'Next Generation' Grant Program Reveals Hands-On, Corporate Approach

July 14, 2013

Next Generation Learning Challenges, a grant maker created by the Bill & Melinda Gates Foundation with the higher-education technology group Educause and other organizations, is an unusual philanthropic model in at least two ways: how involved the foundation remains after its money has been awarded, and its interest in seeing the money go to for-profit companies as well as nonprofits.

Traditionally foundations identify grantees they want to support, award them money, and then monitor their progress from afar through reports. With the Next Generation program, which works to promote two of the foundation's key goals—to accelerate learning and college-completion rates—through the use of technology, Gates officials have stayed in closer touch. They created a pass-through vehicle within Educause that has allowed them to play a direct role in deciding which individual organizations—and companies—would ultimately receive the foundation's money.

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Following a winnowing of proposals by Next Generation staff housed at Educause and another by outside review panels, a committee of eight representatives—two from Gates, two from Educause, one from the William and Flora Hewlett Foundation, and one from each of three other partner organizations—decide who will receive grants. (Hewlett participated financially, and voted, on only the first two rounds of grants.)

The pass-through structure of the Next Generation program has made it possible for the Gates foundation to place lots of small bets on many projects—which would otherwise be difficult for a large foundation to manage—and then increase its commitments to the ones it and its partners found most promising.

The program is also distinctive for the way Gates had it bring in outside experts to help vet some proposals for financial feasibility.

Ira Fuchs, a veteran of the foundation field who ran the Next Generation program for Educause until March 2012, says the approach reflects the comfort with corporate culture that he found among the Gates officials working on the project. "Almost to a person, they have Harvard M.B.A.'s, so they think in terms of business," he said.

Through Next Generation, Gates has awarded grants to nearly seven dozen ventures. "If you're going somewhere that is cutting edge, it's helpful to have a 'thousand flowers bloom' approach," says Victor Vuchic, a program officer at the Hewlett foundation who worked with Next Generation. Hewlett kicked in $2-million early on but no longer provides support because it has shifted to other priorities.

Since 2010, the Gates foundation has given nearly $65-million to the Next Generation program. The program has awarded more than $37-million to date. Nearly $24-million of that has gone for programs aimed at lowering the cost of college for needy students, including a new competency-based degree program at Northern Arizona University and a community-college collaboration called Project Kaleidoscope, led by Cerritos College, to help faculty make greater use of open-source textbooks. The rest went to programs promoting "college readiness."

Kim Thanos, who helps coordinate the colleges' open-source project through her company, Lumen, says the relationship with Next Generation "feels very entrepreneurial," with officials acting the way a "very engaged, effective venture-capital" investor would. Program officials don't micromanage on spending but are very focused on results, she says. Kaleidoscope won an initial $750,000 in the first wave of grants and a follow-up grant of $1.2-million to expand its venture. Now, she says, "at least once a month" she gets a call from an official at Gates or Educause offering to make a useful introduction to a potential partner, resource, or supplier.

As the Next Generation program developed, its criteria grew more precise. Grantees in the second round of "college completion" grants, for example, were given a goal known as 50/5/5. It meant their projects were to create at least six new degree programs where at least 50 percent of students would complete their associate degrees, the average sticker price would be less than $5,000, and the project would serve 5,000 students within five years.

"It was pretty specific," says Susan Metros, associate vice provost and deputy CIO at the University of Southern California, who chaired one of the outside panels that reviewed the grant proposals. Nonetheless, she says, "within those criteria there were a lot of options." All the partners agreed to the 50/5/5 goal, but Gates played an important role in developing it, its officials say.

Some of the grants have gone to entities that didn't seem to need the money. The program awarded $300,000, for example, to a venture called New Charter University, which is owned by a company called UniversityNow that has raised at least $21.5-million in venture-capital investment. And barely three months after awarding $750,000 to Carnegie Learning Inc., in 2011, that company was acquired for $75-million by the Apollo Group, the parent company of the University of Phoenix.

"We can't control who gets engulfed by whom," says Andrew Calkins, deputy director of the Next Generation program. But one of the tenets of the program is that "good ideas come from all kinds of places."

Most foundations avoid using their tax-advantaged funds for grants to for-profit entities, and a Gates-foundation spokeswoman noted that its grant money officially went to the nonprofit Educause. Still, she said, "we believe innovation is happening in the nonprofit and for-profit sectors. Both are necessary."

Graphic: Through Next Generation Learning Challenges, Gates Money Goes Far