How to build a unicorn by partnering with universities to diversify their revenue streams (Part 2)

The definitive guide for founders building companies that scale by partnering with universities. Find specific ideas on what to build and advice on the differentiators, business models, and go-to-market approaches we look out for as investors in this space.

In part 1 of this series, we demonstrated why technology-enabled revenue diversification (RD) presents the single greatest opportunity for universities to scale their reach, impact and income. Startups will play a key role in this and the addressable market for third-party providers will more than double from $7bn to $15bn by 2025.

This second part of the series is for founders, as we explain the anatomy of existing unicorns in the space and what it takes to build one.

Here is what founders will get out of this post:

• The most important success factor of RD companies
• Detailed descriptions of five different RD business models and value chains and how they create value for universities
• Highlights of today’s key market players and important market trends
• Where we see white space and the types of ideas we would love to invest in

If you are a founder building a business across any of these RD models, or any other business that addresses the $8.5tn global skills gap, we want to hear from you. Visit us to get in touch and to learn how we help founders with market-specific insights powered by our community of the world’s foremost education leaders and entrepreneurs.

The unifying strategic principle shared by all RD companies

Most universities’ main source of revenue is their on-campus programmes and research. To help them diversify revenue, RD companies enable universities to address new markets, including international students, students that are looking for flexible online study options, lifelong learners and corporate clients.

The unifying strategic principle shared by all RD companies is that they help universities diversify revenue by addressing new markets.

Consider the below graphic: the university at its centre addresses domestic and international student markets through its on-campus programmes, offering undergraduate, postgraduate and executive education programmes. By building online programmes suited for these as well as new audiences, and supporting the university in marketing these programmes, RD providers help expand the university’s reach and diversify its income sources.

“Revenue diversification is not an end in itself for universities. It is a way to better serve our existing students, and to serve the students still to come.” — Keith Zimmerman, COO at the University of Bath

Here are examples of how leading players do this today:

1. 2U — to date, more than 75 universities partner with 2U to build, deliver and support more than 475 online educational offerings–including undergraduate and graduate degrees, bootcamps and short courses–and establish additional income streams while reaching 275k+ students and lifelong learners
2. Guild Education — by acting as the interface between large employers and university partners, Guild provides universities with direct access to learners in the workforce, and the sizable training budgets of global corporates
3. HackerU — by developing and marketing vocational programmes in high-growth industries (e.g. cyber security) in partnership, HackerU allows universities to compete in the emerging bootcamp market

Under the hood: anatomy of RD startups

What follows is a detailed breakdown of each of the following models of RD, to help founders understand what to build and how to build it.

Under each model, you will find the following headings:

• Model summary: Clear definition of the model and how it creates value for universities: we break down each model to explain in detail which elements of the value chain are owned by the startup and the university. We have broken the value chain into four parts:

• We also include highlights of some of today’s key market players. Note that we have included only a sample of the many players — this is not meant to be comprehensive

• Model trends: History of the model and where it is going, as well as clear descriptions of where we see white space and the types of ideas we would love to invest in

Model 1: online UG and PG degrees

Model 1 summary

Definition: this model encompasses all providers who support universities in the transitioning of existing degrees online, and the creation of brand new online degree offerings. These providers are typically referred to as ‘online programme managers’ (OPMs), and this is the most mature RD model with a number of well-established market leaders.

OPMs provide two sets of services: (a) they invest in course design, student and faculty support services and the technology stack to enable the delivery of online degrees, and (b) own the acquisition of online learners. In exchange for this significant upfront investment and marketing risk, OPMs are usually compensated through a revenue share model, with the most successful players taking up to 50–65% of tuition fee revenue.

In the main, OPMs help universities attract 25–40 year old professionals that are looking for career progression or a career change. These learners have different needs from universities’ core on-campus audience, including a greater need for flexibility and a decreased need for on-campus community.

Although this is a mature market category, continued growth is expected as Holon IQ predicts that the online degree market will more than double from $36bn in 2019 to $74bn in 2025.

How this model creates value for universities: depending on the university’s preference, the third party can take full ownership of learner acquisition and support, along with partial support for course design and delivery. The company will also provide the technology stack required to enable online provision, often using third party vendors.

