Can new corporate structure help education startups overcome industry distrust?

More investors may be fawning over education companies, yet among educators themselves, entrepreneurs don’t always get the warmest welcome.
It may be because they’ve watched for-profit universities and K-12 operators report mixed results and cause considerable debate. Or because, in the technology world, they’ve seen companies pivot to new products, making schools feel like they’ve been left in the lurch.  As education historian Diane Ravitch has said, even though companies may offer valuable products, she doubts their quality because “the bottom line is that they’re seeking profit first.”
As more ed tech companies win over schools and more teacher-led startups emerge, it seems that distrust is fading. But some education companies are hoping that a new legal status, called the “benefit corporation” — which provides protection for for-profit companies that pursue social-responsibility initiatives at the expense of financial gains — could help them overcome remaining skepticism.

Mission-driven motives

“When you’re working with schools, it makes sense… You don’t have to choose to do good or do well,” said Heather Gilchrist, founder and managing director of edtech accelerator Socratic Labs. “It’s a good thing to introduce [to] schools that are opposed to for-profit companies.”
So far, 19 states have passed legislation that enables companies to incorporate as a Benefit Corporation, or B Corp, (instead of a C Corp, S Corp or LLC, for example), giving them legal protection to pursue social and environmental goals. It allows companies to potentially sacrifice short-term financial interests to build long-term value for its community or other public stakeholders — without getting sued by investors.

Opening the door to more private-public partnerships

Similarly, the “certified B corporation” status, which is a separate “seal of approval” conferred by a third-party, also enables companies, like Patagonia, Warby Parker and Etsy, to communicate their commitment to social responsibility. But it isn’t legally binding.
For Socratic Labs, which was one of the first companies to take advantage of Delaware’s newly passed B Corp law, it lets the accelerator build a sustainable business and attract strong startups and talent, while establishing that it’s formally bound to the interests of the wider community.
Aside from the accelerator, few other education companies have incorporated as a B corp. (Startup Edmodo said it’s actively looking at the possibility.)  But a larger number of education companies have become certified B corps.
It’s not necessarily going to be right for every education company – those that directly target students and parents likely won’t face the same kind of resistance as those selling to schools. And new startups may not want to put in the extra investments of time or money. Or they may worry that potential investors could shy away from a relatively unknown legal structure that could carry different tax implications (although mission-driven startups may view the ability to screen out mismatched investors early on as an advantage). Still, more education companies might find it an option worth exploring.
“It’s something we’d look at mechanically and legally to see if it makes sense,” said Ariel Diaz, founder and CEO of digital textbook startup Boundless. But “until it establishes a well-known brand it might not have much market benefit when you’re selling to people who aren’t following these types of trends.”