Sramana Mitra: What is your investment thesis around online education right now?
Jason Stoffer: I don’t really do education either online or offline. The biggest area of opportunity in education is post-college. What you see is an environment where when I graduated college in 1999, it was very easy to get a job. You had a job in a consulting firm or a CPG firm.
Today it’s very different. Not only is it hard to find your first job but skills change so quickly. The area I like is how do you train post-college to gain the skills the workforce demands. It’s really telling that unemployment is such a big problem for college graduates.
However at the same time, every board meeting I go to, there’s constant complaining about the lack of qualified people in areas like data science, marketing analytics, web development, and UI/UX. The modality of the education – online/offline – is much less important than the outcome of the education. I like education businesses where you can either be better skilled to do your current job or get a new job.
One of our most exciting investments now is a business called General Assembly, which is a global network of campuses which essentially is teaching web development, data science, or digital marketing at price points around $3,000 to $12,000. On the backend, the students are getting jobs at places like Bloomberg or Dropbox. Taking a three-month program at that price point is serving as an alternative to grad school to a great extent.
Why spend two years in grad school when you go through a three-month program with a more relevant curriculum and get a job. We’re seeing a break down in the value proposition of graduate school and you’re seeing opportunities for folks who offer online training to come in and retrain people in a more agile and much less expensive way.
Sramana Mitra: Pluralsight is doing very well. We’ve had a big story on them. In fact, they had a competitor called TrainSignal. They do the same thing. These guys are essentially doing online training of technical skills. Pluralsight was a bootstrapped company out of Utah. They had bootstrapped to about $16 million in revenue. Then they raised money, acquired one of their top competitors, which was TrainSignal and is growing very well.
In general, what I’m hearing from you as well as other people who are looking at education is people like to invest in adult education or B2C education business where the decision of purchase lies with the user. With adult education, that’s very good because the person who’s going to be buying the product is actually paying for it and going to be the user as opposed to K-12 where parents buy and kids use. That’s a more cumbersome process.
Adult learning operates very much like a regular B2C service kind of business. From a sales cycle point of view, these things tend to scale a lot better and operate a lot better.
Jason Stoffer: It’s notable that the two education IPO’s in the past 12 months were 2U, which is essentially a platform to offer online degree programs for top-tier universities, and Nord Anglia, which is essentially an expat school. K-12 businesses are very hard, especially in the US. You’re selling into a channel that has increased budgetary pressure year over year. There’s not a lot of spend. On the post secondary side, selling to institutions is on an annual sales cadence.
Another way to slice the business is, people who can pay and people who can’t pay. There’re places where you can make strong returns on capital that is more towards the top of the economic pyramid. It’s telling that the two IPO’s are targeting individuals largely at the top of the economic pyramid. I saw this with a business that I invested in and which was shutdown by the US government. It was dependent upon Federal funding for student financing.
Even though the results were 50% better from a student outcome perspective, the government decided to shut it down given the regulator’s largely dismissive attitude towards for-profit institutions. What you have is a federal government in the US, which is probably opposed to using federal funding to enable lower to middle-income students to gain access to education. Regardless of the quality of the education, they just have an issue with the for-profit world. What you end up doing is you target people who either themselves or their employers are able to pay.
Sramana Mitra: To build a business, you have to find customers who can pay. That is the bottomline of building a business. Business is not charity and giving things for free is not a business.
Jason Stoffer: The government, in this case, is acting in a way that doesn’t make much sense. If you’re a for-profit player that offers a better price value combination than the non-profit, they don’t care. Government sources of financing can be fickle.
Sramana Mitra: From a decision-making point of view of your business strategy, if you are waiting for government policy to change for your business to be successful, I would be very careful about those. Lyft and Airbnb are playing that game to some extent. In education especially, if you have to change government policy for your business to work, that’s a very difficult territory.
Jason Stoffer: If you’re dependent on a regulatory approval for financing, you’ve got to be very careful.
Sramana Mitra: Thank you for your time.
This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Jason Stoffer of Maveron
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