Moving Ideas
SuriCruise+KatieHolmes
Aug 062012

American Revolution 2.0

“Education is the most powerful weapon which you can use to change the World.”
— Nelson Mandela

On Friday, The New York Daily News reported that the planet’s most famous rising kindergartner, Suri Cruise, is going to attend AVENUES — The World School this Fall. AVENUES, the most recent creation from media and education entrepreneur Chris Whittle, opens its doors in NYC in September with over 700 students paying a $40,000 tuition. (Disclosure: GSV Capital is an investor in AVENUES.)

AVENUES has a spectacular facility on “the High Line” in Chelsea, a world class faculty with the former President of Yale, the Former Head of Philips Exeter, the Former Head of Hotchkiss, and most impressively to New York residents, the former Head of the pre-school program at the 92nd Street Y on staff, and an international orientated curriculum.

AVENUES is building a global network of top tier private schools and will be opening sites in Beijing, London, Sao Paulo and Mexico City in the next several years.  

The concept is pretty simple: there is a tremendous demand imbalance for access to premier private schools in the major cities throughout the World. In NYC, there are over ten applicants for every one acceptance in the top 20 private schools in NYC, and in London they recommend expecting parents to get their children on the waiting list before they know whether they are have a boy or a girl.

Parents recognize that in a global marketplace and a knowledge-based economy, education makes the difference on how an individual does, how a company does and for that matter how a country does. Alas, things don’t look so great for the future of America based on that reality. In the 2009 PISA Test, 8th graders from the USA finish 31st in Math and 23rd in Science.

If the USA finished 31st, or 23rd in the London Olympics, heads will roll.  Unfortunately, these unsettling results are generally discussed only at elites’ cocktail parties while they send their kids to exclusive private schools.

This week, we are releasing a white paper “American Revolution 2.0 — How Education Innovation is Going to Revitalize America and Transform the U.S. Economy”. American Revolution 2.0 is a comprehensive analysis of the education system and what can be done to have a positive impact immediately. Below is an excerpt of our summary and conclusion. (To get the full report, please send an email request to mmoe@gsvam.com).

Conventional wisdom holds that the United States is a nation in decline, and that our national greatness is being eclipsed around the world by the rise of China, India, Brazil and the likes. Since the dark days following September 11th, we’ve spent considerable time, energy and resources undertaking nation-building in faraway lands—sadly, to the neglect of our own country’s needs. The core of our national infrastructure—our people, our human capital—has been ignored at our own peril, and has now put our country truly at risk.


The American Promise has always held that if you worked hard and kept your nose clean, you could enjoy gainful employment, an improving standard of living, and ultimately would be able to retire comfortably.

Since 1960, our GDP per capita has risen over 1,500%, from nearly $2,900 to over $47,000, and people from all over the World moved here to participate in the American Dream. Today, we suffer an 8.3% unemployment rate, with an estimated 12.7 million Americans unable to find a job… that’s more than the entire population of Ohio. For African-Americans and Latinos, the unemployment rate is substantially worse, at 14.4% and 11.0%, respectively. Including underemployed, the overall rate is 18.0%.

Depressingly, 51% of college graduates cannot find a job within a year of graduation; only 54% of all 18-24 year olds are employed, the lowest percentage in 60 years. Law graduates are becoming the “starving artist” of our day, with 45% not employed within nine months after receiving their diploma.

Tragically, in a world where knowledge and education are the fundamental currency needed to participate in a global marketplace, almost 30% of students are not graduating from high school and most young adults are entering college ill-prepared. In 2010, 43% of new college students at 4-year institutions and 50% of incoming students at 2-year institutions needed to take remedial classes to be college ready, an increase from 33% in 2002.

Our aspiration is to reinvent the future and we believe that the next 100 years for America will be even brighter than its past. We believe that education technology will be at the forefront of enabling this objective. The net result will be a learning society where opportunities will be abundant for the vast majority of our population.

The good news is that there is nothing we can’t solve through vision, strong leadership and disciplined execution. Throughout history, Americans have consistently demonstrated the ability to rise up, make the necessary changes and take the action required to solve the challenges facing us.

