Education and Venture Capital are Incompatible

In Programming, Solving the World's Problems by Pete

The issues with Lambda School are making the rounds again on Twitter. I don’t want to detract from the very concerning anecdotes being shared by Lambda School students about the culture of the school, but I want to address what I believe is an incontrovertible problem with Lambda School.

The problem: Lambda School has raised $30 million in venture funding.

To understand why this is a problem, you have to understand what the goal of a Venture Capital firm is. Put simply: the goal of a VC is to invest in early-stage companies that will eventually make the firm a boatload of money. VCs will make a bunch of bets, knowing that many of them will fail to make a substantial return, but hoping that one of their bets will turn their $10 million into $100 million.

Venture Capital firms are not interested in modest returns. Why would they be? They could easily generate 2-10% returns through safer and more consistent investment strategies. These kind of investors want a home run, and they’re generally happy to run a half-dozen companies into the ground in search of that if it means the seventh one will turn into a rocket ship.

This model is fundamentally incompatible with vocational education. There are only two ways for a company to generate a lot of profit. They can either have extremely high margins1 or they can do a ton of volume.

Aiming for high margins means that the school needs to educate students as cheaply as possible (and charge as much as possible). This means hiring teachers with little-to-no educational experience, paying staff as little as possible, and not investing in independent validation of curriculum efficacy. It means milking as much out of those income sharing agreements as possible.

Chasing volume means churning out as many students as possible without regard for market demand. There are far, far more code school grads out there than there are entry level jobs. This is a fundamental problem in our industry, but it’s also reality.

These aims simply do not scale well for a school. But VCs have invested millions in Lambda School. Which means that the founder has a business model and strategic plan that seems like it can turn into a massive amount of profit.

But, But, But…

Current students, employees, and suspiciously nondescript twitter accounts will rush to reassure you. They’ll tell you that Lambda School can’t make money without students getting jobs. They’ll tell you that they had a good experience, or someone they know did. They’ll point to the lives changed by the program.

These are all distractions. Lambda School hasn’t published their Income Sharing Agreement, and there are reports that it’s extremely sticky. They carefully curate the stories and statistics they share.

Moreover, the existence of good stories, even a lot of them, does not mean there aren’t horrible outcomes waiting in the wings for people. Even Ponzi schemes pay out their earliest investors to build confidence for bigger investments later.

What will happen when Lambda doesn’t hit its growth numbers or the repayment rate on their ISA slips below the ideal level? Will they cut more corners? Start lowering the bar on incoming students (eventually devaluing the diploma for everyone)? Start being more aggressive in their debt collection efforts?

I’m happy for anyone who has had a good experience at Lambda School, but the funding model and for-profit nature of the school basically guarantee that the good times can’t last.

  1. Whatever they sell costs them far less to produce than they sell it for