Big money, little kids and a grand experiment

Can AltSchool, the ed-tech startup backed by $174 million from Mark Zuckerberg, Peter Thiel and Laurene Powell Jobs, save itself from failure?

Published: Apr 24, 2019

g_115197_alt_school_280x210.jpgMax Ventilla, AltSchool’s CEO and co-founder, inside one of the startup’s San Francisco campuses
Image: Timothy Archibald for Forbes

We might not be around in five years,” says Max Ventilla, AltSchool’s 38-year-old co-founder and CEO, as the two publicists minding our interview cringe. “Don’t put that in your article,” says AltSchool’s communications director Maggie Quale while a young woman from Rubenstein, the giant New York-based corporate PR firm, sits in awkward silence.

We’re two intense hours into an interview in a stuffy, glass-paned meeting room in a former 24 Hour Fitness that is now home to one of AltSchool’s two small private schools in San Francisco for grades pre-K through 8. Ventilla, who left Google to launch AltSchool in 2013, has spent $30 million annually over the last several years while trying to find steady footing for his for-profit education startup, which runs four schools; the other two are in New York City.

AltSchool’s 240 students, including two of Ventilla’s children—Leonardo, 5, and Sabine, 7—are guinea pigs for a software platform that AltSchool is attempting to sell to hundreds of schools both private and public. So far it has 28 customers. Revenue in 2018 was $7 million. “Our whole strategy is to spend more than we make,” he says. Since software is expensive to develop and cheap to distribute, the losses, he believes, will turn into steep profits once AltSchool refines its product and lands enough customers.

But Ventilla admits reaching profitability will be quite a stretch. The story of how AltSchool arrived at this point—burning cash in a failed attempt to create a profitable private-school network and fighting to sell an expensive ed-tech product in a crowded field—shows that the best intentions, an impressive career in tech and an excess of Silicon Valley money and enthusiasm don’t easily translate into success.

Ventilla has been able to haemorrhage cash because, as he has it, “I’m good at telling AltSchool’s story and I’m good at raising money early.” So good that he has raised $174 million in venture capital at a $440 million valuation, according to PitchBook, more than almost any other startup working on K-12 education. That sum includes a personal investment of more than $15 million from Mark Zuckerberg and his wife, Priscilla Chan. Zuckerberg initiated two hours-long one-on-one meetings with Ventilla in late 2014, when AltSchool was only 18 months old. “He’s detail-oriented, and he likes to drill down,” Ventilla says of Zuckerberg.

It’s easy to see how Ventilla would appeal to tech billionaires and their investment vehicles, including Laurene Powell Jobs’ Emerson Collective, Pierre Omidyar’s Omidyar Network, Peter Thiel’s Founders Fund and Marc Andreessen’s Andreessen Horowitz, all of which have become AltSchool backers. “Our mission has always been to make the best education the most available,” he says. “Students shouldn’t just be cogs in a wheel. They should be agents of their own goals.” 

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Before starting AltSchool, Ventilla says, he read two dozen books on education and emerged a fan of Sir Ken Robinson, a British TED Talk speaker known for lamenting the dearth of creativity in early education, and Angela Duckworth, a psychologist and the winner of a MacArthur “genius” grant who has written about the need for children to cultivate “grit”. The quality of primary and secondary education in America, stuck in an industrial-age model, has been in steady decline for the last century, says Ventilla, citing the most recent Programme for International Student Assessment results, a worldwide test of reading, math and science ability in which US 15-year-olds ranked 38th out of 71 countries. “The factory model in a non-factory world disengages kids,” he says. AltSchool’s solution: “Foster in children the development of an internal compass so that as things are changing around them more rapidly, they can always reorient.”

To do this, AltSchool adopted an educational philosophy backed by the Bill & Melinda Gates Foundation and the Emerson Collective and by Zuckerberg in his much-publicised letter to his oldest daughter, Maxima, born in 2015, a year after his meeting with Ventilla. Known variously as “personalised learning”, “learner-centric learning” and “competency-based learning”, the philosophy argues against the traditional model of an all-knowing teacher dictating from the head of the class, sometimes called the “sage on the stage” approach, where students are expected to progress as a group. Instead children, together with teachers, set individual goals, explore areas that most interest them within a defined curriculum and trade lots of feedback along the way.

