Profit Potential

Community members were shocked to learn that Rocketship is planning to increase their student to teacher ratio from 40:1 to 50:1 in order to generate almost $500,000 in revenue from educating low income students of color.

From: Page 14 of http://www.rsed.org/about/documents/ExhE-BusinessCommittee2013-April30Final.pdf   ***NOTE**** This document was removed after StopRocketShip.com’s publicity.  But we’ve archived all documents on our website for further public review, and changed the link to our local document library. RocketshipBudget2013English

Rocketship has put hundreds of thousands of dollars into PACs, and acted with an aggression that is characteristic of highly profitable sectors.  This makes one want to follow the money trail.  StopRocketship.com has been investigating this for quite some time. Here’s what we’ve learned so far.

Rocketship is a non-profit.  All Rocketship education happens under the 501C3, each school has a separate 501C3 — Rocketship Two thru Rocketship Eight(although they are consolidating).  The facilities are owned under a separate set of 501C3 land holders, Launchpad Development One Through Eight.  The combined Launchpads are worth nearly $100million (about $10 million each). So the big question is to ask, “how can non-profits make money?”
Rocketship is restructuring to generate $500k per school per year (according to 501C3 form 990 tax filing, Rocketship Si Su Puede generated $500k in revenue in 2011 — this model has been underway for some time).  Since Rocketship is a non-profit, no one can get rich directly off that revenue stream.

However, there are two back door channels that we believe Rocketship is invoking to create wealth.

Corporate Revenue Stream #1:  Software sales

Nonprofits can’t keep money, but they can certainly buy products & services from commercial for profit companies.

Rocketship wants to have 1million students by 2020, or about 2,000 schools.  That would make them a $7billion corporation.  If they could clear $500k per school, they’d have about $1billion in money to give to a for-profit corporation.  Rocketship Founder & software entrepreneur John Danner just quit as CEO of Rocketship and hired two Bulgarian programmers to form a privately held software company called “Zeal“, incorporated in Delaware with operations in Palo Alto, that would sell software to Rocketship.  Danner writes in his blog that he believes in the principle of “Minimum Viable Instructional Products“.  Danner also writes about getting a slice of the $4 Trillion education market, both in his blog, and on the Zeal website.  One can guess the trajectory.  Money will be funneled from the state government through Rocketship to Danner’s for-profit company.  He has potential revenues of $1billion just from Rocketship, and probably another few billion from other schools.  He could run a VERY high profit margin company with a team of Eastern European programmers, and have profits of billions.  Educating poor children of color with Minimum Viable Instruction could be a blockbuster product that would generate tremendous wealth.   The poor kids in our neighborhoods would be the conduits.

Corporate Revenue Stream #2:  Bond investment by Hedge Fund managers.

Here’s a good article in the New York Times about the charter investment rush.

http://www.nytimes.com/2010/05/10/nyregion/10charter.html?pagewanted=all&_r=1&

This is very dangerous.  There’s been hundreds of millions of dollars in charter investments by hedge fund managers recently.  This is funneled through non-profits, but there’s still tons of money to be made.  A 2000 IRS ruling made these investments very profitable by creating additional tax break.  Here is a good article showing the big profits that are possible.

http://cloakinginequity.com/2012/12/07/why-do-hedge-funds-adore-charters-pt-ii-39-return/

Giving education over to Wall Street hedge fund managers seems like a very bad idea.