3. Framing the Purpose
“Very early on, I realized that …
We are NOT in the Coffee Business serving
People,
We are in the People Business serving
Coffee”
4. Background
• Born 1959. German Jewish family.
• New York City projects. Poverty.
• First in family to go to college
• Professional: Xerox >> Hammarplast >> Director of Marketing
at Starbucks
• The famous buying trip to Milan. Coffee culture sparks the idea
• Trying to convince managers to scale the concept, met with
resistance
• Leaves to start own coffee shop, later buys Starbucks in 1984
• The rest is history: Biggest success story in retail
• 2000: Stepped back. Starbucks loses its way….
• 2008: Back as CEO to lead a revival
5. Episode 1: Living Personal Stories at Work
Why be the First American Company to
Provide Health Insurance to Full-Time AND
Part-Time Workers (total of 200,000+
employees)??
• “My inspiration comes from seeing my father broken from the thirty
terrible blue-collar jobs he had over his life, where an uneducated
person just did not have a shot”
• “On the day in 1987 that Schultz bought a local business in Seattle
called Starbucks, he held an all-employee meeting. He had three
talking points: “
1. Speak from my heart.
2. Put myself in their shoes.
3. Share the Big Dream with them.”
• “A company can grow big without losing the passion and
personality that built it, but only if it’s driven not by profits but by
people . . . The key is heart. I pour my heart into every cup of coffee
and so do my partners.”
6. Episode 2: Deriving Strength from Family and
Self Domains
• Maintaining a Very Healthy Lifestyle:
• Diet, Kinetix, Biking, Sunday basketball
• From Self >> Employees >> Customers
• Stepping back in 2000
• Self: Other endeavors
• Family: Spending more time with family
• Marriage, Kids and Privacy
• Very happy marriage with Sheri Schultz, 2 kids
• Dedicated time, philanthropic activities together
• Separation of domains
7. Episode 3: Community at the Heart of
Starbucks’ Turnaround
• “I decided--against the advice of many people at the time, because it had a
high cost attached to it--to take 10,000 store managers to New Orleans. I
knew that if I could remind people of our character and values, we could
make a difference.”
• “Our efforts represent the single largest block of community support in the
history of New Orleans, contributing more than 54,000 volunteer hours and
investing more than $1 million in local projects like painting, landscaping,
and building playgrounds. …
• “If we hadn't had New Orleans, we wouldn't have turned things around. It
was real, it was truthful, and it was about leadership.”
8. Episode 4: Voicing Values
• “It is not an economic decision," he said. "The lens in which we are
making that decision is through the lens of our people. We employ over
200,000 people in this company, and we want to embrace diversity."
• “If you feel, respectfully, that you can get a higher return than the 38
percent you got last year, it’s a free country. You can sell your shares of
Starbucks and buy shares in another company. Thank you very much.”
Editor's Notes
Market Large Growing Global More resistant to economic cycles New trends transforming the industry over next 5-10 years Demographics Global Many Investors have made money PE VC NEA fit Models we are familiar with Long gestation cycle Global network Proximity to the DOE can potentially help us High Rates of Return: Across sectors EBIT margin ranges from15%-40% with IRR’s sometimes in excess of 30%. Favorable Pricing: Driven by the supply-demand imbalance,price growth is strong in more attractive sectors; particularly online and virtual education platforms, digital curriculum, data systems with BI features, and services across K-20; High barriers to entry: government regulations, accreditation process,standards alignment, high startup costs,required brand strength,channel Scalability: Insufficient supply and overwhelming demand for content,technology,assessments and services that truly improve learning outcomes,offer dramatic opportunities for operational scale growth and top-line growth Revenue predictability: Multi-year enrollment and knowledge of attrition rates in post-secondary allow firms to better predict their revenue streams; K-12 has a “narrow elasticity” in aggregate funding over long historical periods relative to economic cyclicality Negative working capital: Post-secondary Student fees are collected annually or semi-annually prior to actual enrollment while costs are incurred overtime; many K-12 models for content and technology receive cash first; and are transitioning to SaaS and subscription based, recurring revenue, content models and cloud computing applications Counter-cyclicality: Enrollment in sectors such as post-secondary education improve as the economy worsens For the U.S. to remain competitive globally, significant investment in education will be required to develop the human capital infrastructure needed for growth. EDUCATION IS POWER AND KNOWLEDGE IS CURRENCY GLOBALLY Climate for disruption – contradictory pressures (demand, supply, price) Price continues to rise The United States is the single largest education market in the world with a for-profit sector roughly $100B in size The U.S. spends ~40% more per K-12 