The bad news is that there is no “silver bullet,” and the complexity of the problem requires far-sighted strategic thinking and the political will to implement solutions as rapidly as possible.

We are optimistic—we see the potential to transform the education market and thus put the United States on track to be the “shining city on the hill” for the next hundred years, just as it has been for the last hundred years.

We need to re-conceptualize the entire education system to enact such bold changes, but the reality is that we need to “change the tires while the car is moving.”

Imagine if we didn’t have an existing system – what would we do to build the optimal education system? Balance that against the fact that back on Planet Earth, we have 77 million people in the U.S. that are already in some type of education program.

Despite some recent opinions to the contrary, we believe that capitalism works. Accordingly, our core belief is that if we can align our objectives with incentives, market forces will do a lot of the heavy lifting. Human capital, investment capital and innovation will flourish in a liberated educational ecosystem.

Recognizing that a journey of a thousand miles begins with the first step, we need to get going immediately.

Starting today, here are seven free ideas that almost every educator, student and administrator in the United States can implement to help lay the groundwork for the Revolution to come.

Our prescription is to use a “building block” logic with essentially a 15-year time horizon to accomplish our overall objective of either having or being the:
#1 learning society in the World
#1 in entering kindergarten prepared
#1 on PISA
#1 in high school completion rates
#1 in college completion rates
#1 in graduating engineers, scientists and computer programmers
#1 in career placement rates
#1 in worker productivity

It won’t be easy to achieve these big, hairy, audacious goals (BHAGs), but we believe the following “battle strategies” will move us significantly closer to that achievement.

