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The cash to train students needs to come from somewhere. So in Lambda School's case that's either VCs or some other investors. Instead of running the entire sc
by austenallred 6y ago
The cash to train students needs to come from somewhere. So in Lambda School's case that's either VCs or some other investors.
Instead of running the entire school on venture capital, which wouldn't make sense (VCs need a huge return per dollar), we use an advance from investors based on the future value of an ISA to offset the cost.
If we work with investors to say that an ISA will be worth $x, we can borrow $x minus interest the same way you would be able to for any other asset.
Of course, that amount needs to be repaid. So it's still completely risk-aligned.
- maxerickson 6y agoThe cash to train students needs to come from somewhere. So in Lambda School's case that's either VCs or some other investors. This makes sense for liquidity, but ultimately the ISAs are what has to provide the funding (or it's not a viable business). As the investment terms improve, the portion of the ISA payout spent on training has to go down. You are correct that the ISAs need to pay out to be an interesting investment, but if you are pricing the ISA to what the investment market will pay instead of what the training costs, it's not exactly a better deal for the students.
- austenallred 6y agoYou’re forgetting the student in all of this. At the end of the day the decision maker is the student who decides if it’s a good deal. The financing is all cashflow management behind the scenes that doesn’t really matter.
- maxerickson 6y agoSure, they can decide if the think the deal is worth it to them or not, but they probably aren't the one with the most information about the training spend and value of the ISA.
- austenallred 6y agoIt doesn’t really matter. As a purchaser of x it doesn’t matter to me what it costs to make x so long as I know clearly what x is. A Stanford grad doesn’t know what the marginal cost of their enrollment is.
- maxerickson 6y agoIt doesn't matter particularly to the student, but there is some utility, even from the outside, in estimating how much direct value a school provides and how much of a matchmaking service it provides. Your whole premise is that universities mostly provide matchmaking!
- ibeckermayer 6y agoYou seem to be implying that you’re borrowing against the ISAs whereas the article claims you’re selling them.
- austenallred 6y agoIt’s only a “sale” in the sense that it’s sold to a special purpose vehicle that we own 100% of. The article is wrong in many different ways, this is only one of them.
- Jasper_ 6y agoDoesn't that incentivize you to graduate as many students as possible, even poor quality ones, so that you can recoup the costs of as many past ISAs as possible and sell them off quickly? Otherwise, how does a student that doesn't land a job and whose ISA will never repay fit into this model?
- austenallred 6y agoIf every student were free yes, but that would incur further “debt.” Also every student is quite expensive. We gain nothing and lose a lot by enrolling students who don’t get hired.
- smegma2 5y agoWow, thanks for the answer Austen! Very cool to see that you're around to answer questions.