student on average than other industrialized nations; the gap is even larger for post secondary spending Big Market. In chaos (some say), increasing financial pressures, an entrenched management, slow to change. Change will be driven from outside –for-profit colleges, charter schools foreign countries, the business community, the internet, etc. At the early stages of technology adoption, new business practices. Growing government recognition of system shortcomings and impact on our economic future. Severe lack of management talent. Widespread private investor interest. For-profit colleges are stable business models. No Child Left Behind and declining competitive position internationally are challenging the K-12 sector. Regulatory environment, both a hurdle and a protection. Increasing outsourcing. SIGNAL HILL Education is a rapidly growing industry that has greatly benefitted from the U.S. economy’s transition to a knowledge based economy Virtually all segments of the education industry are expected to benefit and grow because of rising student populations Many sectors within the education market are heavily regulated by the government; however, the government provides steady streams of funds for proprietary K-12, post-secondary, and other providers Legislation and parents have put increasing pressure on K-12 schools and districts to increase the quality of public education and student success – Increasing number of high school dropouts – Federal funds dedicated to 3rd party providers in order to provide higher quality solutions (SES, charter schools, virtual public high schools, etc.) More Americans than ever are enrolling in some form of post-secondary education – Many careers now expect or require post-secondary credentials – Working adults gaining awareness of the “wage gap” – the incremental average salary based on full or partial attainment of higher education is material Student / consumer acceptance of online / technology solutions to aid education – online schools & tutoring, software and other computer products, social networking, etc. are flourishing Increasing enrollments, greater dependence on the internet, and demand of real-time data has created an opportunity for learning management systems, enterprise software, and other technological solutions for education institutions, teachers, and parents The U.S. will need to produce 63 million degrees to match top countries by 2025. Current production rate is 41 million. After immigration shortfall is 15.5 million. International market opportunity is huge but here we are only focusing on U.S. investing Potential large tickets Our - investing thesis
Market Large Growing Global More resistant to economic cycles New trends transforming the industry over next 5-10 years Demographics Global Many Investors have made money PE VC NEA fit Models we are familiar with Long gestation cycle Global network Proximity to the DOE can potentially help us High Rates of Return: Across sectors EBIT margin ranges from15%-40% with IRR’s sometimes in excess of 30%. Favorable Pricing: Driven by the supply-demand imbalance,price growth is strong in more attractive sectors; particularly online and virtual education platforms, digital curriculum, data systems with BI features, and services across K-20; High barriers to entry: government regulations, accreditation process,standards alignment, high startup costs,required brand strength,channel Scalability: Insufficient supply and overwhelming demand for content,technology,assessments and services that truly improve learning outcomes,offer dramatic opportunities for operational scale growth and top-line growth Revenue predictability: Multi-year enrollment and knowledge of attrition rates in post-secondary allow firms to better predict their revenue streams; K-12 has a “narrow elasticity” in aggregate funding over long historical periods relative to economic cyclicality Negative working capital: Post-secondary Student fees are collected annually or semi-annually prior to actual enrollment while costs are incurred overtime; many K-12 models for content and technology receive cash first; and are transitioning to SaaS and subscription based, recurring revenue, content models and cloud computing applications Counter-cyclicality: Enrollment in sectors such as post-secondary education improve as the economy worsens For the U.S. to remain competitive globally, significant investment in education will be required to develop the human capital infrastructure needed for growth. EDUCATION IS POWER AND KNOWLEDGE IS CURRENCY GLOBALLY Climate for disruption – contradictory pressures (demand, supply, price) Price continues to rise The United States is the single largest education market in the world with a for-profit sector roughly $100B in size The U.S. spends ~40% more per K-12 student on average than other industrialized nations; the gap is even larger for post secondary spending Big Market. In chaos (some say), increasing financial pressures, an entrenched management, slow to change. Change will be driven from outside –for-profit colleges, charter schools foreign countries, the business community, the internet, etc. At the early stages of technology adoption, new business practices. Growing government recognition