Though it has no teachers, this company gets millions meant for private, charter schools

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PHOENIX — To its backers, Prenda microschools represents a “return to the one-room schoolhouse” of the past, empowering parents to educate their children in intimate settings away from the cruel public-school bureaucracy.

But looked at another way, the for-profit company is reaching for something more contemporary, to be the Uber of education.

Anyone can start a Prenda microschool of five to 10 students. And no certification or degree is required to be a “guide” — Prenda's term for the adult who leads the class — only a passion for helping kids.

Guides use their living rooms as a schoolhouse, much like Uber drivers work in their own vehicles.

Prenda — which is largely based in Arizona but is "rapidly spreading all over the world," according to its website — has seen a surge in interest during the coronavirus pandemic and doesn't shy away from the Uber comparison.

“If you think about Uber and the fact that it allows a normal person to own a taxi and you think about Airbnb and the way it allows a normal person to own a hotel, Prenda allows a normal person to run a school,” Prenda’s Enrollment Director Rachelle Gibson says in one of the company's numerous online videos.

And like the ride-sharing company, Prenda is exploiting gaps in regulation and oversight in the hopes of growing so fast and large that it alters the industry it seeks to disrupt.

Prenda is not a private school, a charter school or a public school. But at different times it operates as all three – drawing taxpayer funding or support for each type of school. It teaches public and private school students together in the same classroom, which may not be legal under Arizona state law.

As a result, there’s little government oversight of Prenda guides and how they lead their home classrooms.

But if you ask Prenda, they're not a school at all. 

“We’re not a school. We are a provider of microschools,” said Prenda Chief Executive Officer Kelly Smith. “We have a model, an education model, called a microschool. We provide a curriculum and tools and training and support to enable and facilitate the microschool to happen. But our goal is to work with schools as kind of a provider and partner.”

Smith founded Prenda after his experience forming coding clubs in Mesa with his son and other children. Smith saw how focused students were when they were driving their education rather than teachers. “Kids, when they make a decision that they want to learn something, are unstoppable,” he said.

Prenda's divides its model into three sections: “conquer,” which is self-directed learning; “collaborate,” where students do group activities; and “create,” where students work on a project in pairs or small groups.

The adult guides them through those activities but is not a teacher, Smith said. 

“Their job is not to deliver content, it’s not to take responsibility for the learning of kids,” Smith said of the guides.“So there’s this Plutarch quote … 'The mind is not a vessel to be filled but a fire to be kindled.' And that’s what we encourage all of our learning guides to do is to work hard to kindle that fire.”

But the mother of one student told The Arizona Republic she had no idea what her son learned while attending a Prenda microschool, which she said used inexpensive curriculum available online.

Pamela Lang said she was forced to hire an aide for her son at an additional expense. One aide brought her toddler to the school and then complained when Lang's son interacted with the toddler. Prenda later threatened to kick her son out of the microschool after the aide left, Lang said. Her son’s guide said she didn’t have the time to help her son, according to Lang.

Partnerships with charter schools

Prenda has been indirectly funded by public school money through contracts with charter schools and a pilot program with Mesa Unified School District.

It is impossible to know exactly how much public school funding has ended up in Prenda coffers because Prenda doesn’t hold a charter with the state.

But Prenda's contract with charter school operator EdKey Inc. gives an idea.

EdKey receives about $8,000 from the state for each student in its Sequoia Choice online charter school, said EdKey CEO Mark Plitzuweit.

In its partnership with Prenda, EdKey takes about $3,000 of the state funding for each Prenda student and Prenda receives the remaining share of per-student funding, according to contracts and interviews with Smith and Plitzuweit.

The amounts vary by grade level, Plitzuweit said, with Prenda receiving between $4,100 and $5,100 per year for students in grades 1-8, according to contracts from this school year obtained by The Republic. 

Plitzuweit said EdKey's deal with Prenda will add between $1.5 million and $1.75 million to EdKey's revenue this year. 

That is an obvious benefit to a company that had a $9 million long-term deficit in its last available audit. 

Under the Prenda deal, EdKey enrolls the students, who are counted by the state as charter school students in EdKey's Sequoia online school, even though their education is led by Prenda and they are taught Prenda's curriculum.

Prenda's agreement with EdKey allows it to be classified as an education service provider rather than a school, which would require it to obtain a state charter. 

EdKey certifies that the students’ hours of instruction meet state requirements and submits to the state their scores from standardized tests. Prenda’s test scores, however, aren’t publicly available because they are combined with all Sequoia Online students.

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"They can use us ... as partners in helping to make sure that these students have more school choice,” Plitzuweit said.

Plitzuweit said every public school in the state uses service providers.

But few give contractors the exclusive right to educate their students.

Dawn Penich-Thacker, a spokeswoman for Save Our Schools Arizona and a Prenda critic, said Prenda defines itself in a way that is most advantageous for it to receive public education dollars while avoiding public education regulation or scrutiny.

“It’s exploiting the gaps in the system in order to grow their project as much as possible before people notice it’s taking advantage of gray areas in the law,” Penich-Thacker said. 

Fees split between guides, Prenda

Founded in 2015 and incorporated in Delaware, Prenda has sold more than $7 million in equity, stock options and warrants since 2017, according to Securities and Exchange Commission filings. More than $6 million of that was issued in May, SEC filings show.

“We’re building an organization around software, a curriculum, support of the student experience and then a lot for the learning guides as well,” Smith said. “So we need to find these learning guides, screen them, vet them."

Prenda advertises its microschool guides are paid between $23,000 and $26,000 a year.

