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Follow the Money: How Venture Capitalism Is Redefining Higher Education

It seems like every day I open my email to news of another acquisition in the higher ed space, from LinkedIn acquiring Lynda.com for $1.5 billion to Blackboard’s sale price of $3.5 billion to MOOCs being funded in the hundreds of millions.

And it’s not just the mailing lists I’m on; investment in education has reached a record high. Venture capital for education services firms was $2.5 billion in the first half of 2015 – more than was invested in all of 2014.

But why the sudden surge in interest in higher ed technology? And can this interest last, or are we just creating another bubble?

Investing in the Future

Where money is being invested can be a signpost to the future; during the dot com years, e-commerce seemed like a foreign idea to many, yet the smart money knew it was going to revolutionize the way we did business. Watching where money is being invested in higher education, then, can indicate how the system is changing. After all, these companies are not investing in traditional institutions. Instead, the money is flowing toward products and services that are giving more students more access to education, either by investing in hardware (such as 3D printers, interactive whiteboards, or tablets), software programs and apps (for example, Khan Academy), or platforms to improve the delivery of educational services (such as Blackboard and Pearson’s new and improved platforms). These investments do not focus on acquiring more students, but rather on improving the experience students have.

It is worth noting that in the 1990s and 2000s, billions of dollars went into proprietary or for-profit universities to tap directly into the ultimate cash stream – Title IV funds. This market has been virtually shut down to venture capital and private equity as for-profits have seen year-over-year declines since the peak in 2010 and intense scrutiny from the federal government and regional accreditors. While that market has closed, however, new avenues have opened for money to continue to flow into the education realm.

One of the reasons this volume of investment is so interesting to me is because enrollment in higher education has been declining steadily. Even online education, which has long been a driver of growth, is slowing down. Data from the National Student Clearinghouse Research Center show that college enrollments declined by close to 2%, yielding 18.6 million college students today. Along with the slowing down of enrollments, student debt is becoming an economic crisis, totaling $1.2 trillion.

Technology can help change all that, increasing access to different kinds of education to a wider audience, at a lower cost. Investment firms are hoping to capitalize on this new sector of education, even as traditional education may be declining. Is it possible that investors are on to something and that traditional higher education is on the decline and consumers in need of growth and learning are turning to alternative providers? The rise of “just-in-time” education, which focuses more on providing students with specific skills sets that are needed in the marketplace, suggests that this is a viable alternative, one that investors can, and should, explore.

Bursting Bubble, or Sustainable Growth?

Of course, with a surge in investment comes questions of sustainability. I mentioned the dot com era earlier, and as we all know, that did not end well. And after the housing bubble burst in 2007, it’s hard not to flinch when people mention rapid investment in a specific industry.

I think (and hope) that what is happening in higher education is more sustainable than those famous meltdowns. I have a few reasons for this hope.

For one, while the investment has been strong for the past few years, it is in products that are tangible and proven to work. Lynda.com, for example, has been offering training courses for 20 years. Other big investment news has also been in companies that have been around for a long time – Pearson and Blackboard, to name just two. This means that instead of investing in unknown and unproven companies, venture capitalists are providing the means for these companies to refine existing products and ensure they work and meet market needs. While new types of educational offerings are being developed (such as coding bootcamps), the continued investment in existing products can help provide a more sustainable growth. This is a more sustainable approach than reinventing the higher education wheel.

Second, despite the prevalence of the Internet and connectivity in what seems like every aspect of our world, there is still a lot of room for growth in the education sector. Only 26% of students are taking online courses. But according to a survey from Houghton Mifflin Harcourt, 97% of educators are using some form of digital content. The desire is there, but the market is nowhere close to saturated.

Third, there is a lot of social pressure to change how higher education is delivered. Political initiatives are focusing on how to relieve the burden of cost of higher education, which includes welcoming new educational methods. Education service companies have an opportunity to position themselves as agents of this change. In the last 12 months, the Obama administration has gotten aggressively behind alternatives to higher education, touting short-term, skills-based education (such as coding bootcamps) through its TechHire initiative.

What Does This Mean for Institutions?

In the excitement of investment in higher ed technology and services, will institutions of higher learning be left behind? I think the answer is no, as long as schools want to evolve in the direction the market is calling for.

The innovation emerging these days is exciting. I am a fan of the new types of education models that are being developed, such as coding bootcamps and nano- and micro-degrees (out of the MOOCs). But still, the traditional institution has a strong brand and presence, and I don’t see that disappearing any time soon. Frankly, a degree from an accredited institution that has been around for decades, if not centuries, still carries a lot of weight.

I think, however, that these new models offer an opportunity for institutions that are ready to embrace the future. By leveraging their expertise in traditional education and serving as a launching pad, colleges and universities have an opportunity to integrate technology and new models and help themselves stand out from an increasingly crowded market. And given the level of money that is being invested, institutions can do so at little cost to themselves, by partnering with the right education services firms or considering partnering with businesses that want specific tools or training for their employees.

In a world steeped in tradition, as higher education is, change is difficult. But in an increasingly technology-dominated world, the money is flowing away from the traditional model and toward new ways of delivering learning to students. Instead of viewing this as a threat, I encourage colleges and universities to consider this an opportunity – an opportunity to grow, to engage new students, to expand their brand and their footprint and to be on the forefront of a bold new horizon.

I, for one, can’t wait to see what the future holds for us.

About Todd Zipper

Todd Zipper serves as the President and Chief Executive Officer at Learning House. He joined Learning House as Executive Vice President and Chief Marketing Officer during the Weld North Holdings LLC acquisition in 2011. In his role, Todd oversees all operations and provides strategic management. Before joining Learning House, Todd co-founded and served as Chief Operating Officer for Education Connection. Todd can be reached at: tzipper@learninghouse.com