of system shortcomings and impact on our economic future. Severe lack of management talent. Widespread private investor interest. For-profit colleges are stable business models. No Child Left Behind and declining competitive position internationally are challenging the K-12 sector. Regulatory environment, both a hurdle and a protection. Increasing outsourcing. SIGNAL HILL Education is a rapidly growing industry that has greatly benefitted from the U.S. economy’s transition to a knowledge based economy Virtually all segments of the education industry are expected to benefit and grow because of rising student populations Many sectors within the education market are heavily regulated by the government; however, the government provides steady streams of funds for proprietary K-12, post-secondary, and other providers Legislation and parents have put increasing pressure on K-12 schools and districts to increase the quality of public education and student success – Increasing number of high school dropouts – Federal funds dedicated to 3rd party providers in order to provide higher quality solutions (SES, charter schools, virtual public high schools, etc.) More Americans than ever are enrolling in some form of post-secondary education – Many careers now expect or require post-secondary credentials – Working adults gaining awareness of the “wage gap” – the incremental average salary based on full or partial attainment of higher education is material Student / consumer acceptance of online / technology solutions to aid education – online schools & tutoring, software and other computer products, social networking, etc. are flourishing Increasing enrollments, greater dependence on the internet, and demand of real-time data has created an opportunity for learning management systems, enterprise software, and other technological solutions for education institutions, teachers, and parents The U.S. will need to produce 63 million degrees to match top countries by 2025. Current production rate is 41 million. After immigration shortfall is 15.5 million. International market opportunity is huge but here we are only focusing on U.S. investing Potential large tickets Our - investing thesis
Market Large Growing Global More resistant to economic cycles New trends transforming the industry over next 5-10 years Demographics Global Many Investors have made money PE VC NEA fit Models we are familiar with Long gestation cycle Global network Proximity to the DOE can potentially help us High Rates of Return: Across sectors EBIT margin ranges from15%-40% with IRR’s sometimes in excess of 30%. Favorable Pricing: Driven by the supply-demand imbalance,price growth is strong in more attractive sectors; particularly online and virtual education platforms, digital curriculum, data systems with BI features, and services across K-20; High barriers to entry: government regulations, accreditation process,standards alignment, high startup costs,required brand strength,channel Scalability: Insufficient supply and overwhelming demand for content,technology,assessments and services that truly improve learning outcomes,offer dramatic opportunities for operational scale growth and top-line growth Revenue predictability: Multi-year enrollment and knowledge of attrition rates in post-secondary allow firms to better predict their revenue streams; K-12 has a “narrow elasticity” in aggregate funding over long historical periods relative to economic cyclicality Negative working capital: Post-secondary Student fees are collected annually or semi-annually prior to actual enrollment while costs are incurred overtime; many K-12 models for content and technology receive cash first; and are transitioning to SaaS and subscription based, recurring revenue, content models and cloud computing applications Counter-cyclicality: Enrollment in sectors such as post-secondary education improve as the economy worsens For the U.S. to remain competitive globally, significant investment in education will be required to develop the human capital infrastructure needed for growth. EDUCATION IS POWER AND KNOWLEDGE IS CURRENCY GLOBALLY Climate for disruption – contradictory pressures (demand, supply, price) Price continues to rise The United States is the single largest education market in the world with a for-profit sector roughly $100B in size The U.S. spends ~40% more per K-12 student on average than other industrialized nations; the gap is even larger for post secondary spending Big Market. In chaos (some say), increasing financial pressures, an entrenched management, slow to change. Change will be driven from outside –for-profit colleges, charter schools foreign countries, the business community, the internet, etc. At the early stages of technology adoption, new business practices. Growing government recognition of system shortcomings and impact on our economic future. Severe lack of management talent. Widespread private investor interest. For-profit colleges are stable business models. No Child Left Behind and declining competitive position internationally are challenging the K-12 sector. Regulatory environment, both a hurdle and a protection. Increasing outsourcing. SIGNAL HILL Education is a rapidly growing industry that has greatly benefitted