For years, Silicon Valley has failed to breach the walls of higher education with disruptive technology. But the tide of battle is changing. A report from the front lines.
So the VC guys and the start-ups look at K-12 and higher education, which between them cost over $1 trillion per year in America, and much more around the world. They see businesses that are organized around communication between people and the exchange of information, two things that are increasingly happening over the Internet. Right now, nearly all of that communication and exchange happens on physical platforms—schools and colleges—that were built a long time ago. A huge amount of money is tied up in labor and business arrangements that depend on things staying that way. How likely are they to stay that way, in the long term? Sure, there are a ton of regulatory protections and political complications tied up in the fact that most education is funded by the taxpayer. As always, the timing would be difficult, and there is as much risk in being too early as too late.
Still, $1 trillion, just sitting there. And how much does it cost for a firm like Learn Capital to invest in a few people sitting around a table with their MacBook Airs? That’s a cheap lottery ticket with a huge potential jackpot waiting for whomever backs the winning education platform.
After chatting with Nathaniel for a while, I eventually yield the floor to a young guy named Parker, an aspiring entrepreneur who graduated from Amherst last May, who’s come to pitch an idea for a start-up in hopes of scoring seed money. In November he had an idea for a new company he calls eHighLighter, which sells a smartphone app that lets you take a picture of a book page and convert it to a document on which you can then highlight text, categorize it, save it, and otherwise organize it in useful ways. He put some bootstrapping money together and used it to hire six computer programmers in Bangalore to design the “user interface” and “user experience” (UI and UX) for the company.
He gives a short, practiced explanation of what the app does, then pulls out his white iPhone—everyone here has not only an iPhone 4S but a white iPhone 4S— and shows Nathaniel some screen captures of the product. The pitch takes about five minutes. Nathaniel nods, listens, and says, nicely but decisively, “I’m not sure I buy it.” He sees eHighLighter as an intermediate technology, a bridge to the eventual transition from paper to electronic books. What then? Parker is ready for this and cites statistics about the slow rate at which libraries are scanning in physical books, and they have a friendly back-and-forth about this, with Nathaniel offering useful advice about going after specific market segments—PhD candidates who live in archives, for example. But his initial judgment remains unchanged.
Parker doesn’t seem particularly crestfallen. It’s his first pitch; there will probably be more, and the prospect of hitting a home run never seems that far off around here. Less than a year out of Amherst with nothing but a few iPhone screen captures and Parker can walk into a room full of money and get the money’s attention. Youcan’t ask for more than that.
As we’re wrapping up the meeting, suddenly everyone starts fiddling with their white iPhones at once. “Facebook just bought Instagram for $1 billion,” Michael says. This is, in many ways, local news. Lots of people here know the Instagram guys, have run into them at parties, or have otherwise overlapped circles in the small valley world. So it’s slightly vertiginous to wake up the next morning and see the story of how the creators of an iPhone photo-sharing app struck it rich above the fold on the free copy of USA Today the hotel leaves in front of my door. Instagram comes up in nearly every meeting I attend for the next three days.
Back in San Francisco, we meet Ben Nelson, founder and president of the richly funded but still entirely theoretical Minerva Project. Michael and I meet him at an Asian restaurant in the hip SoMa (South of Market Street) district of San Francisco. Nelson is wearing another black fleece zip-up jacket. He’s half a generation older than most of the start-up people I talk to—meaning late thirties—and spent more than five years as the CEO of the photosharing company Snapfish. Minerva made news in the valley the week before by getting $25 million in start-up funding from Benchmark Capital, the single biggest seed investment the firm, whose past investments include eBay, Twitter, and Instagram, had ever made. Since nobody gives away all or even most of their equity in exchange for initial seed funding, $25 million implies a substantially larger total valuation. Since these negotiations are essentially speculative and tend to involve round numbers (see: Instagram, $1 billion), $100 million is not a bad guess.
Minerva sprang from Nelson’s observation that higher education was increasingly a realm of mismatched supply and demand. Recent decades have been generally peaceful and prosperous on planet Earth. There are a lot more people with the desire and ability to pay for higher education than there used to be. Elite American schools are the unchallenged market leaders, which is why applications to Harvard have increased by double digits annually for years, with growing demand from China and other fast-developing economies.
In response to this surge in demand for its product, Harvard has done the following: absolutely nothing. It hasn’t expanded the size of its freshman class by a single student in the last twenty years. With a few exceptions, this is true for all elite American schools. They don’t have to get bigger, they don’t want to get bigger, and, anchored as they are to immovable physical places, they can’t get bigger in any meaningful or not absurdly expensive way. Yale, one of the exceptions, is currently in the process of expanding its undergraduate enrollment by 15 percent, or about 800 students. This involves building two new “colleges,” the rectangular gothic buildings in which Yale undergraduates live and study, at a cost of more than $600 million—or twenty-four times what Minerva got in seed money, an amount that was repeatedly described to me as shockingly large.
Minerva is designed to soak up this growing excess demand. Nelson plans to signal elite status through a combination of rigorous admissions standards and a nail-tough academic curriculum. While the courses will be conducted primarily online, students will live together in shared housing units in cities around the world. They’ll start in their home country and then rotate to different cities in later years, finishing with a capstone project in their chosen major. Nelson figures this can be done for less than half of what Ivies charge students, and that if Minerva ends up with a student body of 10,000 undergraduates it will be a financial success.
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