What ‘Impact Investing’ Means in Education
“Impact investing” is a term that has become increasingly common—even trendy—in the education sector. Many investors, foundations and even private equity firms have started so-called impact investment funds with a mission to support companies involved in teaching and learning.
One of them is the Lumina Foundation, which has awarded hundreds of millions of dollars in grants to universities and education nonprofits since it was started in 2000. In 2016, Lumina launched a venture capital arm to make direct investments in education companies. Unlike grants, these investments means Lumina is taking ownership stakes in for-profit startups.
At this year’s ASU GSV Summit in San Diego, a gathering for education entrepreneurs and investors, we caught up with John Duong, managing director at Lumina Impact Ventures, to learn about why Lumina is getting into the venture capital game, and how its investments align with its strategy in higher education and the workforce. Duong also offers some thoughts on “impact-washing,” whereby investors make inauthentic claims about making a positive social impact through their investments.
Listen to the discussion on this week’s EdSurge On Air podcast. You can follow the podcast on the Apple Podcast app, Spotify, Stitcher, Google Play Music or wherever you listen. Or read a portion of the interview below, edited for clarity.
EdSurge: How does Lumina Impact Ventures support the work of the Lumina Foundation?John Duong, Managing Direcor, Lumina Impact Ventures
Duong: Lumina Foundation is the largest private foundation focused exclusively on higher ed. Traditionally we operated like most foundations, in terms of making grants to causes that align with our mission. These typically are nonprofit organizations.
We started doing impact investing back in 2010 through our fund investment strategy and invested in a couple fund managers. The hope then was that we would be able to catalyze more investors into the education space. Back then, there weren’t that many groups—one or two at most. New Markets Venture Partners was one of the early ones. Today, there’s a lot more.
Lumina Impact Ventures was an evolution from investing in funds into doing direct investments in companies. This is a shift in how we think about partnering with entrepreneurs, by leveraging technology services and products from them and partnering with other stakeholders that traditionally have not been what Lumina has worked with.
Describe the recent investments and how they tie into Lumina’s broader mission.
The foundation side focuses on policy, at the state and federal levels, working with employers and higher-ed institutions, trying to change the learning infrastructure and ecosystem. We also work and engage with local communities to develop talent pathways.
On the investment side, we try to figure out where we can plug in to those various initiatives. With the learning infrastructure work, for example, we have Credly, our very first investment that is working on digital, competency-based credentials.
We also focus on data interoperability. When you think about government agencies and higher-ed institutions, they all have disparate datasets that don’t talk to each other. So we invested in a company called BrightHive to essentially make that dataset interoperable.
Then we look at student support services. Upswing is another company of ours, which is serving the community college sector by providing student support services like tutoring, and nudging tools to remind students when their financial aid forms are due. All of these different pieces align with Lumina’s mission of ultimately increasing attainment in the higher ed space.
We also try to support entrepreneurs of color. Six out of our 11 companies are led by entrepreneurs of color or women. This is very important for us given the demographic that we’re trying to serve.
How many investments has your team done, and what size checks does Lumina Impact Ventures write?
We have made 11 investments that are traditional investments, and we’ve also backed four different accelerators. The check sizes vary depending on which stage a company is in. We typically look at seed and Series A stages, although we are agnostic. Our check sizes range between $500,000 to $1.5 million.
‘Social impact’ has become a bit of a trendy term these days. Define what ‘impact’ means for Lumina.
We think about impact across different aspects, and one is quantitative: How many students did we impact? How many adult students returned to school and finished? These, and other questions around access, financing and degree completion are things that we track.
The other side is more qualitative. Think about influence. Can our entrepreneurs potentially influence some legislation or regulation, for instance, in how credentials are being used, or how blockchains are being developed and being utilized for credentialing?
The last piece is leverage. How do we leverage and influence other investors to not only put up capital to co-invest, but also to partner with them? We connect our entrepreneurs to different stakeholders—it might be a nonprofit grantee of ours or another nonprofit, or another for-profit that might leverage their technology to be utilized. The National Restaurant Association, for example, is a great partner of ours. We know them well on a grant-making side, but their members may leverage some of the technology and tools from our portfolio companies.
From credentialing to careers, in which areas do you think the higher ed industry has made the most progress?
I would say there’s a shift away from the traditional focus on seat-based or hour-based credentialing. In traditional higher ed, you sit in a classroom for these many hours, do a bunch of exams and get your degree.