  • To start, we adopt the Common Core in all 50 states and create incentives for innovators to develop disruptive, high-impact content.
  • We eliminate the term “education reform” as we focus on education innovation as the means to solve our education problem.
  • We outlaw the terms “for-profit” and “not-for-profit” as they represent corporate structures and thus have no bearing on the effectiveness of a particular program or product. Return on Education (”ROE”) becomes the objective measurement to determine if an education program is good or bad.
  • We implement a “universal” pre-school voucher program that guarantees each child will have access to quality early childhood education. Expensive? Yes, but not nearly as expensive as losing kids before they even start. The economic cost to society for a dropout is over $260,000. Hence, the ROE of the $5,000 investment we spend preparing kids to enter school is over 50x—not a bad return!
  • We create an open scoring system in both K-12 schools and post-secondary institutions that enables complete transparency regarding each school’s student progress, academic achievement and graduation rates.
  • We establish a “No Child Left Behind” program done right, in which national standards are consistently applied, with real consequences for schools that don’t teach, and conversely, real rewards for schools that are effective.
  • We create tax-deductible individual learner savings accounts that also earn interest tax-free while funds are invested. Beneficiaries would need to spend these funds within 5 years or the account becomes taxable, as does any interest earned. Employers will provide such educational accounts similar to how they provide retirement accounts and health savings accounts today.
  • We create an open marketplace for information on all schools, administrators, teachers, and ROE for educational products and services. “Zagat for Education” becomes a reality.
  • We embrace the philosophy of choice and competition by creating an even playing field for charter schools, virtual charters and other alternative programs. We recognize that it’s fundamentally immoral to deny students the opportunity to attend the best schools possible. We envision a system where the funding follows the student as resources are allocated to institutions that students and parents are choosing to go to.
  • We give every citizen a “virtual credentials wallet” that contains every class and learning module they’ve ever taken, along with relevant achievements and competencies. Scores are created in relevant disciplines where your “knowledge score” can be readily provided to employers and academic institutions.
  • We create a “Presidential Fitness Award” for STEM and create financial rewards for teachers that develop the most students achieving this Award. We celebrate the students who obtain the Award—along with their teachers—in their local communities and in the media.
  • We make Teach for America even more celebrated and scaled by enrolling the nation’s brightest college graduates to teach for two years. We engender a sense of service-to-country, akin to military service. The top 10% of college graduates across America should view it as their duty to serve their country by teaching in public schools. We provide funding to support the additional placements.
  • We buy every pre-K through 6th grade student in America a tablet computer. Yes, that price tag will be high—almost $5.5 billion at $200 per student. But the return will be exponentially higher, with these digital natives tapping into and unleashing the power of technology to rapidly accelerate their learning pace and broaden their scope of knowledge. Consider this: Microsoft’s R&D expenditure in the past 12 months was $10 billion, or almost double the estimated cost of putting a tablet in the hands of every American grade school student.
  • We establish Computer Language as a core curriculum that will be required from kindergarten on up. Students will need to be “trilingual” by the time they graduate from high school—English, a foreign language, and computer language.
  • We offer a tax deduction for any dollars spent on out-of-pocket learning. We turn the focus from mortgages to education every April 15th.
  • We endow a scholarship program through which the top 0.1% of global STEM students can attend their choice of American higher education institutions, provided they live in the United States for 5 years post-graduation.
  • We institute a “Truth in Education” policy. Students and parents sign a document before they accept enrollment that they have read and understand the percentage of students that graduates, the number of years it takes to graduate, the percentage of graduates that find a job within 12 month, the average starting salary, and the average student loan amount.
  • We adopt a policy stating that any foreign master’s or Ph.D. graduate from an accredited STEM program receives permanent residence status.
  • We create a national priority—led by the President and supported by public service announcements—that treats our international academic results like we do the Olympics. We create an “Academic Olympic Committee” to help drive our competitiveness. When the U.S. Ski Team did poorly in Italy, heads rolled, and performance in Vancouver four years later was dramatically improved.
  • We establish open standards that create measurement and credit for what a person learns and knows. Knowledge—as opposed to degrees—starts to become the currency for opportunity, but will take time for all “merchants” to accept.
  • We create a national objective that teachers need to be in the top 1/3 of their undergraduate class. In addition, we significantly increase merit pay for the best teachers. Teaching should be a sought-after position by the best and brightest, and nobody should have to economically rationalize their career as a teacher.
  • We eliminate locally elected school boards, recognizing that the process by which they are elected doesn’t correspond with either strategic planning or longer term results.
  • We give businesses tax credits for investing in employee training and development. We create a national index for measuring how well corporations invest in employee education—it is a shining point of pride to be known as the leading “education company” in America.
  • We tear up the old academic calendar both in K-12 and higher education. Summer breaks will be supplanted with “ski weeks,” while quarters and semesters are replaced by unit modules.
  • Longer term, we adopt a completely transparent merit system for teachers. Compensation will be 100% aligned with teacher effectiveness, performance of students, and market demand. In other words, a great math teacher won’t get paid the same as mediocre physical education teacher just because they’ve taught the same number of years.
  • We replace “seat time” as the metric for advancing to the next grade with “proficiency.” The teacher acts more as an individualized coach than a lecturer. Adaptive technology will facilitate individualized instruction, moving as quickly or as slowly as the student requires.
  • We adopt the “disaggregated” degree where a college student might have one “home campus” but be able to take courses online from anywhere they choose. The real value will be on optimizing the knowledge a student obtains but this truly “open campus” will also award degrees.

  • Today, we stand on a precipice and must decide to jump or cower and hope our challenges are magically solved. We could allow chaos and class warfare to dismantle the institutions that hold our society together. Conversely, we can choose a positive direction. We can provide a path for participation, reinventing, revitalizing, and revolutionizing education. To do this, we need to make the U.S. a learning society influenced by a KaizenEDU mindset.

    We call this American Revolution 2.0 for a reason: we must create a revolution led by education innovation. It will involve overthrowing the current powers that control education and students’ destiny.

    We cannot continue to try to “improve” our existing education system. We need to develop a new system that harnesses technology to improve the education of each student. This is how we arm students, both young and old, with the weapons they need to succeed and participate in the war that we call the future. Making radical changes and creating a new system is the only way to move forward. Reform only tries to improve a broken model. We need to radically think and innovate. We need not evolution but revolution in education.

