Why Education is the Engine of Social Investments

Financial tools and investments in the social sector are tested on educational projects, and all this is a market driver. Why? Andrey Andrusov, co-founder of SOL’ Social Innovation Support Center tells.

Andrey Andrusov

Education — Business or Social Sphere?

To begin with, for me almost any educational project is a social program, that is (as we define it) an activity, aimed at solving a social problem. But as soon as education becomes fee paid, it is perceived as a business and its social nature often forgotten. We cannot believe that the social nature of the project does not contradict its business nature. This contrast is most visible in education.

The social nature of a school or a college, even private ones, is obvious, as they are directly involved in human development, and this always has a social aspect. But how about the infrastructure of education, platforms, knowledge assessment systems, and so on? Are SmotriUchis or Webinar.ru platforms social projects? What about Youtube and Skype? On the one hand, it is pure business. On the other hand, through these platforms some people train others, create infrastructure and opportunities for further development, an opportunity to become a teacher or a student. 

And the further we are from the education itself, the more difficult it is to say “business is not of primary importance”, to show the social impact of the project on the education. Course aggregators, industry-specific media, interactive boards, ergonomic desks… It is also education, also the social sector, is it not? And I believe if the project was created to change people’s lives, it is a social project.

Two Standpoints

That is why each educational project can always be viewed from two standpoints; it can be seen not just as a business, but also as social activity, because it involves human development, human investments, they carry out social functions. This polarity is the specific feature of social investments.

But how is education fundamentally different from the production of, for example, wheelchairs? In fact it is not very different, it is also an infrastructure. Some may call it business, some may call it social activity. The contrast between social and commercial sides in healthcare is even sharper. On the one level, Ilya Check’s «Motorika» company produces prostheses for children, and the benefit for disadvantaged children is obvious (we help the people with disabilities!). But there are always those, who consider business done on people with disabilities to be the pinnacle of cynicism…

The important thing is motivation and how exactly the project changes people’s lives, what social problem it solves. It is impossible to understand from an outside perspective. That is why, when cooperating with social entrepreneurs, SOL’ Center pays great attention to how they communicate the social impact of their project. So, you can understand what social changes it brings.

What is the Aim of Educational Projects?

Whether education is social activity or not vastly depends on the motivation of the project’s initiator. After talking with hundreds of entrepreneurs in the field of education, I have concluded that initially the majority of these people desired to change the situation in education, not to make profit. 

There are two main reasons for starting a project in education. Either a person understands that existing solutions are not suitable for their child and they need to do something better, more interesting, more gratifying. Or a person wants to share their experience and creates their own blog or course. Most often they start with only their enthusiasm, without a budget or a strategy. However, every reasonable person understands that the project will “die” without money. That is why after creating a project its authors look for opportunities to develop and earn money (however, for the majority of them profit is secondary).

Almost all educational centers for pre-school children appeared in Russia because of their founders’ care for their own children. Many online courses and platforms, for example, Mathprofi math blog or Pythonworld blog were created on the basis of popular blogs.

This situation is typical even for major (not private) companies. They make an educational course “for themselves”, then open it for the public and start earning on it. For example, Yandex taught its employees in its School of Data Analysis, and now everyone can take this course on Coursera

There are people creating large-scale projects in education that originally were designed as free infrastructure. For example, Mikhail Lazarev created InternetUrok, and spent a lot of money to launch online courses as well as digitized the whole school program, designed for grades from 1 to 11 (all the textbooks in Russia). Now they are available online for everybody for free. And there are already many projects like this. Thanks to entrepreneurs, this infrastructure has already been created. And the impact of such people on society is very strong. The opportunity is there, it just needs to be seized!

But even small projects in education produce significant social impact. It is not limited by the audience, trained within the project. Direct impact can be minor. For example, if we talk about private schools, less than 1% of schoolchildren in Russia study there. But the indirect effect is, firstly, that they provide an opportunity to receive alternative education for those who did not have this opportunity before, and secondly, that they show other entrepreneurs the possibility of creating an economically attractive business in this area.

Where Does the Money Come From?

At some point, the author of the project notices that their own resources are running out. The project has not yet reached the budgeted profit, all the savings have been spent, and the team members want to receive normal salary. At this moment additional financing is required. And people start looking for investments. And I would like to remind you that an investor is a person who provides money in exchange for a share in business. He expects to return dividends or to sell his share 3-4 times more expensive than he bought it. The bad news is that not each education project exponential growth of capitalization or high profits can be expected. And there is a stereotype among investors that social projects do not pay. Because of this it is difficult to attract them to such projects. 

But the good news is that not only investments are available for social projects, but also other sources and forms of financing: crowdfunding, grants (donations) and loans. The most advanced organizations are able to use all of them simultaneously. There are also many mixed forms of financing, for example, convertible loans, recoverable grants, payment for social benefits, pay for success models… Some of them already exist in Russia.

So, as educational projects are so close to the commercial sector, they are the first ones to test new financial instruments. I will give you the most common example. If an organization teaches children in its supplementary education centers, education is its main activity, and according to the law (article 22, paragraph 1 of law No. 273-FZ of 29.12.2012) it should be non-profit. It can also receive grants and benefits provided by the state. 

Moreover, this organization may be managed by a commercial company, for example, as an LLC. And this LLC can receive investments for its development, they will be spent on marketing and on founding new educational centers. In this way “commercial” activities exist in LLCs according to the laws of commercial organizations, and “non-profit” activities exist as in non-profit organizations. This is a very relative distinction, but it is necessary to ensure transparency for investors, sponsors and all kinds of auditors.

It Concerns Everyone

There is another reason why new financial instruments enter the education sector. Education affects everyone in this world. This fits both into the new concept of lifelong education and the concept of evolvement. It looks like the products produced by such entrepreneurs concern everyone, unlike, for example, the medical products (they are more niche, as someone may just be lucky with their health!). Each person can find something for themselves in education if they are interested. For some it will be languages, for some — the basics of programming, design, art, cooking: anything you like! This is the reason why projects get a “response” from investors and patrons.

At present investments into education are very popular. There are more and more investors willing to invest in education. They do it not only to make a profit, but to influence the education sector, which has obvious problems. At the same time, the number of philanthropists who are willing to share money for social and educational projects, not only with traditional donations, but also in forms of loans, investments and mixed forms, grows. It changes the system of relations between the source of funds and the recipient, but it allows to increase the social impact of each ruble spent. 

In order to increase the number of mixed financing transactions, it is necessary to inform social entrepreneurs and investors/philanthropists about the advantages of such transactions in comparison to traditional ones. We try to talk about it at all events in which we participate and which we organize ourselves. 

In order for investors/sponsors and project leaders to learn about each other, SOL’ Center makes a map of those who change the education system Map of Innovation Leaders in Education, we also map innovative projects (Map of educational projects in Russia), we follow the deals in education sector. Because through this sector we can change life for better most effectively. 

Thanks to mapping, we have already seen a huge number of private (commercial and non-commercial) projects in education. Moreover, some of them become so ambitious that they begin to influence the traditional (school) system. We expect this trend to strengthen in the coming years; the boundary between primary and supplementary education will be diluted.

So if there is a problem, there is a solution. You just need to find the one who already has this solution and help him get to the system level. 

Prepared by Natasha Poletaeva