Annual Letter 2015
Five years ago, after working in strategy consulting for several years, I felt the need to get my hands dirty; I wanted to drive tangible change in the real world and never imagined where that would take me. I had been advising on strategy and transformation at some of the largest finance and technology clients and saw a project on the pipeline to work with the government in Pakistan help reform its education system. The firm’s partner on the assignment wasn’t an average leader, but a British knight who had dedicated many years to developing an innovative and effective method of government reform. Sign me up!
Pakistan was the first time I was confronted by the abysmal state of education that millions of children and parents face around the world. I remember conducting my first site visit around Lahore. I exited our heavily armored vehicle and walked down a dusty path to a shabby school, where a group of children sitting on the ground outside, smoke churning from a brick kiln nearby. Someone had alerted the teacher that we were coming, and she had quickly assembled the students and thrown dirty books into their hands. The books had tiny English text, and as the students flipped through the pages, unable to read, it was clear that no one was learning much.
The partner on the Pakistan project, Sir Michael Barber, and I joined Pearson shortly after and conceptualized a way for the world’s largest education company to play a leading role in fueling innovation across the developing world—and therefore better learning outcomes.
We knew by then that large swaths of parents and students in the developing world have a tremendous demand for high-quality education and would choose to invest their scarce dollars in learning opportunities to provide for a better future for their families.
It was clear everywhere we went—from Pakistan to Ghana to the Philippines—parents, students, and heads of state saw education and skill development as a critical gateway to a more prosperous life and a stronger economy. What was lacking was organization, knowledge and capital. How could these parents and students get access to high-quality options? What financing already existed to support entrepreneurs with solutions? Who measured learning outcomes and quality, and how did they do it? Could we make business models viable for investment?
Given this demand, we believed we were uniquely placed to combine the knowledge of which learning models worked with the investment needed to succeed.
Pearson’s leadership agreed with our analysis, and in 2012 took up our recommendation to create a global investment fund. The Pearson Affordable Learning Fund (PALF) would have a laser focus on education companies in the developing world demonstrating high learning gains for low cost.
We would make financial returns by investing in local entrepreneurs who built for the long term. We set out to be the first global education fund of our kind.
The last four years I have been on a learning rocketship. Although the mandate was clear, how to get there was not. All the data and intuition told us we were onto a big, global phenomenon. But we had to find out if it was real. And if it was, how to capture it. At Pearson, we have developed a sophisticated method for measuring learning outcomes—what we call “efficacy”—which we apply rigorously to every investment we make.
We launched PALF in May 2012 with our first investment in Omega Schools, with the vision that affordable fees and a focus on quality and scale would drive a successful group of schools and ultimately a successful business. Since then we have invested in 10 companies, spanning five countries, and allocated our first fund of 15 million dollars. Building on our success, we plan to invest a further 50 million dollars through PALF in the next few years. Our portfolio companies are on an upward trajectory toward growth, profitability and better learning outcomes. For instance:
- Avanti, which provides test preparation for students in India, helped one of their students, Ayush Sharma, get a full scholarship to MIT.
- At SPARK Schools in South Africa, students on average learn one and a half years of curriculum in one year of study.
- Students in India who are in classrooms with Zaya’s content and technology perform 24% better in English and 14% better in math.
Working with the very best local entrepreneurs is what makes PALF possible—education leaders who understand the unique needs of their students and their markets. We’re proud that half of our capital is invested with female founders, in a world where many startups in both the developed and developing worlds are still overwhelmingly male.
We know that to be truly revolutionary we will need to scale up the innovation our entrepreneurs are fostering. We will need to demonstrate to governments that these innovations can help them answer the most important question in education: how can we ensure that every child has access to a high quality of education. And then develop the strong, transparent, standards for learning across all schools—public or private.
We are not yet declaring victory—far from it. We’ve had setbacks, big and small. Some parents have been understandably wary of an innovative curriculum that’s not familiar to them, schools have had bomb threats and summer interns have contracted bed bugs and sand fleas. Despite many challenges, the dedication from the local leaders of our portfolio companies has been incredible. Every time we visit the education institutions they run and support, we are reminded of the large, tangible impact that we are helping them make on students’ lives.
The world has begun to take notice of our work. We’ve found great supporters—DFID has launched a study into low cost private education, the Economist ran a cover story on the market, and large impact investors like Omidyar Network and the Michael and Susan Dell Foundation have begun to co-invest with us. Harvard Business School has even published a case study on PALF.
But as with any great endeavor, there have been critics as well, who would like to see any investment dedicated to directly improving the public sector. Like them, we believe that every child should have access to higher quality education, but we are certain that the private sector has a vital role to play in making this a reality. The Punjab education secretary once told me about the death threats he received for implementing bold reform - when I expressed dismay and support for his courage, he assured me with a grin that threats on his life were a measure of success. The status quo never goes down without a fight.
Everything we have learned and seen has refined and emboldened our approach. Pearson, the world’s leading learning company, deeply believes in and shares our mission (Thank you, John). We are building a top team with the skills and ambition to find new ventures and manage our growing portfolio, and we’ve found a coalition of organizations who are as excited as we are at the prospect of investing to improve learning outcomes.
Governments, too, express interest in our work—they know that innovation and collaboration will be vital to their ultimate success. We have fueled the fire for entrepreneurs and investors to believe they can be successful in tackling the education crisis. And, most importantly, despite the uncertain times we live in, parents and students everywhere desperately deserve and are demanding a better education. Meeting their demand is why we do what we do.
I hope that our letter shares a few of the insights we’ve gained and the progress our portfolio companies have made, while also providing inspiration to the next generation of entrepreneurs.
When we formed PALF, we hoped to spark ambition and excitement in every corner of the globe at the prospect of shaking up education for the better. Having travelled thousands of miles, and met hundreds of fellow travellers, I am more optimistic than ever that we’re making progress on the journey to universal high-quality education that helps all young people to flourish.
Pearson Affordable Learning Fund