How VELA Founders Spend Their Money

Money. It makes the world go round. It’s a gas. More of it can lead to more problems. Well, that’s at least if we believe what musicians tell us.

As an organization that invests in entrepreneurs who deliver alternatives to conventional schooling,  VELA is interested in how founders spend their money (and not just the money that they receive from VELA). VELA invests in educational models that “redefine how, when, and where learning takes place.” Changing education along those dimensions means changing how money is spent. 

VELA conducted a survey of its founders to learn how they are building sustainable operational models for their learning environments. A section of the survey asked about the portion of expenditures devoted to different categories including facilities, people, and administration and operations. VELA’s report, “Open for Business,” provides a high-level overview of the survey results. In this article, we dig deeper into the data by looking at the distribution of expenditures across learning environments with different models and characteristics.

People, Places, and Things

VELA invests in a wide range of educational entrepreneurs, many of whom have founded learning environments like homeschool co-ops, hybrid homeschools, learning pods, microschools, private schools, and virtual schools. Across all of these learning environments, we tracked the average share of expenditures for facilities, people, and administration and operations, which are typically the  largest budget line items for any program. 

The average spend on facilities is 21% of the founder’s total budget. Founders spent 40% of their budget, on average, on personnel, and 12.3% on administration and operations. Data indicate considerably more variation in spending on people compared to the other categories1. There is also considerable variation in shares of categorical expenditures when we look at the type of learning environment.

Respondents by type pie chart
Figure 1: Respondents by type of learning environment

VELA founders devote the largest share of expenditures, on average, to people, about 40%. The average size of budget share devoted to people is greatest among hybrid homeschools and private schools, about 55%. On the other hand, respondents from homeschool programs report, on average, 31% of their expenditures directed to people. We observe the largest variation in budget share for virtual schools, homeschool programs, and homeschool co-ops (standard deviations are 28.2, 27.3, and 26.7, respectively).

Share of spending chart
Figure 2: Share of spending on personnel, by learning environment 

Facilities represent the second largest slice of the expenditure pie (21% on average for the full sample, if you will recall). Homeschool co-ops, microschools, and private schools spend, on average, 24-25% of expenditures on facilities. Respondents from learning pods and virtual schools report spending about 10-12% of their expenditures on facilities, the lowest share among the different types. We observe the greatest variation in facilities spending as a share of total expenditures among homeschool co-ops. In contrast, we observe the greatest consistency among learning pods.

Share of spending chart
Figure 3: Share of spending on facilities, by learning environment

The average share of expenditures for administration and operations is 12% for all of the learning environments surveyed. This share ranges from 9.7% for microschools to 15.0% for homeschool co-ops. Homeschool co-ops and homeschool programs have the greatest variation in the sample (standard deviation of 14.9) while learning pods display the least variation (standard deviation is 5.3).

Share of spending chart
Figure 4: Share of spending on administration and operations, by learning environment 

Compared to What?

We hope that the preceding data has been interesting in its own right, but also recognize that it might be hard to interpret absent some context. Given that the largest schooling sector in America is the K-12 public system we thought it would be most helpful to compare the budgets of VELA founders to those of traditional public schools.

Schools, like many institutions, have overhead costs. These costs cover various aspects, including administrative expenses, maintenance of facilities, utilities, transportation, and support staff salaries. Overhead costs are necessary to ensure that the school functions properly, maintains its infrastructure, and provides services to students and the community. The extent of overhead can vary based on the size of the school, its location, the number of students, and the services offered.

Some argue that there can be an imbalance in administrative roles compared to teaching positions or support staff. This situation might result in concerns about resource allocation, where a significant portion of the budget goes towards administrative salaries rather than directly benefiting students in terms of educational resources, programs, or teacher support. Such concerns are chiefly expressed about K-12 public schools. Should these concerns also apply to the learning environments that VELA supports?

U.S. Public schools spend roughly 13% on facilities, 10% on admin, and 67% on salaries and benefits for all personnel2. It seems that the shares for facilities and overhead are comparable to the shares reported by VELA founders, though data from the two sources may not be comparable due to accounting differences between the public school and VELA data sources. 

There’s a striking difference between shares of expenditures devoted to personnel by public schools and the learning environments that VELA supports. That is, public schools devote 67% of spending for salaries and benefits while VELA founders spend about 40% on personnel. One possible explanation may be retirement benefits, where public schools tend to provide more generous benefits compared to retirement benefits for private sector workers. 

These differences may be even larger if the VELA survey estimates reflect both compensation and non-compensatory expenditures on educators such as professional development. The estimated public school share of spending on educators reflects compensation (salary and benefits) only and excludes any other items spent on teachers such as professional development.

Conclusions and Takeaways

The data considered here may not lend to drawing conclusions about concerns such as administrative bloat and crowding out resources for students, though they may provide a helpful starting point for individual schools to evaluate the effectiveness of their operations. For instance, lower costs on personnel could have implications for schools to operate smaller environments, or to scale, with less money tied up in people than facilities or tech. But it will take more research to figure that out.

There are three key facts that we do want to leave you with.

  1. There is considerable variation between learning environments in how they choose to spend money on facilities, personnel, and administration and operations.
  2. Taken together, VELA founders spend their money in some ways that are similar to traditional schools, but in other ways that are quite different.
  3. It is going to take spending money in different ways to do different things to get different results, so understanding how new and innovative learning environments spend their money is essential to understanding how to build new and better ones.

This post was authored by Marty Lueken and Michael McShane in partnership with VELA. Marty Lueken is Director of the Fiscal Research and Education Center at EdChoice. Michael McShane is Director of National Research at EdChoice.

1 The standard deviation for expenditures on people is considerably higher: 27.2 compared to 19.3 and 12.1 for facilities and administration and operations, respectively.

 2 Author’s estimates based on data from U.S. Department of Education, National Center for Education Statistics, Common Core of Data.