The technology piece of personalised learning is the most controversial. No one wants students to sit in front of screens all day doing math drills with software driven by artificial intelligence. At AltSchool, Ventilla proposed developing a software platform that would make it efficient and easy for teachers to customise assignments, assess performance and communicate with administrators and parents. He calls AltSchool’s private schools “lab schools”, where teachers try various approaches on students while working closely with a staff of engineers, many of whom were hired away from Google, Apple and Facebook.

But he learnt quickly that education is a much tougher nut to crack than search engines. Early on, he had a big plan to expand into Chicago, and he was working on an idea to franchise a network of AltSchools across the country. But in 2016, he ditched both possibilities. Altogether he started nine schools in San Francisco, Palo Alto and New York. By the end of 2018, he had closed five of them, including the one in Palo Alto, with its 62 students. With tuition starting at $26,000, which is expensive but still lower than many Bay Area private schools, none of the locations were paying for themselves.

Ventilla says he made it clear to parents that the schools were experimental and might remain open for only a short time. “We were doing a lot of iterating and learning,” he says.

He also abandoned experiments like setting up four cameras per classroom to film students interacting with teachers. He had read a Gates-funded study that recommended videotaping. Teachers used the cameras for two years before Ventilla put a kibosh on the project. “It didn’t really make sense when you thought about the cost to maintain the system,” he says.

Other bigger expenses made even less sense. Because none of the properties had been designed as schools, unexpected problems surfaced, says Carolyn Wilson, AltSchool’s former director of education. “What ate our lunch more than anything was doing real estate retrofits,” she says. At one of the schools in San Francisco, the toilets kept backing up. None of the locations had playgrounds or gyms, so AltSchool took children to city parks. In one San Francisco park frequented by the homeless, human faeces presented a problem. To ensure students’ safety, AltSchool hired Mike Ginty, the former head of global security at Uber. (Today, AltSchool has worked out secure arrangements with a combination of public parks and private facilities, like a YMCA in Manhattan.)

In 2016 Ventilla decided the most cost-effective way to realise his vision was to put the schools on the back burner and focus on the software platform and selling it to customers he calls “partners”. Those schools would give feedback to his engineers, who could further hone the product. He is betting that he will find massive numbers of school leaders ready to embrace personalised learning and pay AltSchool’s steep fees. But a half-dozen other companies, including Schoology, Moodle, Blackboard and Canvas, offer so-called learning management systems that also claim to facilitate personalised learning. Canvas, based in Salt Lake City, bills itself as the market leader with thousands of customers, and has both a free product and a customised version for an annual cost per student of $10 or less.

By contrast, AltSchool’s charges work out to $100 to $150 per student per year. “From what I’ve heard talking to administrators and educators, $150 per kid feels like a prohibitive price point,” says Tony Wan, managing editor of EdSurge, a media company in Burlingame, California, that covers educational technology. “Who can afford that?”

Ventilla brushes off the naysayers. “The name of the game is always scale,” he says, predicting that AltSchool’s software price will fall as low as $50 per student. AltSchool has also been building open education-curriculum software into its product, including math and English lessons that meet state standards, and its software gives automated prompts to teachers that can improve their performance. “We’re not just selling software,” he says. “We’re selling a replacement for the curriculum schools have to buy. We’re selling professional development. Those are big numbers for schools, many times what AltSchool is charging now.”

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Ventilla himself was not educated this way. The son of Hungarian immigrants, he grew up with his sister and parents in a one-bedroom apartment on Manhattan’s Upper East Side. His father, a filmmaker in Hungary, scraped by as a sculptor and illustrator. His mother taught business courses to Columbia University undergrads and was the family breadwinner. A gifted child, he won a scholarship to Buckley, a private Manhattan boys’ school with a traditional approach where Donald Trump Jr had been a student. He went on to Andover and Yale on scholarship and was admitted to the Yale School of Management in a programme for exceptional Yale College grads, called Silver Scholars, which paid the first year of tuition.

