2012 American Revolution 2.0 by GSV Advisors

332 Pages·2012·8.94 MB·English

American Revolution 2.0
How Education Innovation is Going to
Revitalize America and Transform the
U.S. Economy
July 4, 2012
Michael T. Moe, CFA
Matthew P. Hanson, CFA
Li Jiang
Luben Pampoulov
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In collaboration with GSV Advisors
Deborah Quazzo
Michael Cohn
Jason Horne
Patrick Shelton
Special Advisor Michael Horn, Innosight Institute
Contributor Sara Leslie
Contributor Candlestick Research
We would also like to honor and celebrate the lives of Stephen Covey (1932-2012), an
educator and author whose work has influenced millions around the world and Sally Ride
(1951-2012), a professor and the youngest and first female American astronaut to ever be
launched into space.
We thank the pioneers who paved the path and serve as an inspiration for all of us.
For additional information, please contact Michael Moe, Deborah Quazzo or Matthew
Hanson.
Contact Email Phone
Michael Moe [email protected] 650-294-4780
Assistant: Debbie Elsen [email protected] 650-294-4784
Deborah Quazzo [email protected] 312-397-0070
Assistant: Kerry Rodeghero [email protected] 312-397-0071
Matthew Hanson [email protected] 312-339-4967
A co-author of this paper, Mr. Michael Moe, is a partner of GSV Asset Management, LLC (“GSVAM”), an
investment adviser registered with the US Securities Exchange Commission, and the Chief Executive Officer
of GSV Capital, Inc., (“GSVC”) a publicly traded Business Development Company for which GSVAM acts as
the investment advisor.  This paper contains case study information about education and related technology
companies, including certain companies in which GSVC has invested.  The information contained herein
provides only general and summary information regarding any such companies, and contains no material
non-public information.  This paper is not an offer, a recommendation, or a solicitation to buy or sell
securities.
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TABLE OF CONTENTS
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Knowledge Troops - Learning by Numbers
7
Battle Budget - Market Size and Growth Rates
8
Shock and Awe
9
Our Best Days Are Behind Us?
16
The First American Revolution
28
How We Got Here
32
First Shot Fired: A Nation at Risk
41
30 Years Later: A Nation at Even Greater Risk
42
First Wave
42
The Momentum Builds
45
Modern Weaponry
52
Time to Fight
60
The Time is Now
61
The Tidal Wave Comes Ashore: Confluence of Catalysts
61
We Just Need to Imagine
66
Kaizen...Education Style
69
Return on Education (ROE)
71
Knowledge as a Currency (KNAAC)
73
Riding the Megatrends
79
Globalization
80
Internet
82
Mobile
84
Network Effects
86
Free and Freemium
89
Social
91
3
Scaled Delivery
99
Adaptive / Personalization
99
Brands
100
Big Data
101
Cloud
102
Digitization
103
Platform
104
Outsourcing
108
Open Source
109
No Labels
110
Brain Science
111
Weapons of Mass Education – Investment Themes
114
Just For Me
116
1 + 1 = 3
117
The New American Prep School
119
Platform EDU
122
The New Free Ride
124
Knowledge Communities
128
Smart Content
129
Tower of Babel
132
Investing in The Revolution - The 4 Ps Framework
136
People – Follow the Leaders
137
Product – What’s the Claim to Fame?
141
Potential – How Big Could this Become?
143
Predictability – How Visible is the Growth?
