in public education if they had access to “both early-stage capital and strategic, hands-on support to start and grow their organizations” (“Investment History,” n.d., para. 1). NewSchools was one of the first social venture funds to transform public education by supporting education entrepreneurs. “(The founder) Kim Smith set the tone for a whole new movement of social entrepreneurs and the effective and productive use of philanthropy for education reform” (Sandler, 2010, p. 129). Since inception, over $145M has been invested in more than 130 ventures contributing significantly to an entrepreneurial landscape that was once minimal when NewSchools first launched, but has now burgeoned to include ventures across the country. NewSchools plays two critical roles in contributing to entrepreneurial activity in the K12 public school system. First, NewSchools is one of a handful of organizations nationwide that provides financial capital to early stage education entrepreneurs. Second, and perhaps most importantly, NewSchools acts as a hub of entrepreneurial activity--convening, guiding, and building connections from within its portfolio to public schools and public school systems across the country. It is the second part of NewSchools’ role that requires regular attention and review to ensure that NewSchools continues to provide the highest value to its entrepreneurs. NewSchools asked me to evaluate the efficacy of its non-monetary investments and embark on a review of its “management assistance,” the mechanism by which NewSchools supports its investments after an investment has been made. The following Review of Knowledge for Action presented a starting place for me.