AltSchool Looks to Next Round, as Demand from Parents Balloons

maxresdefaultIf you don’t live in the Bay Area, you might not be familiar with two-year-old AltSchool, a budding network of schools founded by Max Ventilla. But the former Googler — who worked at the company both before and after it paid $50 million his startup, Aardvark — has huge ambitions to change the way we educate children. VCs like his vision, too. Andreessen Horowitz and Founders Fund led a $33 million investment in the school last year, and they’ll likely commit more, says Ventilla. (AltSchool, which is also operating on $11 million in debt from Silicon Valley Bank, will raise another round in coming months that’s likely to come “more or entirely” from insiders, Ventilla says.)

No doubt investors are drawn to AltSchool’s “full-stack approach,” as Ventilla characterizes it. Among other ways the company is trying to reconstruct education via its tech-heavy, personalized-learning approach: students follow tailored curriculum based on their individual skills and needs. Children are spread across numerous, smaller locations than many schools, and with higher teacher-to-student ratios. Not last, AltSchool – which has three schools in San Francisco and four more in the works, including in Brooklyn — groups kids by age brackets, rather than grade levels.

The results of this grand experiment will take some time. An outstanding question in the meantime is how the school provides investors with a venture-like return. While demand for AltSchool is high and growing — it received 1,000 applications for just 150 slots this past year — there aren’t many acquirers for a business like AltSchool. Meanwhile, Wall Street has a love-hate relationship with ed tech companies. Perhaps unsurprisingly, Ventilla says he’s already thinking about alternatives to going public. We talked last week. Here’s part of that conversation, edited for length:

Why start a new school system from scratch?

I’d had some amazing work experiences at Google, most recently [as the head of personalization] at Google, running a high-caliber team of about 100 engineers. I’m a startup guy, though, and so the team and I started to talk about what kind of thing we’d want to do next. I felt like I had one more startup in me – likely the last one – so we were looking for things that would be big and important and meaningful in terms of impact and relevance to our skills and experiences. And few industries are as large and in need of improvement as education.

How did you settle on AltSchool’s very specific and different approach?

We were fortunate as a founding team to include four educators — two with longstanding experience. We’re also operating in a wonderful space in terms of how transparent people are willing to be. I can go into any ed tech company and say, “What’s working? What’s not?” It’s a very different atmosphere in terms of openness and collaboration than anything I’ve experienced before.

You start with first principals in an environment that you can control. We operate the schools from the real estate to the IT to the lunches that get delivered. Based on that proximity to students and parents and teachers, from whom we’re getting monthly satisfaction data on a granular level, we iterate. We’re a constant work in progress. But we think that as we scale, we’ll accelerate our rate of improvement.

Your vision includes an expanding network of classrooms and schools, so students can move from one location to another seamlessly. Why is that important to you?

Because how long people tend to live in one place is plummeting. Our kids will likely live in 20 different places when they’re grown.

And AltSchool is interested in smaller spaces — so you can establish far more schools?

Yes, onerous and justified building code restrictions are one reason. But there’s also a much more efficient real estate market for 8,000-square-foot spaces versus 100,000 square feet [the size of traditional schools], where 95 percent of the space includes shared halls, an underused gym [and so forth]. On average, we offer children 95 square feet of facility space and 70 to 75 percent of square feet of classroom. Traditional schools offer 175 square feet of facility space and just 45 square feet of classroom.

You have several locations that right now charge families roughly $20,000 per student, a cost you plan to lower over time. But you also expect to license what you’re developing. Which will be the bigger business ultimately?

In the long term [licensees] is what we’re charting toward. It’s hard to imagine that you wouldn’t have an order of magnitude more impact [through licensing aspects of the business]. That said, I think it’s extraordinarily important to have an expanding number of schools; it’s how we iterate and refine what we’re doing and how we’ll stay closest to the school experience.

AltSchool has 75 employees currently, including 25 teachers, most from traditional backgrounds. Does their compensation differ much at AltSchool?

We take their base salary and give them a meaningful but small percentage raise. They also receive a performance-based bonus and their benefits are significantly better than the schools from which they’re coming. Everyone has equity in company, too, which represents a small fraction of their compensation but is expected to become significant as they stay with the company and level up in terms of their responsibility. It could represent a life-changing financial outcome . . . which is a big a deal in these professions where nothing great could happen to you financially, [where you] pretty much have to reconcile yourself with multi-decade grind.

That’s out of sync with the kind of 21st century entrepreneurial ideal, and there’s something odd [in thinking] that kids will learn 21st century skills from educators who aren’t given a 21st century work environment.

What is the exit for AltSchool? Do you plan to take it public eventually?

I’d hope that the scale and impact [we anticipate having] would justify going public, but there are alternatives to going public that the mission and business would benefit from and that would satisfy [investors’] desire for liquidity.

Such as?

Entirely new markets are opening up that are predicated on different mechanics and incentives. I have friends working on things that, if they were successful, would represent appealing alternatives. Also, you have this funny situation where if you go public, your investors are predictably mutual funds, pension funds, and large family offices, and you see companies just going directly to those investors. With Uber’s newest round, it’s essentially public; it raised capital from all those same people.

A third option would be around social impact investing and social impact bonds. We’re far from being the size that could turn to those — they’re growth capital — but we’re in a space where you could tie the capital you raise to the social benefit that you’re engendering. We’re a B Corp and the whole idea is that you can have a great business and operate as a good corporate citizen, and I think that idea is very in line with nascent capital avenues and new exchanges. Some of what’s happening is in stealth, but there’s lots of it going on.

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