145
Education Market Snapshot
150
Capital Markets Dynamics
156
Pre-K Market
176
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Confluence of Catalysts
176
Family Structures and Education Mismatch
178
Preschool Programs for Children of Working Parents
180
K-12 Market
190
Confluence of Catalysts
190
Education: The New Civil Rights Issue
192
Politicians Are Getting Involved
196
New York, Florida, West Virginia, and New Orleans Lead the Way
198
Education Spending is Having Little Positive Effect on Achievement
202
Homeschooling and Charter Schools
207
Re-Imagining the School Calendar
216
Teachers in the Trenches
221
An Industrial Model for Education
223
Teach for America: a Case Study in Human Capital
225
Schools Are Wired In
227
K-12 System with Individualized Learning
230
Post-Secondary Market
234
Confluence of Catalysts
234
Higher-Ed Snapshot
235
Fighting an Entrenched Status Quo: Higher Education
244
Tuition Far Outpacing Inflation
248
Lifelong Learning Market
262
Confluence of Catalysts
262
Knowledge Economy
263
Mismatch Between Demand for Workers and Supply of Skilled Labor
274
We Are Losing Our Future Technology Leaders
277
Me.Edu
279
Meet Students Where They Are
282
5
American Revolution 2.0
286
Good News, Bad News
286
Educators’ Bootcamp
287
Strategic Battle Plan
287
A New Beginning
293
The Declaration of Independence
295
Appendix
298
Counting It All Up
298
The United States of Education
299
Public Company Directory
308
Supplemental Market Data
310
Supplemental K-12 Data
318
Supplemental Postsecondary Data
325
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Knowledge Troops - Learning by Numbers
United States
‣ 77 million students are enrolled in school, which represents 27% of total population
‣ 20 million are enrolled in postsecondary education
‣ 49 million are enrolled in public PreK-12
‣ 6 million are enrolled in private PreK-12
‣ Over 2 million enrolled in charter schools
‣ 7.2 million total teachers, with about 1.7 million in postsecondary
‣ 98,817 public schools and 17,916 total school districts
‣ 33,366 private schools
‣ 5,600 charter schools and 180 virtual charter schools
‣ 6.1 million students took at least one online course
Around the World
‣ 655 million students in primary school
‣ 781 million students in secondary school
‣ 608 million students in higher education
‣ 78 million teachers in the world
‣ 26% of the world’s population is under the age of 15
‣ Top 5 languages in the world, total speakers:
1. Mandarin Chinese: 1.3 billion
2. English: 1.0 billion
3. Spanish: 500 million
4. Hindi: 490 million
5. Arabic: 255 million
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Battle Budget - Market Size and Growth Rates1
($ in billions)
Knowledge Industry Market Size Market Size Market Size 2012-2017
(2012) (2015) (2017) Growth
(CAGR)
UUUUUnnnnniiiiittttteeeeeddddd SSSSStttttaaaaattttteeeeesssss MMMMMaaaaarrrrrkkkkkeeeeettttt SSSSSiiiiizzzzzeeeee
US Education Expenditure $1,432.1 $1,651.3 $1,805.5 5%
Government Spending on Education $941.0 $1,085.4 $1,184.5 5%
K-12 $687.7 $788.7 $853.1 4%
Postsecondary $535.2 $622.1 $688.5 5%
International Students $18.2 $20.5 $24.1 6%
Executive MBA $18.9 $19.8 $20.4 2%
Corporate & Govt. Learning $133.3 $149.9 $162.2 4%
eLearning $32.5 $49.1 $65.6 15%
K-12 eLearning $5.4 $9.3 $13.4 20%
Higher Ed eLearning $17.4 $28.6 $39.8 18%
Corporate eLearning $9.6 $11.2 $12.3 5%
For-Profit Postsecondary $30.8 $40.9 $49.5 10%
Postsecondary LMS $1.2 $2.4 $3.2 15%
Pre-K and Child Care $65.0 $77.4 $87.0 6%
Test Prep / Tutoring / Counseling $11.0 $13.1 $14.7 6%
Instructional Materials Market (K-12) $20.1 $23.9 $26.9 6%
Higher Education Instruction Materials $8.0 $9.5 $10.7 6%
Global Market Size
Global Education Expenditure $4,450.9 $5,508.7 $6,372.5 7%
K-12 $2,227.0 $2,625 $2,930.3 6%
Postsecondary $1,495.2 $1,883.5 $2,196.9 8%
Corporate & Govt. Learning $356.6 $449.3 $524.0 8%
eLearning $90.9 $166.5 $255.5 23%
K-12 eLearning $16.6 $39.0 $69.0 33%
Higher Ed eLearning $48.8 $95.4 $149.0 25%
Corporate eLearning $25.5 $32.1 $37.5 8%
For-Profit Postsecondary $96.1 $146.1 $193.2 15%
SIS, Finance, Administrative $8.7 $10.3 $11.6 6%
Postsecondary LMS $3.5 $1.9 $2.3 10%
Social Learning / Communities $1.0 $2.9 $5.6 40%
Pre-K and Child Care $200.0 $266.2 $322.1 10%
Edu Gaming $2.0 $4.4 $7.4 30%
Global Language Learning $115.0 $198.7 $286.2 20%
Global English Language Learning $63.3 $123.6 $193.2 25%
Test Prep / Tutoring / Counseling $54.0 $78.2 $100.0 13%
For-Profit* $590.9 $952.2 $1,311.0 17%
*For-Profit: our recommendation is to remove the labels of “for-profit” and “not-for-profit” in education; however, we use
them in this context to discuss traditional categorizations for market sizing purposes.