from the U.S. economy’s transition to a knowledge based economy Virtually all segments of the education industry are expected to benefit and grow because of rising student populations Many sectors within the education market are heavily regulated by the government; however, the government provides steady streams of funds for proprietary K-12, post-secondary, and other providers Legislation and parents have put increasing pressure on K-12 schools and districts to increase the quality of public education and student success – Increasing number of high school dropouts – Federal funds dedicated to 3rd party providers in order to provide higher quality solutions (SES, charter schools, virtual public high schools, etc.) More Americans than ever are enrolling in some form of post-secondary education – Many careers now expect or require post-secondary credentials – Working adults gaining awareness of the “wage gap” – the incremental average salary based on full or partial attainment of higher education is material Student / consumer acceptance of online / technology solutions to aid education – online schools & tutoring, software and other computer products, social networking, etc. are flourishing Increasing enrollments, greater dependence on the internet, and demand of real-time data has created an opportunity for learning management systems, enterprise software, and other technological solutions for education institutions, teachers, and parents The U.S. will need to produce 63 million degrees to match top countries by 2025. Current production rate is 41 million. After immigration shortfall is 15.5 million. International market opportunity is huge but here we are only focusing on U.S. investing Potential large tickets Our - investing thesis
Market Large Growing Global More resistant to economic cycles New trends transforming the industry over next 5-10 years Demographics Global Many Investors have made money PE VC NEA fit Models we are familiar with Long gestation cycle Global network Proximity to the DOE can potentially help us High Rates of Return: Across sectors EBIT margin ranges from15%-40% with IRR’s sometimes in excess of 30%. Favorable Pricing: Driven by the supply-demand imbalance,price growth is strong in more attractive sectors; particularly online and virtual education platforms, digital curriculum, data systems with BI features, and services across K-20; High barriers to entry: government regulations, accreditation process,standards alignment, high startup costs,required brand strength,channel Scalability: Insufficient supply and overwhelming demand for content,technology,assessments and services that truly improve learning outcomes,offer dramatic opportunities for operational scale growth and top-line growth Revenue predictability: Multi-year enrollment and knowledge of attrition rates in post-secondary allow firms to better predict their revenue streams; K-12 has a “narrow elasticity” in aggregate funding over long historical periods relative to economic cyclicality Negative working capital: Post-secondary Student fees are collected annually or semi-annually prior to actual enrollment while costs are incurred overtime; many K-12 models for content and technology receive cash first; and are transitioning to SaaS and subscription based, recurring revenue, content models and cloud computing applications Counter-cyclicality: Enrollment in sectors such as post-secondary education improve as the economy worsens For the U.S. to remain competitive globally, significant investment in education will be required to develop the human capital infrastructure needed for growth. EDUCATION IS POWER AND KNOWLEDGE IS CURRENCY GLOBALLY Climate for disruption – contradictory pressures (demand, supply, price) Price continues to rise The United States is the single largest education market in the world with a for-profit sector roughly $100B in size The U.S. spends ~40% more per K-12 student on average than other industrialized nations; the gap is even larger for post secondary spending Big Market. In chaos (some say), increasing financial pressures, an entrenched management, slow to change. Change will be driven from outside –for-profit colleges, charter schools foreign countries, the business community, the internet, etc. At the early stages of technology adoption, new business practices. Growing government recognition of system shortcomings and impact on our economic future. Severe lack of management talent. Widespread private investor interest. For-profit colleges are stable business models. No Child Left Behind and declining competitive position internationally are challenging the K-12 sector. Regulatory environment, both a hurdle and a protection. Increasing outsourcing. SIGNAL HILL Education is a rapidly growing industry that has greatly benefitted from the U.S. economy’s transition to a knowledge based economy Virtually all segments of the education industry are expected to benefit and grow because of rising student populations Many sectors within the education market are heavily regulated by the government; however, the government provides steady streams of funds for proprietary K-12, post-secondary, and other providers Legislation and parents have put increasing pressure on