1. © 2002 Market Intelligence for the Education Economy 1 Evaluating New Ventures for Non-Tuition Revenue Peter J. Stokes, Ph.D. Eduventures, Inc. Independent Schools Financing Symposium November 23-24, 2002 Herndon, VA

2. © 2002 Market Intelligence for the Education Economy 2 Agenda Introduction An Industry Perspective Opportunities for Independent Schools Discussion

3. © 2002 Market Intelligence for the Education Economy 3 About Eduventures Research and advisory firm covering learning markets since 1993 Assisting institutions in thinking strategically about products & services investments Helping providers drive growth Delivering an independent view on key market issues

4. © 2002 Market Intelligence for the Education Economy 4 Purpose of this Discussion See what the for-profit market can provide in the way of comparables and models Brainstorm and pressure test these ideas Identify areas for further investigation

5. © 2002 Market Intelligence for the Education Economy 5 The Challenges Is there really a financing problem here? –If so, is it something you would risk your brand to fix? Getting out of the either/or box –E.g., raise prices or reduce expenses –Moving to a both/and view of the possibilities The tension between mission and money –Every species’ mission is to reproduce itself (status quo) –But doing it successfully can require adaptation to environmental changes (new value proposition / ROI) The tension between provocation and practicality –For-profit models will have limited applicability if you believe there is no need to adapt –Or, for-profits may signal how the environment is changing

6. © 2002 Market Intelligence for the Education Economy 6 Agenda Introduction Industry Perspective Opportunities for Independent Schools Discussion

7. © 2002 Market Intelligence for the Education Economy 7 Education Industry Childcare K-12 Schools Publishing Tutor/Test Prep Technology Procurement Prof. Dev. Pre-K-12 Postsecondary Education Publishing Technology Procurement Language Training Postsecondary Instructor-Led E-Learning Content Publishing Synchronous E-Learn E-Learn Platforms Testing/Assessment Corporate

8. © 2002 Market Intelligence for the Education Economy 8 Industry Avg. 5.5% Growth

9. © 2002 Market Intelligence for the Education Economy 9 Pre-K-12 Revenue $58 Billion

10. © 2002 Market Intelligence for the Education Economy 10 Venture Capital Decline

11. © 2002 Market Intelligence for the Education Economy 11 Industry Investment Decline

12. © 2002 Market Intelligence for the Education Economy 12 End of Irrational Exuberance

13. © 2002 Market Intelligence for the Education Economy 13 K-12 Investment Declines

14. © 2002 Market Intelligence for the Education Economy 14 Industry Avg. 2.5% of Total

15. © 2002 Market Intelligence for the Education Economy 15 What It Means for Schools K-12 market increasingly entrepreneurial as education reform and technology converge “No Child Left Behind” Act driving growth / creating new opportunities following the venture bust For-profits bringing a new kind of commercial and educational expertise to market

16. © 2002 Market Intelligence for the Education Economy 16 Agenda Introduction Industry Perspective Opportunities for Independent Schools Discussion

17. © 2002 Market Intelligence for the Education Economy 17 Coping with Ripple Effects Financing Pressure Points Weakened global economy Tuition discounting Increases in restricted philanthropy Growing reliance on debt Have you bled all of the inefficiencies out of the cost side of the equation? Are there business processes you can outsource? Financial aid? Human Resources? Etc.

18. © 2002 Market Intelligence for the Education Economy 18 New Opportunities Diversify income streams through entrepreneurial efforts The three I’s: –Intellectual property –Incorporation –Internationalization

19. © 2002 Market Intelligence for the Education Economy 19 Opportunity Map SCHOOLS Debt Philanthropy Tuition Sale of Assets CurriculumAssessment TutoringRecruitment Distance Learning Reselling Internationalization Incorporation Core Streams Today Opportunities to Productize Intellectual Capital Reaching New Markets & Aggregating Buyers Risks grow with movement away from the core.

20. © 2002 Market Intelligence for the Education Economy 20 Defining Opportunities OpportunityDefinitionRationale Intellectual Property Incorporation International Productization of assets in the form of expertise around curricula,assessment, recruitment, pedagogy, etc. Leveraging assets and entrepreneurial skills to reach foreign markets and bring U.S. content, technology and services to new markets. Schools are not monetizing the assets they possess, especially with respect to human and intellectual capital. Protects traditional value proposition while creating new opportunities to leverage intellectual property. Deepens and broadens target customer pool while creating opportunities to scale entrepreneurial activities. Entrepreneurial efforts to diversify organizational structure, revenue streams and market reach.

21. © 2002 Market Intelligence for the Education Economy 21 Intellectual Property Cf. Edison Schools –After-school & summer programs –Affiliates program –Benchmark Assessments –Achievement Management System –Achievement Advisor –Professional Development –Projecting $100 million in three years For more information, visit www.edisonschools.com

22. © 2002 Market Intelligence for the Education Economy 22 Incorporation British Columbia, Canada –School Act Legislation amended this year –Districts able to form corporations as adjuncts to school boards Designed to protect schools engaged in business around Pacific Rim (especially distance learning) Creates new opportunities for schools to “do business” at home and overseas Contact for more information: Russ Pacey, Associate Superintendent, Westminster School District

23. © 2002 Market Intelligence for the Education Economy 23 Internationalization Enhancing value of service in local market through international partnerships –Cf. Nobel Learning Communities & South Ocean Development Group Aggregate international buyers and act as reseller / sales channel for your assets or U.S. businesses looking to expand internationally –Cf. Westminster School District For more information, “A Global Education Market? Global Businesses Building Local Markets” at www.eduventures.com World Education Market conference 2003, Lisbon, Portugal

24. © 2002 Market Intelligence for the Education Economy 24 Risks Intellectual property assets are not truly unique Entrepreneurial culture change difficult to manage Business development skills necessary to establish sales strategy may not be available Sales channels difficult to establish Chicken or egg problem: how to aggregate buyers without product and service partnerships / how to establish partnerships without having first aggregated buyers Dilution of core value proposition and erosion of quality of service Result: another set of ripple effects to cope with in addition to those pressures you already struggle with

25. © 2002 Market Intelligence for the Education Economy 25 Discussion: Where to Next?

26. © 2002 Market Intelligence for the Education Economy 26 Contact Peter J. Stokes Executive Vice President Eduventures, Inc. 20 Park Plaza, Suite 1300 Boston, MA 02116 617-426-5622 Fax 617-426-5431 pstokes@eduventures.com www.eduventures.com