Announcing Our New ISA Financing Blueprint and $100M in New Financing
lambdaschool.com
lambdaschool.com
Anecdotally, the older or previously successful students who could keep up went on to succeed, but these people already knew how to hustle. Bootcamp can't teach people how to hustle.
(I learned to hustle after previously participating in an even bigger scam - a state school humanities undergraduate education. ... )
I don’t know, I’m not a genius, but I kinda figured which majors may not help me in the economy.
I ended up getting a master's in English and taught essay writing for a while. Many decisions later, I work as security analyst and end up writing a lot on the job, so I like to think things have worked out. I guess. I wish I knew C and more low level cs concepts like some of my coworkers.
https://twitter.com/KateClarkTweets/status/12302421245005701...
Jeff started as an investor in Lambda School but fell so in love with the company he came aboard full-time. After a couple months he realized he couldn’t do both investing and full-time work simultaneously, and decided to focus on investing with my full blessing.
Those two leaving had exactly 0% to do with any news articles.
And then there's the issue of two prominent Lambda executives (one of them an investor, IIRC) stepping down this afternoon. [2]
[0] https://www.theverge.com/2020/2/12/21135134/lambda-school-st...
[1] https://twitter.com/dhh/status/1227317343539335168
[2] https://twitter.com/KateClarkTweets/status/12302421245005701...
If Lambda school worked, their ISAs would be paying off at this point, they'd be seeing a profit from their first cohorts and so not only would they have fresh cash to invest, but VCs would see the ROI and growth and throw down some cash. It seems very clear to me that they've failed to demonstrate the business model. So they hand off the core of their business (taking the risk students don't pay off) to a 3rd party and try to just spin some cash from the classes. If I were them I'd be looking for an exit, quick.
I've read this post, what they do is clear and makes sense to me.
Most of all it preservers "if the student doesn't get the job, LambdaSchool fails" property. This alignment of incentives is really the only thing that matters and it lacks in traditional colleges (which is why Lamda will either fail or, in the long term, will kill traditional colleges or force them to change).
Comparing what they do to CDO is done to make a negative association. "CDO are bad, this shares some similarity of CDO, this is bad".
The bad aspect of CDO was that it was used to hide bad investments by packaging them together and re-selling as a better investment.
What Lambda is doing is more like pooling of risk used in insurance: if you (as an investor) bet on ISA of a single student, you have a high-risk, binary outcome (loose all your money or get some reward).
If you bet on 1000 students as a group, you significantly de-risk the whole thing while only reducing potential reward a little bit.
As far as Lambda's management/culture situation, I've heard it's turbulent, but that's also par for the course with most startups, especially in growth mode. This will always be hard because student outcomes can sometimes feel this turbulence, but it's not like the students think this is a sure thing.
>If you bet on 1000 students as a group, you significantly de-risk the whole thing while only reducing potential reward a little bit.
Risk is surely part of it, but I think cash flow is a big issue as well. Very hard to run a business where you provide a service now and get paid over a couple years starting ~6 months from now. Better the split the company into the entity that provides the service and another that provides the financing.
The core of their business should be educating the students. The financing and loan servicing are secondary concerns that are probably better off done by a different entity.
It appears they are doubling down on the ISA brokering with Edly. (Which had deleted references to Lambda after they were exposed.)
They've partnered with Edly, a marketplace to sell ISAs founded by Chris Ricciardi, the "grandfather of collateralized debt obligations".
The potential solutions are three fold:
1. Limit growth of students - impossible if your organization received venture capital.
2. Reduce the cost to educate - Unfortunately if you make education a commodity, ironically it will be replicated, leading to alternatives, ultimately leading to (1).
3. Guarantee the loans somehow
I think the only type of organization that could pull it off is one that doesn't mind waiting a long time to do it sustainably. Probably a not-for-profit. Alternatively, you could sustain it by doing it at a loss, e.g. you have some other organization to ensure (3).
This all works unless the instruments aren't audited well where the risk is higher. (think: ratings agencies in the housing crisis) Here the risk is that payback is bad, but we don't know yet, so investors are left holding the bag.
This latter scenario is really only bad for the investors and wastes the student's time, but then again the current college system already does this, so at least this doesn't shackle them with debts they can't pay.
Of course later investors won't buy the ISA packs if they first blow up, but seemingly no one gets hurt if it all goes up in flames.