1 GSV Advisors and Candlestick Research, 2012.
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Shock and Awe
United States PreK-12 Education to College Readiness
•In 4th grade, American students scored above the international average in mathematics.
By 8th grade, they dropped below the international average, and by 12th grade, they
only outscored South Africa and Cyprus.
•By age 4, there is an 18-month academic gap between an impoverished child and his
wealthier peers.
•4 out of 100 kindergarteners entering KIPP Ascend in Chicago in 2010 were able to
recognize numbers or letters. By the end of the school year, 94% were reading at a 1st
grade level or higher.
•6 out of 10 low-income fourth graders in the U.S. cannot do math at grade level.
•Pre-Katrina, 35% of students in New Orleans Public Schools were performing at grade
level. In 2011, that number was 56%.
•Before Katrina, 22% of New Orleans Public Schools were “academically acceptable”. In
2011, 51% were, and that’s expected to reach 92% by 2016.
•In 2009, 99% of public school parents in New Orleans believed that school choice was
important.
•In 2010, over 90% of New Orleans Public School students were in charter schools.
•In 1970, 10% of California’s budget went to higher education and 3% to prisons. In
2010, 11% went to prisons and 8% to higher education.
•Only 25% of high school graduates in 2011 met all 4 ACT college-readiness
benchmarks. 41% of graduating Asians and 4% of African-Americans met all 4
benchmarks.
•In 2011, only 1 of 4 graduating seniors were prepared for college coursework.
•75% of high school seniors were unfamiliar with basic facts about American government.
•30% of all public high school students in the US don’t graduate, and 32% of the 70%
that do graduate aren’t college-ready.
•A U.S. high school student drops out every 26 seconds.
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•Each dropout costs the nation about $260,000 in lost earnings, taxes and productivity
over a lifetime.
•Each dropout class costs the nation $325 billion in lost contributions, which is equal to
the combined GDP of Kansas, Utah, Nebraska, and Alaska every year.
•The number of teachers in the US has more than tripled since the 1950’s, almost cutting
the student-teacher ratio in half.
•More than a third of math teachers don’t have a degree in math.
•In 2012, TFA was the leading employer at 55 colleges and universities, and 9% of
graduating seniors at Ivy League colleges applied.
•In 2012, 38% of TFA corp members are racial minorities (person of color).
•In 2012, TFA had over 48,000 applicants, and 17% were admitted. 5,800 first-year corps
members will begin teaching in the 2012-13 school year, bringing the overall corps size
to 10,400 teachers.
•Two-thirds of nearly 28,000 Teach For America alumni remain in the Education sector.
•In 2000, 45,000 K-12 students participated in online learning. In 2010, 3 million did.
•Today, Washington, D.C. Public Schools (DCPS) spends over $29,000 per student.
•The Department of Education found that students in online conditions did as well or
better than those learning through face-to-face instruction.
•Over the last 40 years, upper-income parents have increased the amount they spend on
enrichment activities for their kids by $5,300 annually while lower classes have increased
their investment by only $480 annually.
•Spending per student has tripled since 1970 and doubled since 1980 but achievement
levels have stayed the same.
From College Completion to Career Readiness
•30% of incoming freshmen in the US are first generation college students, and 24% - 4.5
million – are low-income.
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