Market map — highlighted players

As highlighted, this is the most mature segment with 80+ OPMs in the global market, serving c. 500 universities. The top 10 players make up >50% of total revenue, and the 5 largest companies are Pearson, 2U, Wiley, Bisk and Academic Partnerships. Within the OPM space, there is a broad spectrum of business models and capabilities. For example, some players provide full stack support across the education value chain and underwrite courses in exchange for revenue share partnerships. Other companies offer specific services across the value chain (e.g. course design), and establish a fixed fee for service.

• 2U — one of the global leaders in the online education market, 2U was founded in 2008 and went public in 2014. Initially focused on the online graduate degree market, 2U expanded into alternative credentials through its acquisition of GetSmarter in 2017 and Trilogy Education in 2019. The company reached a peak valuation of $5bn in 2018 and currently has a market cap of more than $3n. Today, 2U powers more than 475 online educational offerings in partnership with 75 universities, typically based on a revenue share model. 2U focuses on expanding and deepening its relationships with existing university partners while also growing its partnership base with additional top-tier non-profit institutions.
• Construct — following a rebrand and $3mn raise in 2019, Proversity became Construct, and is now one of the fastest growing players that enables universities to create high-quality and cost-effective online programmes. They specialise in course design and delivery, and serve a diverse client base including: schools, universities, employers and even OPMs. Construct’s business model is based on a fee for service, and Online Education Services (OES), one of the top 10 global OPMs, recently acquired a majority stake in the company. OES offers learner acquisition services, and following this acquisition, will be able to offer universities an a la carte service model from pure fee for service to full stack services in exchange for revenue share
• Aula — founded in 2014, Aula is a learning experience platform that enables universities to deliver great distributed learning experiences for all students. Specifically, they provide the technology and learning design services required for transitioning a university’s entire provision to a blended model. Aula (SaaS/fee for service, not revenue share) has delivered outstanding results for university partners — at scale. For example, Coventry University saw a 25 % increase in student satisfaction for its May 2020 semester for modules taught on Aula and moved all teaching to Aula in September 2020. To date, Aula has raised funding from a range of investors including Project A, Reach Capital and Emerge Education

Model 1 trends

When OPMs were first conceived, the concept of online education was still nascent. OPMs established a new market and provided significant financial investment to kickstart new programmes with their partners. Over the years, OPMs have dominated the online postgraduate degree market, established the revenue share agreement-based partnership model and helped universities diversify their revenue streams.

Today, a number of limitations are becoming apparent in this model:

1. Most online degrees are in fact taken by local students: According to a 2019 study by Learning House, sixty-seven percent of students in online programs study within 50 miles of home. OPMs do little to help universities take advantage of the enormous opportunity to serve learners in emerging markets, which will add 200 million new HE learners by the end of the decade. There are multiple reasons for this, including: a) Price. Revenue-share based models require a high price point which exceeds willingness to pay for most emerging markets candidates. b) No visa. Much of the attractiveness of international studies is that they act as a viable immigration route. Online degrees don’t solve for this but this isn’t reflected in price. c) Brand recognition. Most courses are not particularly differentiated. As a result, candidates select brands they know and understand. These are often local. d) Viability. Synchronous learning has to be designed for multiple timezones.
2. Online education has moved from fringe experiment to core revenue driver for many universities: According to the National Center for Education Statistics, more than twenty-eight percent of all postgraduate degrees in the US were taken fully online in 2018. As a result, the revenue share-based business model is coming under pressure. While few universities have the capabilities to build in-house solutions, there is increasing demand for providers which operate on a fee-for-service model, offering a la carte services that adjust to the institution’s needs. As explained above, Construct is one such player
3. Revenue-shared based models have a natural tendency to focus on an institution’s most popular, most highly priced programmes: As a result, the majority of all higher ed programmes remains campus-based, even where institutions have successfully partnered with an OPM. This creates an unnatural divide between on-campus and online programmes. In the ideal case, universities would offer all of their programmes online, allowing all of their students to experience the benefits of a blended education model, where students can move seamlessly between online and offline modes. In addition to improving the learning experience, this would also enable universities to enrol more students as blended programmes scale more easily than pure on-campus programmes. However, this is not possible within the constraints of the current predominant OPM business model

Model 1 white space and investment ideas

So what’s next for OPMs? We have identified a number of emerging trends that we believe paint a picture of what is yet to come in this space and where we see exciting investment opportunities.