We’ve been working on this for over a year, and it finally closed today. We’ve been intensely focused on incentive alignment since the early days of Lambda School, and finally got to design an incentive-aligned ISA financing mechanism from scratch. Glad to have it out there.
My own favorite higher education reform idea is to have the gov't fund higher education by paying schools a percentage of the student's increase in W2 earnings for a period after graduation. That would avoid the 'indentured servitude' aspect, because the gov't would be paying, but would only reward schools that could increase students' W2 earnings.
To the extent that lambda school is exploring models that do something similar, it might eventually make space for a gov't funding model build around the insights they have had (like the one in this announcement, about how to pull future revenues forward to fund the school in a practical way).
No need for fancy securitization or business models!
I fully agree with gov't providing education for everyone, but it's not a panacea. Non-gov't innovation could discover really interesting models that gov't wouldn't take the risk on. We just need to make sure there's no fraud going on.
When it comes to education the literature is littered with failed "innovation" models that sound good but fail. In fact, we could commission research institutions (publicly owned universities!) to do the legwork...in fact many of them have varied educational models. The government merely funds them; it doesn't execute the teaching model. (And Lambda's teaching model is pretty bog-standard, all said and told)
For profit vocational schools have existed for eons. If the only novelty is the "ISA" -- which is not all that new, innovative or effective what with progressive taxation -- then what exactly are Lambda offering? Overpriced, poorly executed courses for 0-upfront cost, subsidized "teaching" by TAs w/o any actual knowledge?
The price of failure in this space is very high. It's gambling with student's futures. Fast iteration and failure recovery is not easily possible. This is not a space where VC acceleration makes sense.
I don't see how student failure risk is higher than a 4 year degree or vocational school (i.e. the null hypothesis) - either way has time / foregone wages you spend without knowing you're going to get it back. Lambda's programs are actually less risky than a 4 year agree on a time/wage basis, and we have to see how they are on an $ ROI basis (i.e. how long is payback on the degree and how much is the net wage increase).
Also, we allow high-risk private sector stuff all the time: aerospace, automotive, medical, etc. all have literal life and death stakes beyond a school that doesn't work out. Regulation should be proportional to the risk involved, and I just don't see it with the Lambda / ISA model.
As far as what Lambda offers, it seems like they're currently the strongest executors from company growth perspective in the ISA/bootcamp space, and we'll have to see how they do on the factors I named above to see if it's effective. Being a trailblazer is high risk / high reward. I welcome their attempt.
Please correct me where you think I'm wrong. (said earnestly)
Except getting yourself into huge amounts of debt $30000! is life ruining for basically everyone that Lambda is targeting.
We don't allow experiments on high risk populations with medical testing without informed consent. This was faulty in the Lambda case, where they out and out lied about their funding model. We don't allow the public to fly on planes without tons of testing. We don't allow people to drive cars that haven't passed independent crash testing.
So Lambda's ISA shouldn't be allowed to be sold to the public without independent financial advice, like any other complex debt product. And yes I think the same should apply to student loans.
You and I cannot just go and enter into a debt futures contract (well, maybe if you're an "accredited investor" i.e. rich enough to be ok if it goes south). So why do we let vulnerable folks enter into a shady financial agreement with an operator who's more concerned about growth than a good education? It's not good for society for every 1 new engineer there's 3 debt-enslaved washouts. Lambda's still profitable at those horrible numbers.
>As far as what Lambda offers, it seems like they're currently the strongest executors from company growth perspective in the ISA/bootcamp space, and we'll have to see how they do on the factors I named above to see if it's effective. Being a trailblazer is high risk / high reward. I welcome their attempt.
The problem is that their failures ruin people financially. Growth at all costs is a _bad_ thing. Going slower and getting things right is required to create a good product that first does no harm.
(2) A few months of education isn't a plane crash or fatal drug, it's a major inconvenience, but no more than any other bad life decision people make freely all the time (taking a bad job, buying a boat, etc.). As I said, regulation needs to be proportional to the down side.
(3) If you make everything really restrictive there is no innovation. Going slow does do harm. Harm that you don't see because it's a positive externality and hence never happens and you don't see it. Growth isn't the enemy and neither is regulation, you just have to be smart about it, and I would argue you're too far on the conservative side.
* The only exception, which I believe is still unclear legally, is whether ISA aren't releasable under bankruptcy, which I would definitely oppose as a big supporter of bankruptcy law.
Edit: a bit of confirming evidence is that most of those early voters voted for both threads, i.e. this one and https://news.ycombinator.com/item?id=22366474.