K-12 schools and districts to increase the quality of public education and student success – Increasing number of high school dropouts – Federal funds dedicated to 3rd party providers in order to provide higher quality solutions (SES, charter schools, virtual public high schools, etc.) More Americans than ever are enrolling in some form of post-secondary education – Many careers now expect or require post-secondary credentials – Working adults gaining awareness of the “wage gap” – the incremental average salary based on full or partial attainment of higher education is material Student / consumer acceptance of online / technology solutions to aid education – online schools & tutoring, software and other computer products, social networking, etc. are flourishing Increasing enrollments, greater dependence on the internet, and demand of real-time data has created an opportunity for learning management systems, enterprise software, and other technological solutions for education institutions, teachers, and parents The U.S. will need to produce 63 million degrees to match top countries by 2025. Current production rate is 41 million. After immigration shortfall is 15.5 million. International market opportunity is huge but here we are only focusing on U.S. investing Potential large tickets Our - investing thesis
Market Large Growing Global More resistant to economic cycles New trends transforming the industry over next 5-10 years Demographics Global Many Investors have made money PE VC NEA fit Models we are familiar with Long gestation cycle Global network Proximity to the DOE can potentially help us High Rates of Return: Across sectors EBIT margin ranges from15%-40% with IRR’s sometimes in excess of 30%. Favorable Pricing: Driven by the supply-demand imbalance,price growth is strong in more attractive sectors; particularly online and virtual education platforms, digital curriculum, data systems with BI features, and services across K-20; High barriers to entry: government regulations, accreditation process,standards alignment, high startup costs,required brand strength,channel Scalability: Insufficient supply and overwhelming demand for content,technology,assessments and services that truly improve learning outcomes,offer dramatic opportunities for operational scale growth and top-line growth Revenue predictability: Multi-year enrollment and knowledge of attrition rates in post-secondary allow firms to better predict their revenue streams; K-12 has a “narrow elasticity” in aggregate funding over long historical periods relative to economic cyclicality Negative working capital: Post-secondary Student fees are collected annually or semi-annually prior to actual enrollment while costs are incurred overtime; many K-12 models for content and technology receive cash first; and are transitioning to SaaS and subscription based, recurring revenue, content models and cloud computing applications Counter-cyclicality: Enrollment in sectors such as post-secondary education improve as the economy worsens For the U.S. to remain competitive globally, significant investment in education will be required to develop the human capital infrastructure needed for growth. EDUCATION IS POWER AND KNOWLEDGE IS CURRENCY GLOBALLY Climate for disruption – contradictory pressures (demand, supply, price) Price continues to rise The United States is the single largest education market in the world with a for-profit sector roughly $100B in size The U.S. spends ~40% more per K-12 student on average than other industrialized nations; the gap is even larger for post secondary spending Big Market. In chaos (some say), increasing financial pressures, an entrenched management, slow to change. Change will be driven from outside –for-profit colleges, charter schools foreign countries, the business community, the internet, etc. At the early stages of technology adoption, new business practices. Growing government recognition of system shortcomings and impact on our economic future. Severe lack of management talent. Widespread private investor interest. For-profit colleges are stable business models. No Child Left Behind and declining competitive position internationally are challenging the K-12 sector. Regulatory environment, both a hurdle and a protection. Increasing outsourcing. SIGNAL HILL Education is a rapidly growing industry that has greatly benefitted from the U.S. economy’s transition to a knowledge based economy Virtually all segments of the education industry are expected to benefit and grow because of rising student populations Many sectors within the education market are heavily regulated by the government; however, the government provides steady streams of funds for proprietary K-12, post-secondary, and other providers Legislation and parents have put increasing pressure on K-12 schools and districts to increase the quality of public education and student success – Increasing number of high school dropouts – Federal funds dedicated to 3rd party providers in order to provide higher quality solutions (SES, charter schools, virtual public high schools, etc.) More Americans than ever are enrolling in some form of post-secondary education – Many careers now expect or require post-secondary credentials – Working