In 2000, while an undergrad, he started a data-mining software company with some buddies from Andover and Yale, raising $1 million before selling the company 18 months later for an undisclosed sum that he says gave his investors a good return. After business school and a gig working for a classified advertising firm in Europe, he landed at Google in a unit that worked on business operations and strategy. 

But he stayed only a year before starting a social search engine company called Aardvark in 2007, funded with $10 million in venture capital. Less than three years in, he sold the company to Google for $50 million, making his stake, which Forbes estimates at more than 10 percent, worth upwards of $5 million. “It was totally life-changing money for me,” he says. He bought a house in San Francisco’s Twin Peaks neighbourhood with his wife, Jenny Stefanotti, a UC Berkeley and Harvard grad he had met during his first stint at Google. Before starting AltSchool, he returned to Google for three years, where he worked in a small group that developed the Google Plus social network, before heading up the company’s personalisation team.

By the winter of 2012, he and Stefanotti already had Sabine, who was one and a half, and son Leonardo was on the way. They started searching for pre-schools and were appalled by what they found. “There were a handful of good pre-schools, and each one of them was insanely competitive to get into,” he says. “The implication was that if you didn’t get your kid into the right pre-school, they were going to be penniless and alone by the time they were 30.”

Itching to start a new venture, he threw himself into researching the kind of school where he imagined Sabine would thrive. Within months he quit Google and started raising cash. In the deck for his Series A funding round, he showed a picture of himself lying on a bed, reading to Sabine and baby Leonardo, a Gandhi quote across the top of the screen: “Be the change you want to see in the world.”

Investors bought in. “He was talking about a shift from a lecture-based model of education to a learner-centric model,” says First Round Capital partner Josh Kopelman, who sits on AltSchool’s board. “That made total sense to us.” 

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Inside AltSchool’s Manhattan middle school, in an office building on the busy corner of Fifth Avenue and 14th Street, there are more books, papers, pens and pencils than computers, though students are each assigned a Chromebook, which they use off and on throughout the day. In a humanities class, a black-clad teacher with close-cropped hair, Jaqi Ruiz-Garcia, is conducting a Socratic discussion with her eight seventh and eighth graders. They have all read the same texts: Ta-Nehisi Coates’s Between the World and Me, printed on dead trees, and a photocopied James Baldwin essay.

Students refer to essays they have written with pencils in old-fashioned notebooks, and Ruiz-Garcia has a stuffed yellow caterpillar that she passes around the classroom to each student who wants to speak.
“People need to be more aware that we’re not a perfect country,” says one girl.

“What are some ways we can build bridges in society?” asks Ruiz-Garcia.

“There was more time in this country—250 years—when people were enslaved than when they were free,” responds a girl with tight braids. “People who make $15 an hour are still enslaved.”

“I heard a quote on Instagram: ‘Vote like your life depends on it’,” says another student.

After class, Ruiz-Garcia, a five-year AltSchool veteran, explains that she is making the unit learner-centric by expecting students to do the reading at their own pace. She is also using a feature of AltSchool’s software called a “playlist”, which allows teachers to customise “cards”, AltSchool’s word for assignments. One card directs a student to practice paraphrasing. The teacher-facing side of the platform requires Ruiz-Garcia to assess students on up to seven skills, including summarising and analysing information and connecting the past to the present. None of it suggests a new education system transformed by technology.

At AltSchool’s Fort Mason campus in San Francisco, five-year-old Leonardo Ventilla’s teacher Dina Hamaoui has written out his goals on paper worksheets. All AltSchool students set social and emotional goals in addition to academic goals. One of Leonardo’s sheets says, “I will be able to talk about what zone my brain and body are in and use strategies to shift between them.” When he finishes a worksheet, he takes it to a white easel where he photographs it with an iPad and uses AltSchool’s “capture” feature to upload it to AltSchool’s software platform, where it can be viewed by his teacher, who can email it to his parents.

