Investors looking to tap into the global market for affordable learning, which is growing at about 8% a year and is forecast to be worth some $320bn by 2020, should start small and take the necessary time to do due diligence.
That is the advice of Katelyn Donnelly, managing director of Pearson Affordable Learning Fund (PALF) , which makes equity investments in for-profit education startups in developing countries on behalf of educational publisher Pearson.
“We spent our first year understanding the market and visited 50 schools,” Donnelly said. “We found the best team in Ghana, then learned from that experience how to find the next investments. [It is important to] do the primary research yourself and be willing to learn and evaluate as you go along.”
The fund was launched in 2012, and as an international investor PALF is often a first mover within the affordable education investment space. It began with $15m to invest, and now has $65m in assets under management.
PALF takes significant minority stakes of between 20% and 45% in its portfolio companies, advising on all aspects of the business, from strategy, management and operational issues to regulation.
One of PALF’s portfolio companies, Omega, is a chain of affordable schools in Ghana that serves about 20,000 students.
Since regulation is such a critical part of the business, it is especially important to set up a productive dialogue with local governments, PALF’s chairman and co-founder Sir Michael Barber said.
“In our field, if you set [a school] up in opposition to the government, you fail,” Barber said. “We are [investing] not because the government has failed but because you can innovate,” he said, and to discover student outcomes that can be transferred into publicly funded school systems.