That means if a microschool has a maximum of 10 students receiving the highest payout from EdKey, Prenda and its guide would split roughly $51,000 a year in public charter school funding.

Prenda’s website lists 371 microschools in Arizona. The number has exploded from about 80 in 2019, before the COVID-19 pandemic. If Prenda received the maximum amount from EdKey for each school, it would take in nearly $19 million annually in charter school public funds.

Smith said Prenda has received less than $19 million annually from state-funded sources but declined to say how much charter school money Prenda receives. 

"Private school" students who attend Prenda microschools tap public money through the state's empowerment scholarship account (ESA) program. According to the Arizona Department of Education, 25 ESA students used Prenda in 2020, paying it $32,000 this year.

Prenda has been trying to accelerate its growth, spending nearly $40,000 on Facebook ads this summer as the pandemic raged and some parents were looking for alternatives to the traditional school setting. Since 2018, it has spent more than $100,000 on Facebook ads.

Smith said Prenda hasn't yet turned a profit.

Asked what the strategy was to become profitable, such as expanding as fast as possible or raising prices, Smith said “he didn’t have good answers.”

What kind of school is it?

State officials can’t regulate Prenda, in part, because they can’t decide what type of school it is or if it's a school at all.

Arizona State Charter board contends Prenda isn’t a school, but rather a contractor to EdKey.

Serena Campas, policy and public relations manager for the Arizona State Board for Charter Schools, said charters can contract with outside organizations to provide instruction, administration and other services.

"They basically function as a learning center," which is a place for online students to go during the day, Campas said. “So that’s kind of how Prenda functions for EdKey.”

Campas also said as far as the Charter School Board is aware Prenda “guides” are not instructors or traditional teachers.

“A lot of our schools have a learning center where there’s a person there to facilitate learning as far as like watching the student and being there to answer questions,” Campas said. “But they are not instructors, not a traditional teacher.”

She said the Charter Board has asked EdKey for more information about its relationship with Prenda.

“But they are still EdKey students, they are still using, as far as I know, that curriculum,” Campas said. “Their contract, between EdKey and Prenda, we don’t have any access to.”

The Republic obtained the contract under Arizona’s public records law.

Prenda teaches its own curriculum beyond what is provided by EdKey, Smith and Plitzuweit said. Plitzuweit said EdKey's curriculum is available if Prenda needs it, but Prenda uses its own.

Jim Hall, a former principal and founder of the group Arizonans for Charter School Accountability, filed a complaint with the Charter School Board contending that EdKey was illegally collecting state funds for average daily membership for Prenda students because EdKey wasn’t educating them.

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The complaint alleged EdKey was transferring state funds to a private school, Prenda, that doesn’t provide services.

In the response to the complaint, EdKey’s lawyer denied giving state funds for schools' average daily membership to Prenda or paying a “per-pupil" fee to Prenda.

The Charter School Board closed the complaint based on the response of EdKey’s lawyer. 

But the contract between Prenda and EdKey, states that EdKey pays Prenda between $4,100 and $5,100 per student and directly references average daily membership, stating that if a student completed the maximum number of hours annually that would equal the full state average-daily-membership funds for that student. 

Taylor, the Arizona Department of Education spokesman, said it is not the agency’s role to decide whether Prenda is a school or a provider of services. He said the Legislature needs to weigh in.

‘What are we getting for our buck?’

Smith acknowledged some may not understand Prenda because they have an outdated understanding of what schools should look like.

He said Prenda’s message is that learning is deeper than that. “Our goal is to empower kids as learners,” he said. 

Parents certify hours outside of the microschool because “learning isn’t an activity that is confined to a particular place and time.”

“We’ve built support to reinforce that, encourage kids to go home and read a book and write and practice math and work on piano and a number of other activities that would allow them to continue their education outside of ‘quote’ school,” Smith said. 

But Hall questioned whether taxpayers are getting a good deal by paying two private entities more money than most public schools in the state receive. 

“What are we getting for our buck?” he asked. “We have no idea where the money is going, except that I know that there’s a yahoo that had two weeks of training that we’re paying $23,000 or $26,000 to work with our kids.”

Public schools get less money while providing a comprehensive education for anyone who walks in the door — special education, tutoring, counseling, electives and extracurricular activities, he said. 

The software programs listed on Prenda’s site are low-cost and available online to anyone, he said, noting they are often used by homeschooling parents.

Prenda said it has proprietary software called PrendaWorld, which its website said, “helps students manage their online tools, set goals and hold themselves accountable.”

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Hall said EdKey is essentially paying a bounty for Prenda to find children for its Sequoia Online program that the school doesn't have to educate, which adds to their profit margin. 

"It's a boon to them," Hall said, noting Sequoia Online's revenue has increased from $6 million before the Prenda agreements in 2018-19 to an estimated $14 million this school year. 

Penich-Thacker, of Save Our Schools, questioned whether Prenda is exclusionary because she said it recommends forming microschools only with people you already know.

By allowing guides to choose who they want to provide services to and leave out others, Penich-Thacker said, the microschools can legally discriminate.

Smith said Prenda does not tell guides who they should work with and that Prenda is interested in helping all students. He cited partnerships for microschools with the Black Mothers Forum in South Phoenix, programs on the San Carlos Apache Indian Reservation and in more rural areas of the state such as Kingman, Lake Havasu City and Yuma.

“Typically those microschools will form organically around a neighborhood,” Smith said. “We’re definitely not trying to serve a particular group of people. My goal is to provide a microschool option to anyone who wants it.”