Pearson Affordable Learning Fund

Katelyn Donnelly

PALF operates at the intersection of three types of investors, integrating the best of each approach

Longer horizons and intense social impact metric reporting Focus on maximising social impact

Focus on financial sustainability and financial metricsMaximise profits and scale

Provide services in regions that are currently underservedEmerging market experience

Impact investing

Private equity / venture capital

in education

Emerging markets investing

Pearson Affordable Learning

Fund

We provide additional value through our deep education expertise and relentless focus on efficacy

We remain focused on providing high quality, low cost K12 education while ensuring competitive returns

Short-term objective

• To generate a 25% IRR on invested capital over 5-10 years by helping provide 1 million children from low income families with a quality education that is substantially better than alternative schools

• Use this success as a basis for dialogue with developing-country governments and donor agencies about including LCPS as part of their strategy to improve educational outcomes for the poor

Long-term vision

• To help provide millions of the poorest children in the world with a quality education, in a profitable and scalable manner

• To demonstrate to governments and donors that low-cost private education can help educate the poor in a cost-effective way

The low-cost education ecosystem

4

Content(e.g., curriculum, textbooks)

Teaching(e.g., recruitment, training)

Supplementary education(e.g., private tuition, sports)

Business operations(e.g., pricing, marketing)

Facilities(e.g.,

furniture, technology)

Manage-ment

(e.g., head teachers,

monitoring)

Pre-primary

Primary

Secondary

Low-cost private

Low-cost providers

In scope

Out of scope

Pre-primary

Primary

Secondary

Government

Pre-primary

Primary

Secondary

Other non-govt

Mapped the global landscape for low cost private education

Taken a leadership role in the global debate on the subject

Made our first investment (Omega Schools, Ghana)

Continued monitoring of Bridge International Academies in Kenya

Reached in principle agreement on Pearson JV and opened one pilot school this year in Manila with planes for 11 more in 2014

Completed an investment Avanti Learning Centers

Established the India Edupreneur incubator program to incubate 14 early stage companies and make a seed investment in the top 2 (Sudiksha and Experifun)

Developed a robust pipeline of investment opportunities

Built successful relationships with key low cost education stakeholders and impact investors

Since PALF was established we have:

One of our most catalytic roles has been incubating entrepreneurs and forming networks through Edupreneurs

Success to date:

India program 2013

Growing our impact:

3 programs in next 18 months

• Over 140 applications for 14 spots

• 120+ hours of in-person instruction and 15-20 additional hours mentorship

• 27 leaders from 14 start-ups met with 30 external experts and industry leaders

• 2 investments made, 1 in further discussion, 4 others actively tracked

• Alumni have also engaged with various units of Pearson India and strengthened their models for low-income customers

• South Africa in winter 2014; India in summer 2015; Brazil in winter 2015

• Cohorts of 12-15 start-ups each, at least two receive funding upon completion

• Seconded expert from Pearson Catalyst

• Building off best practices of incubators around the world, including ensuring funding awards are cost efficient

• Developing playbook for cultivating entrepreneurial activities and networks that applies to broader Pearson business

We hope to allocate significant fund capital, upon closing Immediate Priority investments

IMMEDIATE PRIORITIES

Dimension:LOW-COST ECOSYSTEM STAGE OF LIFE

Omega Schools, • LCPS chain in Africa (K-10) • Scaling the model1

Secondary School chain JV with Corporate in the Philippines

3 • LCPS chain in urban Manila

• Proving the model

Avanti Learning Centres4 • After-school labs for university entrance exam preparation

• Proving the model

EXISTING INVESTMENTS

PALF-Vilcap: EdupreneursIndia

• Seed stage incubator • Proving the model2

7

Blended learning school in South Africa

5 • Blended-learning LCPS • Scaling the model

Blended learning software provider in India

6 • Blended learning school in a box solution

• Proving the model

Over the last year we’ve learned more about the market and adapted accordingly…

Few investment opportunities at our ideal growth stage

Talent recruitment is difficult

Government relationships are critical

Key insights Reaction

• Expanded our investment scope to include earlier stage investments, to increase pipeline and partner with promising entrepreneurs earlier

• Designed the Edupreneurs programme in India to incubate a new cohort of ventures

• Developed key regulatory and government relationships

• Worked with the World Bank to help guide their comprehensive research on low cost private schools regulations research, starting with Ghana

• Backed strong talent early through the establishment of a new JV

• Leveraged our global network to find strong entrepreneurs (e.g., formal partnership with Ashoka)

• Launched Edupreneurs to build a broader talent pool -- opportunity to do this in Kena

• Hired high quality interns and hope to recruit two quality business development managers

…we have also learned about the challenges of applying our investment approach to the market

Options

Invest in existing chain

Invest in existing service providers

Establish new venture

Edupreneurs / Seed funding

Challenge

• Very few existing chains are ready to scale and can take equity investments at our optimal return rate

• Difficult to navigate new regulatory environments, trust partners and manage costs.

• Regulatory hurdles can cause delays but might have large, long-term payoff

• Very early stage and highly uncertain• Risk of spreading ourselves thin

INVESTMENT APPROACHESFUND APPROACH

Size of investment

Investment horizon

Value add

• Minority to significant minority stake with strategic input

• Willing to seed-fund at $0.1-5m deals)

• 7-10 years, with profitability demonstrated within 2 to 3 years

• LT horizon• Often intensive

management support• Wider operational

knowledge• Efficacy focus• Global brand

• Often companies are very early stage• Many service companies serve both

mid- and low-income markets

Portfolio: APEC

• Located in Manila, Philippines

• Chain of low cost, employability-focused secondary schools

• Now at 12 schools and over 1,000 students

• Partnership between Ayala and Pearson

• $35 a month

• Curriculum is focused on real world skills and English literacy

Portfolio: Avanti Learning Centres

• Located in Mumbai, India

• High quality science education company with 600 students in 9 learning centres and 4 schools across India

• 15,000 applicants for 450 seats in 2014; ¼ the cost of competition

• 3x revenue growth year on year. $5Bn industry in India

• >40% of Avanti’s student place in the top 1% in college entrance exams

Portfolio: Omega Schools

• Located in Accra, Ghana

• Started with 10 schools summer of 2011 now at 38 schools and over 20,000 students

• Cashless, daily fee system – accountability from parents

• Workbooks, not textbooks

• iPad data and student information systems

• All costs localised

Portfolio: eAdvance

• Located in Johannesburg, South Africa

• Blended learning model pioneered by Rocketship Education

• Currently 2 Spark Schools with over 350 students

• Plan to reach 64 schools and over 60,000 students

• First private African primary school network to implement blended learning model

Portfolio: Zaya Labs

• Located in Mumbai, India

• Holistic blended learning solution provider for primary schools

• In over 30 schools and reaching 1,500 students this year

• Provide schools with “LabKit” and “ClassCloud” to ensure online and offline learning in low-income settings

• $5/student/month