Your editor may have more to say about online public school provider K12's IPO prospectus later.

For now, let's use it as an example of his assertion (download briefing here or listen for more on the general subject here ) that while most investments in the American economy are about firm risk, the school improvement industry is dominated by political risk.

Here's K12 management's summary of "certain risk factors."

Investing in our common stock involves substantial risk. You should carefully consider all the information in this prospectus prior to investing in our common stock and review the section entitled “Risk Factors” immediately following this prospectus summary. These risks and uncertainties include, but are not limited to, the following:

• Most of our revenues depend on adequate funding of the virtual public schools we serve. If our revenues from virtual public schools are reduced, restricted or delayed, our business, financial condition, results of operations and cash flows will be adversely affected.
 
• The poor performance or misconduct of other virtual public school operators could tarnish the reputation of all virtual public school operators, which could have a negative influence on our business.
 
• Opponents of virtual public schools have sought to challenge the establishment and expansion of such schools through the judicial process. If their interests prevail, it could damage our ability to sustain or grow our current business in certain jurisdictions.
 
• We have a limited operating history, and sustained losses of approximately $90 million before only recently achieving profitability. If we fail to remain profitable or achieve further marketplace acceptance for our products and services, our business, financial condition and results of operations will be adversely affected.
 
• Highly qualified teachers are critical to the success of our learning system. If we are not able to continue to recruit, train and retain quality certified teachers, our lessons might not be effectively delivered to students, compromising their academic performance and our reputation with the virtual public schools we serve. As a result, our brand, business and operating results may be adversely affected.

The first three points are all about politics. The fourth - "further marketplace acceptance," is just another way of discussing the political risk of selling discretionary services to government agencies. The fifth is arguably demographic more than political with the retiring of the teaching force and some expectation of a teacher hiring crunch - especially of the more competent teachers K12 will rely on to distinguish itself, although it's worth pointing out that the teachers unions are not fans of foe profit virtual school operators in general or their efforts to pentrate the charter school market in particular.

Are there comparable political risks in other emerging industries' within our domestic economy? Maybe in wind power, but even that industry doesn't come close to affecting local interests on a nationwide basis with the combined clout of those involved in public education.

When political risk is greater than firm risk, when events outside the firm are more important than what management can control on the inside, the questions investors face are simple.  Is there reason to believe firm management can act in ways that mitigate political risk, or should investors just bet that politics will break in ways that favor the firm? This judgment implies a lot of knowledge and capacity on the part of firm managers, the folks handling the IPO, and/or investors. 

Looking back on investors experience in EMOs and SES providers is there anything in this investment proposal to suggest things will be different for investors in virtual EMOs - and this one in particular?