The Business of Education

A few weeks ago, AEI held their annual education entrepreneurship presentation where they have the usual suspects (TFA, KIPP, TNTP, Edison, New Leaders etc – it seems they are required for every education panel) present and talk about how difficult it is for entrepreneurs in education. Attending this annual event, you would feel that these are the only companies working in education and that there is no hope for business in education.

You would be wrong. I do some investing in the markets and the conventional wisdom is to invest in what you know. So six months ago I started researching education companies starting mostly in the postsecondary arena. I started following Apollo, Capella, Corinthian and DeVry. They are doing extremely well and I learned some interesting things.

Apollo – which owns Phoenix University now has over 300,000 students. The are now leveraging that knowledge and success and venturing into the K-12 space through the purchase of Insight Schools – an online high school.

DeVry now has close to $1B in revenue and owns a Medical School in the Caribbean. Caribbean med schools attract many US students who can’t get into schools here. As long as they pass their med boards – they become physicians in the US. (hmmm – do some preparation, pass rigorous exams and enter the profession through an alternative route to help solve shortages – seems like a good idea).

American Public Education recently went public – it was supposed to come out at $18 per share the first week of November 2007. It came out at $30 and is now at $42 (disclosure – I did buy some at $30 and still have those shares). And the owners are not even using the proceeds of the offering for expansion – they are using it to pay themselves!!

Kaplan Education is now a $2B company and continues to expand.

The point is that business follows the money – and education is rapidly becoming the place for big money. The owners of the companies listed above are now making huge bucks and took away millions in their stock offerings.

Digging further – check out Knowledge Universe. The Milken brothers have put together a dream team of business management and are creating a PreK through Post Secondary super-company. They own a large slice of K12, KinderCare and a pretty solid mix of other education companies. K12 is going public in the next few weeks which should provide some pretty hefty capital for Knowledge Universe and K12.

Digging even further – Sterling Partners bought out Educate Inc (Sylvan and others) back in June and now have an impressive portfolio of education companies. They have committed to investing even more in education.

The point: when business makes money, more money will flow. Business is starting to make big money in education and that will create the opportunity for more money to flow into education. This will change provide incredible changes in education over the next few years.

Hopefully – AEI will break from the usual suspects and get some of these companies that are taking education entrepreneurship to the absolute highest level.