adults gaining awareness of the “wage gap” – the incremental average salary based on full or partial attainment of higher education is material Student / consumer acceptance of online / technology solutions to aid education – online schools & tutoring, software and other computer products, social networking, etc. are flourishing Increasing enrollments, greater dependence on the internet, and demand of real-time data has created an opportunity for learning management systems, enterprise software, and other technological solutions for education institutions, teachers, and parents The U.S. will need to produce 63 million degrees to match top countries by 2025. Current production rate is 41 million. After immigration shortfall is 15.5 million. International market opportunity is huge but here we are only focusing on U.S. investing Potential large tickets Our - investing thesis
Market Large Growing Global More resistant to economic cycles New trends transforming the industry over next 5-10 years Demographics Global Many Investors have made money PE VC NEA fit Models we are familiar with Long gestation cycle Global network Proximity to the DOE can potentially help us High Rates of Return: Across sectors EBIT margin ranges from15%-40% with IRR’s sometimes in excess of 30%. Favorable Pricing: Driven by the supply-demand imbalance,price growth is strong in more attractive sectors; particularly online and virtual education platforms, digital curriculum, data systems with BI features, and services across K-20; High barriers to entry: government regulations, accreditation process,standards alignment, high startup costs,required brand strength,channel Scalability: Insufficient supply and overwhelming demand for content,technology,assessments and services that truly improve learning outcomes,offer dramatic opportunities for operational scale growth and top-line growth Revenue predictability: Multi-year enrollment and knowledge of attrition rates in post-secondary allow firms to better predict their revenue streams; K-12 has a “narrow elasticity” in aggregate funding over long historical periods relative to economic cyclicality Negative working capital: Post-secondary Student fees are collected annually or semi-annually prior to actual enrollment while costs are incurred overtime; many K-12 models for content and technology receive cash first; and are transitioning to SaaS and subscription based, recurring revenue, content models and cloud computing applications Counter-cyclicality: Enrollment in sectors such as post-secondary education improve as the economy worsens For the U.S. to remain competitive globally, significant investment in education will be required to develop the human capital infrastructure needed for growth. EDUCATION IS POWER AND KNOWLEDGE IS CURRENCY GLOBALLY Climate for disruption – contradictory pressures (demand, supply, price) Price continues to rise The United States is the single largest education market in the world with a for-profit sector roughly $100B in size The U.S. spends ~40% more per K-12 student on average than other industrialized nations; the gap is even larger for post secondary spending Big Market. In chaos (some say), increasing financial pressures, an entrenched management, slow to change. Change will be driven from outside –for-profit colleges, charter schools foreign countries, the business community, the internet, etc. At the early stages of technology adoption, new business practices. Growing government recognition of system shortcomings and impact on our economic future. Severe lack of management talent. Widespread private investor interest. For-profit colleges are stable business models. No Child Left Behind and declining competitive position internationally are challenging the K-12 sector. Regulatory environment, both a hurdle and a protection. Increasing outsourcing. SIGNAL HILL Education is a rapidly growing industry that has greatly benefitted from the U.S. economy’s transition to a knowledge based economy Virtually all segments of the education industry are expected to benefit and grow because of rising student populations Many sectors within the education market are heavily regulated by the government; however, the government provides steady streams of funds for proprietary K-12, post-secondary, and other providers Legislation and parents have put increasing pressure on K-12 schools and districts to increase the quality of public education and student success – Increasing number of high school dropouts – Federal funds dedicated to 3rd party providers in order to provide higher quality solutions (SES, charter schools, virtual public high schools, etc.) More Americans than ever are enrolling in some form of post-secondary education – Many careers now expect or require post-secondary credentials – Working adults gaining awareness of the “wage gap” – the incremental average salary based on full or partial attainment of higher education is material Student / consumer acceptance of online / technology solutions to aid education – online schools & tutoring, software and other computer products, social networking, etc. are flourishing Increasing enrollments, greater dependence on the internet, and demand of real-time data has created an opportunity for learning management systems, enterprise software, and other technological solutions for education institutions, teachers, and parents The U.S. will need to produce 63 million degrees to match top countries by 2025. Current production rate is 41 million. After immigration shortfall is 15.5 million. International market opportunity is huge but here we are only focusing on U.S. investing Potential large tickets Our - investing thesis