    As Abraham Lincoln communicated to Congress in 1862 about the urgency of facing up to the challenges of the Civil War and its critical importance, the same can be said about education today:
    The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty, and we must rise with the occasion. As our case is new, so we must think anew, and act anew. We must disenthrall ourselves, and then we shall save our country.

    To get the full “American Revolution 2.0” report, please send an email request to mmoe@gsvam.com.

    __________

    Friday’s news of added jobs (despite the unemployment rate rising to 8.3%) and Spain‘s progress lifted stocks to end the week positive. The S&P 500 advanced 0.4%, the NASDAQ rose 0.3% and the Dow was up 0.2%.

    One of our long time favorites LinkedIn reported strong results with revenue up 89% and its stock responding in kind, up 16% Friday. This is in stark contrast to social leader Facebook, which is off 45% from its IPO debut.  

    Apple had a strong week up 5.2% having rebounded quickly from its disappointing second quarter results two weeks ago.  

    Knight Securities almost became the true “Dark Knight” with a software glitch costing them $440 million at the blink of an eye. Only a credit lifeline kept their doors open Friday. This being on the heels of NASDAQ’s software problems with Facebook’s IPO will undoubtedly create some heightened focus on the debate between man and machine.

    We continue to view the environment as a “stock picker’s market.”  Valuations are low but investors are unwilling to pay for “futures.” Any positive change to investors and/or business leaders confidence would result in stocks “melting up,” in our opinion.

    ______

    Bubblin…
    From Luben

    Brand is something we care about a lot at GSV. It is quite remarkable what a strong brand can do and how much value it creates. One specific brand that has been improving incredibly lately is Beats by Dr. Dre. For those of you not familiar, Dr. Dre is one of the top Hip Hop and R&B producers and musician. A few years ago he started his headset product, Beats, and has seen it skyrocket and become one of the most desired gadgets by the younger generation.

    Dr. Dre took a very good marketing approach by promoting the brand in music videos and movies. Lady Gaga’s Poker Face in 2009 was one of the first big time video clips that featured the new headset. Many top selling songs/video followed with a long list of star artists promoting the product.

    The headset is not really the most important gadget for music listening – usually the smartphone (iPhone) being the more important one. On a price comparison however, the Beats headset is coming close to the cost of the smartphone, with different models ranging between $150 and $400. And if you think the more expensive ones aren’t selling well, just walk around outside and take a look. No matter what city you are in, young people are wearing the Beats headsets like jewelry. Every time I enter the Paris metro, I am amazed how many Beats headsets I can count. On my latest flight across the Atlantic, I was surrounded by eight kids having Beats on… and that was just the area I was able to see (which was 1/3rd of the plane).

    The sound quality is indeed superior to anything else. Regardless of whether you are a professional musician or just a casual music listener, you do get a nirvana moment when you put Beats for the first time… I certainly had mine.

    The Brand factor is just amazing. Especially when considering that demand for such a product is usually very elastic – when prices go up, demand falls down. That’s not the case here; people are valuing Beats like valuing the iPod when it first came out. Other products that have had similar Brand effects include Lululemon’s sportswear (especially for women), Jawbone’s Up wristband (before it had to be taken off the market), and obviously Apple’s iProduct family (iPod, iPhone, iPad) at each respective launch, etc.

    Beats Electronics, the parent company, received a $300 million investment from HTC last year, but sold half of it back to Beats and its two founders Dr. Dre and Jimmy Iovine who now own 75% of the company.

    Some interesting bubbling from the past week included CardSpring, a payment startup that connects web and mobile apps to payment cards. Its payment system works with any card (Visa, MasterCard, Amex, etc) as it is cloud-based and directly connected to the payment networks. CardSpring helps developers to build card-linked applications that trigger every time a user pays by credit or debt card.

    The big news last week was that CardSpring had teamed up with First Data, US’s largest payment processor reaching over 4 million merchant accounts. Additionally, the company has some top profile investors including Intuit’s Bill Campbell and LinkedIn’s Jeff Weiner. CardSpring has already received $10 million of VC funding from Accel, SV Angel and Greylock among a few others.

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