1. Take undergraduate degrees online: We were excited to see the University of London expand into the online undergraduate market in partnership with 2U to offer Bachelor’s degrees in areas like Data Science and Business Analytics, which have performed above expectations. OPMs have not traditionally focused on undergraduate programmes because the traditional undergrad student’s preference for an on-campus experience outweighs the benefits of online provision. However, as the addressable market of ‘non-traditional students’ — e.g. mature and working students — has grown, so has the online undergraduate degree become more viable

2. Focus on distributed learning: In the wake of the pandemic, learner preferences and university mindsets have shifted towards becoming increasingly comfortable with online offerings. Our research with 40+ university senior leadership teams on their long-term digital strategies highlights that the shift towards online is here to stay. We believe that this paves the way for OPMs to work with some universities on transitioning the majority or all of their courses towards a distributed learning model, where presence on campus is no longer a requirement for students. Based on this blended approach for a large number of courses, universities would likely opt for a fee for service rather than a revenue share model. In this world, OPMs would enable universities to deliver a great learning experience for all students, regardless of their location. One great example of this model is our portfolio company Aula

“Distributed learning is about a mindset change which does not favour those learners who are co-present and does not explicitly divide resources into face-to-face and distance; as does blended learning. To be distributed you must first be agnostic as to the location of the student.” — Simon Harper, Professor of Computer Science at the University of Manchester

3. Focus on the rapidly growing emerging markets: to date, the vast majority of OPM activity has been focused on the US, UK and Australia. Very few players have succeeded at attracting learners from emerging markets as customer acquisition costs (CAC) has been too high relative to the customer willingness to pay, amongst other reasons (see above). Over the next decade, HE enrolment is expected to double with the vast majority of these learners coming from emerging markets. This creates a vast market opportunity for new players who can build low cost high quality online degree programmes for the mass market in emerging economies. We believe this gap is unlikely to be addressed by incumbent players who are focused on their long-standing business models and core markets. Founded in 2018, Beacon Education is now addressing this opportunity by helping Western universities attract learners from China for online master’s degrees

Model 2: immersive non-accredited professional programmes

Model 2 summary

Definition: this model encompasses all providers that help universities create and market non-accredited short courses to professional audiences. They are short — typically 6–15 weeks — and offer the opportunity for universities to create incremental revenue by attracting learners who are looking for career progression or career change but do not have the ability or willingness to commit to a 1–2 year postgraduate programme. Providers in this model fit within the following two sub-categories:

1. Bootcamp-as-a-service — short vocational programmes that are targeted at career changers, focused on improving their employability and getting an entry-level job in a new discipline. Providers will usually own the whole value chain: research market demand, acquire students, design and deliver the programme as well as provide career support for learners. Universities, by contrast, usually only provide their brand to the programme (not providing credit for completion).

This model originated as a response to the growing threat from the ‘bootcamp’ industry, with independent providers such as General Assembly and Springboard gaining traction over the past decade. In comparison to these providers, bootcamps that partner with universities have a significant go-to-market advantage as the university brand can significantly lower customer acquisition costs. This can be seen in the example of Trilogy which has partnered with top university brands to grow their programmes faster than any other bootcamp provider. After being founded in 2015, Trilogy scaled to reach >$100mn revenue by the time they were acquired by 2U in 2019.

Note that bootcamp providers like Trilogy and HackerU utilise a revenue-share based business model similar to OPMs (see above). Further, while these providers have traditionally partnered with universities to provide on-campus bootcamps, virtually all of these providers have switched to full online provision in the wake of the pandemic.

2. Online executive education — providers that help universities move their executive education offerings online. Unlike bootcamps, the primary audience here are professionals and corporates. In most cases, universities play a bigger role in these courses than in the bootcamp model as content and teaching is provided by them. However, as with bootcamps, the provider helps university partners create incremental revenue by marketing these course online and acquiring students that were previously not reachable for the university.

Leading third party providers in this space include Eruditus and also MOOCs such as Coursera who offer non-accredited online courses alongside stackable credentials and online degrees. Eruditus raised $113mn in 2020 after enrolling 50k students in the last 12 months alone. These programmes are usually also run on a revenue-share basis.

How this model creates value for universities: providers in this segment play a significant role across all steps in the education value chain, and enable universities to quickly set up and scale these programmes from scratch. Most importantly, universities have the opportunity to quickly generate ROI with zero upfront investment, as the third party will underwrite the courses and fill key capability gaps around marketing to career-oriented adult learners.

