This Is Not Your Grandfather’s SAM

Over the past two years, we have commented repeatedly on the enormous impact on education caused by various pandemic mitigation measures. School closures, lost socialization, and poorly executed remote instruction have disrupted learning progress for millions of students. Remediating the resulting shortfalls is likely to remain the major focus of K-12 public-school spending for years to come and many institutional and consumer education market trends reflect that priority.

But there is growing evidence that these temporary disruptions may have led to even more meaningful structural changes in how America goes to school. The rise in homeschooling and microschooling is one example; a resurgence among private schools is another. Below we look at some recent reporting and the impact that the trends they highlight seem to be having in the investment market for education.

The Great Exodus

It’s well known that shocking numbers of students left public schools in the 2020-2021 school year. Following the Spring 2020 school closures, public school enrollment declined by 2.5% or 1 in 40 children. What is less well known is that overall enrollment declined another 0.2% (91,000 children) in the 2021-2022 school year. Contained in that overall decline was a net migration of students from more-remote districts to less-remote districts, with 19 states reporting net losses and five states reporting net gains. However overall, 1.2 million students have left the system entirely since the spring of 2020.

Moreover, preliminary evidence from recent Tyton Partners’ surveys of more than 6,000 parents reinforce that the pandemic has reshaped parents’ attitudes toward their child’s education – more than 50% report their preferences have changed because of the pandemic – as well as catalyzed an exit from public schools. Later this summer, we will publish the full findings from this research, conducted with support from Walton Family Foundation and Stand Together Trust, that includes insights on parents’ perceptions, priorities, and school choices pre- through post-pandemic.

Of course, the first concern is for those children that may have left schooling altogether, and while there is no good data for this number, reporting offers many concerning anecdotes. Furthermore, the disruptions in certain areas have been so concentrated that it has placed considerable financial pressure on school districts, forcing dramatic school consolidation. But for most of the declines, it has meant alternative schooling decisions made by families – decisions that appear to be taking permanent hold and driving a range of new related investments.

The New Alternatives

Some of the net loss in public schools has meant growth in homeschooling. A U.S. Census Department estimate places the number of U.S. families homeschooling at least one child in the fall of 2021 at 11.1%, up from 5.4% in the Spring of 2020. Among Black families, according to the same analysis, the rate increased five-fold from 3.3% to 16.1%. California, where public school enrollment has dropped to its lowest level in 20 years, saw homeschooling applications from parents double from about 20,000 in the 2019 school year to 35,000 in 2021.

This increase in homeschooling, including small group schooling, has resulted in a wave of new education start-ups and investments. We have written previously about the emergence of homeschool support providers like Schoolhouse and KaiPod. And this month, microschool provider Prenda received $20 million in a Series B round led by Seven Seven Six (776) to build out its technology infrastructure.

The other beneficiary of the dislocation caused by school closures and dissatisfaction with remote schooling has been parochial and private schools. According to the New York Times, both the National Association of Independent Schools (NAIS) and the National Catholic Educational Association (NCEA) have reported increases that total about 73,000 K-12 students during the past two years. While some private schools experienced declines due to remote instruction, anecdotal data suggests that most enrollments have seen a more recent surge to pre-pandemic levels or better as parents have re-evaluated the quality, reliability, and importance of their children’s education.

Investor Directions

Investors have been quietly investing against this trend for months. We’ve written previously about the consolidation by providers such as Forfar Education, Cognita Schools, Leeds Equity-owned Endeavor Schools, and International Schools Partnership. And last month, New York-based investment firm Stonepeak made a not-so-quiet €1 billion minority investment in global “premium” private school provider Inspired Education Group. Founder Nadim M. Nsouli will retain control of the company and continue to direct its day-to-day operations. Inspired currently operates 70 premium K-13 schools in 20 countries on 5 continents, serving more than 55,000 children.

As with other industries, growing private equity involvement in the independent school market is likely to drive stronger marketing and operational practices. These changes are, in turn, likely to foster and fuel the Covid-catalyzed trend toward alternative school options, whether traditional private schools, micro-schools, homeschooling, or new hybrids. We are actively monitoring this situation through our ongoing School Disrupted initiative and will be publishing a 2022 update later this summer. To learn more about these trends and discuss our work in this newly expanding sector, please feel free to reach out directly.