Market Large Growing Global More resistant to economic cycles New trends transforming the industry over next 5-10 years Demographics Global Many Investors have made money PE VC NEA fit Models we are familiar with Long gestation cycle Global network Proximity to the DOE can potentially help us High Rates of Return: Across sectors EBIT margin ranges from15%-40% with IRR’s sometimes in excess of 30%. Favorable Pricing: Driven by the supply-demand imbalance,price growth is strong in more attractive sectors; particularly online and virtual education platforms, digital curriculum, data systems with BI features, and services across K-20; High barriers to entry: government regulations, accreditation process,standards alignment, high startup costs,required brand strength,channel Scalability: Insufficient supply and overwhelming demand for content,technology,assessments and services that truly improve learning outcomes,offer dramatic opportunities for operational scale growth and top-line growth Revenue predictability: Multi-year enrollment and knowledge of attrition rates in post-secondary allow firms to better predict their revenue streams; K-12 has a “narrow elasticity” in aggregate funding over long historical periods relative to economic cyclicality Negative working capital: Post-secondary Student fees are collected annually or semi-annually prior to actual enrollment while costs are incurred overtime; many K-12 models for content and technology receive cash first; and are transitioning to SaaS and subscription based, recurring revenue, content models and cloud computing applications Counter-cyclicality: Enrollment in sectors such as post-secondary education improve as the economy worsens For the U.S. to remain competitive globally, significant investment in education will be required to develop the human capital infrastructure needed for growth. EDUCATION IS POWER AND KNOWLEDGE IS CURRENCY GLOBALLY Climate for disruption – contradictory pressures (demand, supply, price) Price continues to rise The United States is the single largest education market in the world with a for-profit sector roughly $100B in size The U.S. spends ~40% more per K-12 student on average than other industrialized nations; the gap is even larger for post secondary spending Big Market. In chaos (some say), increasing financial pressures, an entrenched management, slow to change. Change will be driven from outside –for-profit colleges, charter schools foreign countries, the business community, the internet, etc. At the early stages of technology adoption, new business practices. Growing government recognition of system shortcomings and impact on our economic future. Severe lack of management talent. Widespread private investor interest. For-profit colleges are stable business models. No Child Left Behind and declining competitive position internationally are challenging the K-12 sector. Regulatory environment, both a hurdle and a protection. Increasing outsourcing. SIGNAL HILL Education is a rapidly growing industry that has greatly benefitted from the U.S. economy’s transition to a knowledge based economy Virtually all segments of the education industry are expected to benefit and grow because of rising student populations Many sectors within the education market are heavily regulated by the government; however, the government provides steady streams of funds for proprietary K-12, post-secondary, and other providers Legislation and parents have put increasing pressure on K-12 schools and districts to increase the quality of public education and student success – Increasing number of high school dropouts – Federal funds dedicated to 3rd party providers in order to provide higher quality solutions (SES, charter schools, virtual public high schools, etc.) More Americans than ever are enrolling in some form of post-secondary education – Many careers now expect or require post-secondary credentials – Working adults gaining awareness of the “wage gap” – the incremental average salary based on full or partial attainment of higher education is material Student / consumer acceptance of online / technology solutions to aid education – online schools & tutoring, software and other computer products, social networking, etc. are flourishing Increasing enrollments, greater dependence on the internet, and demand of real-time data has created an opportunity for learning management systems, enterprise software, and other technological solutions for education institutions, teachers, and parents The U.S. will need to produce 63 million degrees to match top countries by 2025. Current production rate is 41 million. After immigration shortfall is 15.5 million. International market opportunity is huge but here we are only focusing on U.S. investing Potential large tickets Our - investing thesis
