Photo by Branko Stancevic on Unsplash

Investing in closing the skills gap

ROI is the priority for students and investors alike.

Learning a skill

Last week, the Digital Literacy for Decision Making class at Columbia Business School, taught by Brett Martin, was lucky enough to get a hands-on web development session from Chris Castiglione, co-founder of One Month (also a CBS adjunct Professor). Venture-backed ($2.7mm raised), One Month teaches students programming and web development in 30-day boot camps.

Learning HTML was fun and satisfying — new skills are cool! — and in one short session we had built basic websites. But this session was interesting for another reason: it was a firsthand demonstration of an investment thesis I find both meaningful and exciting — closing the skills gap.

The skills gap

The skills gap represents a challenge for employers across industries. Current workforce skillsets are misaligned with industry requirements and the gap is rapidly widening. The future of work is a central question in tech and venture communities, and rightly so. Existing jobs are being automated, entirely new jobs are being created, and the very nature of work is evolving.

How can education and certification keep pace with the changing nature of work? The answer is that they can’t, at least not in their current form. There simply isn’t enough time to label this an education problem and hope that the next generation of high-school students will enter the workforce with all the necessary skills to meet employers’ needs. The gulf between job vacancies and job-seekers is large and needs to be addressed in the short term.

After Amazon pulled out of the Long Island City deal, lots of discussion focused on the health of the New York City job market. Some supporters of the decision pointed to New York City’s low unemployment compared to national averages and steady stream of open jobs. We already have so many unfilled jobs, why do we need Amazon’s?

In truth, the Amazon story and debate over 25,000 potential (or lost, depending on your stance) jobs is a red herring. The real story is those existing unfilled jobs. In the wake of the debate, Shai Goldman of Silicon Valley Bank noted:

We need to train people to have the skills to get the jobs.

Skills-based education

Because the skills gap is so pressing, employers cannot afford to wait for new blood to enter the workforce. Retraining and continuing education for adults must be a priority.

Adult education has long been the unloved and underfunded cousin within edtech. Call it what you want — adult education, workforce development, retraining — there is one commonality: skills-based education. The priority is delivering the necessary skills that enable workers to thrive in jobs of today and the future.

Cost and ROI are barriers

The average annual cost of a four-year college education in the United States ranges from $21,000-35,000 (in-state vs out-of-state) and rises to $46,000 for private colleges. And this does not even begin to consider the socioeconomic barriers constructed around college admissions that have recently occupied headlines.

Meanwhile, student debt levels are at an all-time high, with $1.5 trillion of outstanding government student debt as of 2018. Projected default rates range from 25-40% and overall debt levels are expected to increase by up to 30% over the next two years.

ROI of higher education is a notoriously difficult concept to quantify. In a world in which debt is spiraling and would-be students trend older and are more likely to have families to support, risk tolerance for exploring adult education paths rapidly falls. That makes it all the more important for skills-based educational programs to be able to demonstrate ROI.

Opportunities

There is a huge need for high-ROI education programs with outcome-based financing that will not contribute to the existing student debt crisis. Companies that address these three issues may offer significant opportunity for investors.

  • Take Lambda School ($48.1mm raised) — the Lambda model is a nine-month immersive program that trains people to be software engineers with no upfront cost. Students pay back tuition only once they are earning more than $50,000. Lambda recently announced additional living stipends to further smooth the transition for would-be students.
  • Vemo ($9.4mm raised) also offers income-sharing agreements for skills-based training providers. Through Vemo, providers can create outcome-based programs that deliver ROI to students.
  • Climb Credit ($56mm raised) tackles the issue from the lending side, providing financing for prospective students seeking curated, high-ROI education programs that boost earnings potential.

These are just a few models addressing the skills gap challenge in innovative ways. I look forward to learning more from founders and startups that are tackling any piece of this complex issue.