Now there’s a growing focus on competency-based learning. The shift towards competency-based education—or “competencies as currencies” as we call it internally—offers a skills-based approach to vetting whether or not someone can do the job. As an employer, you’re going to care more about what individuals are able to do, more than the degree that they have. That shift is one thing that we’re really excited about and I think we’ll continue to see that grow.
How can you connect all the different places where learning may be happening in a way that’s clear to prospective employers?
We spun out another nonprofit, Credential Engine, which serves as the middle layer that can essentially take all different types of credentials and transcribe them. It will standardize different types of skills so that it doesn’t matter where you earned them, but it can be transcribed in a way that when a job posting gets put out there and you tag the job requirements appropriately, people will know exactly what skills are needed.
Lumina is trying to play a role in answering the question: How do we make sure that all this stuff integrates and efficiently drives students to make sure that they’re successful?
What remains a nagging, persistent challenge in higher ed?
One is the equity imperative. We want to serve low-income learners, and we want to focus on three specific demographic areas: African American, Hispanic and Native American populations that have the greatest postsecondary attainment gap. I don’t think we’ve done well yet. If you look at the statistics, the gap hasn’t been closing.
The second one is: How do you connect the dots between what someone learns from a higher ed institution to what skills an employer is requiring? That disconnect is still there.
Many students getting an education are doing so with some career aspirations in mind, and it is the learning institution’s job to help them. They’re not like, “Hey, I’m just going to go and learn”—which is fine if you have that luxury—but the majority of people going into school are trying to get the skills necessary to get them to a better professional career track and pathway.
How much do we want the industry and employers to have a say in what students learn? Is there a risk that postsecondary education becomes too influenced by the demands of the job market and employers?
I don’t have a problem with it as long as [getting a job] isn’t the sole purpose of education. It is an option that allows people to improve their professional and personal situation, but getting a job shouldn’t be a limitation in that it is the only specific purpose for which education is being pursued. That would be a mistake.
What is the purpose of someone’s decision to pursue an education? If someone’s going to take basket weaving, there’s nothing wrong with that. It’s not going to get them a tech job—fine. But there are people who do want to get a tech job that really are struggling. We often talk about tech because of Silicon Valley, but the reality is it could be any other high-demand job like plumbing. That’s a very high-paying job, which people don’t realize.
On the issue of postsecondary access and attainment, what were your initial reactions to the college admissions scandal?
I’m going to caveat that this is John’s view and not Lumina.
A couple of things: None of this is a surprise. I think the surprise is that someone got caught. But if you really talk to people, we know how the system works. We know how the game is played, and it’s an uneven playing field. That’s really sad, but the reality is none of this is a surprise.
However, our job, particularly in philanthropy, is to make the field a little bit more equal. It will never be perfectly leveled. I’m an optimist, but I still don’t believe that it’ll ever be perfectly a level playing field. Our goal as a society should be to take away any obstacle for social mobility. That way, if someone is willing to work hard, he or she should have just as much access to opportunities as somebody who’s privileged.
One of the guys caught [Bill McGlashan] happened to have started one of the biggest social impact investment funds [TPG Rise]. How does that impact ‘impact investing’ and its reputation?
The purists in impact investing are going to say, “This is going to be a perfect example of traditional finance coming in because there’s a huge demand for it, but they’re not authentic. Therefore, there you go, ‘I told you so. Impact investing from traditional investors is just wrong and they’re just white-washing.’”
I think that’s the wrong view. Quite frankly, we are going to need social and traditional finance to come into impact investing in the long term for it to be sustainable and impactful.
One bad example should not derail the whole momentum that we’ve seen in impact investing. I think in the long term, we’re going to see more and more traditional capital coming in with more authenticity to drive the social change that we want to see happen. Eventually, impact investing is just going to be investing. To be sustainable and successful requires taking into account all different stakeholders—not just your investors. It will also make your company much more valuable in the long run.
Is ‘impact washing’ a concern for the reputation the impact investment community industries, especially for someone like Lumina?
I definitely think it is a concern. It’s no different than when a company comes to us saying that, “Hey, we are very impact-oriented because we’ve got these many individuals that look a certain way that check the box.”
When we do diligence on a company, we look at who they serve, the technology, what it’s meant to do. Does the company really serve our mission—and not just because its team looks a certain way? That’s not enough. Checking the box is not what we’re doing.
Impact investing groups deserves the same scrutiny. Look at what they’re doing in terms of investing and the type of companies they support, and whether they are actually impact-oriented. Words are one thing, but action really speaks louder than anything.