Among 11 parents interviewed for this story, some recommended by AltSchool and others not, many are happy and even like the idea that their offspring were being used to test AltSchool’s product. “We went into this with our eyes wide open,” says Gamal Walker, a parent in New York who works in finance. His two daughters are thriving, he says. He also likes that AltSchool is certified as a B Corporation, a designation that obligates the company to put the interest of its stakeholders and community ahead of profits.

Others are less pleased. One mother, whose son is now in public school, says that AltSchool wrongly assessed his reading level and he spent a year making no progress. “We were just guinea pigs, supplying Max with data,” she says. “He was supposed to change the world with his ed-tech product, but the teachers couldn’t even teach writing.”

“We had really mediocre educators using technology as a crutch,” says a father who transferred his child to a different private school after two years at AltSchool. “We learnt that it’s almost impossible to really customise the learning experience for each kid.”

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Two of AltSchool’s public partner school districts are in Paramount and Arcadia, California, outside Los Angeles. Paramount, a predominantly Latino district where almost all 4,700 students in its biggest high school qualify for free lunch, is running a pilot using AltSchool’s software at a new high school with a Stem focus called Odyssey. Opened in August, Odyssey has 138 ninth graders, with plans to ramp up to four grades and 550 students. Enthusiastic kids show projects they are working on in a “maker space” classroom, where they can use a 3-D printer. Student Honey Robinson, dressed up as Michael Jackson with a glove on one hand, delivers the polished elevator pitch she composed in a course that walks students through the steps for finding an internship, which they then work part-time for eight weeks of the school year.

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Odyssey seems to be off to a promising start, but Ryan D Smith, Paramount’s assistant superintendent, says there are as yet no plans to adopt AltSchool’s software throughout the district. “In a new school, you have an opportunity to do things completely different from the very beginning,” he says. “At our old schools, we’d have a lot of other work to do before we could have a more personalised learning environment for our students.”
Which is where Ventilla’s plans hit a roadblock. Most of AltSchool’s current partners are small private schools. At the eight public districts that are customers, all are running pilots, and only two have plans to move beyond that stage. Ventilla is betting they will ramp up. “If the 250,000 total students in our partner districts use AltSchool, we could bring down our price point and start to turn a profit,” he says. But if they  don’t, which seems more likely, it’s tough to imagine AltSchool surviving.

Ventilla and his team are competing in a field crowded with companies trying to find digital solutions to one of the world’s toughest challenges—how to improve K-12 education in America. So far there have been some monumental failures and only moderate successes. In 2015, News Corp wrote down nearly $400 million after investing more than $1 billion in Amplify, an ed-tech division that failed to find enough buyers for the hardware and curriculum software it developed for the K-12 market. (Now majority-owned by the Emerson Collective, Laurene Powell Jobs’ impact-investing firm, Amplify is approaching profitability through sales of a K-8 science curriculum that combines books, kits and software.)

Edmodo, an online social network for classrooms founded in 2008 in San Mateo, California, raised more than $100 million and spread to 400,000 schools in nearly 200 countries. But it never came up with a business model for its free product and wound up losing $19.5 million in 2017 on revenue of just $1 million. In April 2018, China’s NetDragon, which makes online games, bought the company for $137.5 million.

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At its lab schools, AltSchool’s remaining students seem to be performing well. Two to three times a year, they take a math, reading and language-usage test called MAP, which assesses progress. Last year the test measured the students’ growth in academic progress at 34 percent above the national average. They have also placed into well-regarded private high schools, including Lick-Wilmerding in San Francisco and the College Preparatory School in Oakland.

But the company will last only if it can boost sales of its software. “That’s the big risk of a startup,” says Ventilla.

“I’ll be at it until I can’t do it anymore. There are lots of entrepreneurs who won’t go into education because it’s just not worth it,” he explains. “If they do something well, they get very little praise or help... I could do a lot of things that would pay me a lot more money and bring me a lot more fame.”

Why do it, then? “I’m doing this because I think it’s really important in the world, and I don’t think there are an abundance of others who have the resources and can pull it off.”

(This story appears in the 26 April, 2019 issue of Forbes India. You can buy our tablet version from Magzter.com. To visit our Archives, click here.)

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