Market map — highlighted players

• Trilogy — founded in 2015, Trilogy partners with top university brands to deliver vocational programmes including: web development, data analytics and UX/UI. Trilogy now works with 49 university partners, and in 2019, they were acquired by 2U for $750mn.
• HackerU — initially focused on cyber security, HackerU collaborates with universities to provide long form immersive courses in a range of digital skills. Over the last 3 years, they have trained >50k global learners into employability in digital careers in over 12 different countries.
• Eruditus — founded in 2010, Indian startup Eruditus raised $113mn in August 2020 to double down on online executive education and professional certificates. The company works with 30+ top-tier universities, and has enrolled 50k students globally in the last 12 months alone

Model 2 trends

Universities have long offered non-accredited short courses in the form of on-campus executive education programmes. What companies like Eruditus are showing is that it is possible to transform these programmes into online offerings and sell them internationally, thereby expanding continuing education departments’ reach. This is significant because the first wave of online programmes proliferated by OPMs does not scale internationally, as per above. The key difference between the two that makes this possible is price: online executive education requires less student support than a full degree programme and can thus be marketed at low enough prices to be able to unlock international markets.

By contrast, the bootcamp-as-a-service category is more nascent. Developed in response to the growing threat/opportunity from standalone bootcamp providers, this model has been criticised by some as an attempt by universities to provide “finishing schools” to graduates that provide the employability that should really be provided by degree programmes. This criticism rests on a false understanding of the target market for bootcamps: providers like Trilogy acquire the large majority of their students directly — not, as this criticism implies, through their alma maters. Further, their target audience are mainly highly motivated job seekers and upskillers with a clear career plan — not recent graduates looking to upgrade the signalling power of their degree. Bootcamps-as-a-service thus allow universities to address new markets and add incremental revenue.

The bootcamp-as-a-service model has several constraints:

1. Unlike executive education, demand for bootcamp programmes is highly local, as this is where the university’s brand will have the biggest impact on learner acquisition (the core audience strongly associates education with their local college) and employment outcomes. Therefore, providers should pitch and launch programmes for which there is strong skills demand from local employers, and strong local search demand from learners. The potential impact for these programmes to benefit the local community is a key driver that can influence adoption from universities

“Collaborating with a strong partner like HackerU enables us to move quickly and be more responsive to learners’ needs worldwide. By leveraging their additional resources, we can be more adaptable and develop programs targeted for the non-traditional, workforce development audience.” — Diane Landsiedel, Executive Director of Nexus at the University of Michigan

2. It’s important to partner with the right universities, quickly: As most students complete on-campus and online courses at universities within commuting distance, and the majority of graduates go on to take up employment within the local region of their university, third party providers can dominate market share by partnering with the leading university brand and top employers in each region. For example, if there are two competing universities in a region, and the higher ranked university already has a partner for delivering data science programmes, launching another with the lower ranked competitor university may be an uphill battle.

In order to secure the best university partner in every region, providers must demonstrate the effectiveness of their programmes. Each element of the programme must be grounded in best practice learning techniques and a wealth of data should be collected from students to inform continuous improvement. This is particularly true when scaling programmes to tens of thousands of learners and hundreds of instructors. It’s essential to maintain high quality instruction through robust teacher training.

“To date, Trilogy has collected >30mn data points from student feedback forms. This feedback has not just been useful as we’ve grown. It’s been a driving part of our growth story.” — Ahmed Haque, ex-CAO at Trilogy

3. The overall market size is still small and there is limited cross-sell potential into higher priced education products: according to Course Report and Careerkarma, somewhere between 23k and 34k students graduated from bootcamps in 2019. At an average course price of $13k, this represents a $300–400m addressable market. This market is growing fast at 4.4% but the online degree market is several orders of magnitude larger and growing three times faster, according to HolonIQ. In addition, there is limited potential for universities or bootcamp providers to upsell to bootcamp graduates. Once graduated, these learners immediately look for jobs, not additional study programmes.

Model 2 white space and investment ideas

1. Sales and marketing bootcamps: although an increasing number of providers are focused on technology skills, there are limited options for universities looking to build new programmes in other high-growth industries with significant skills gaps. For example, sales, marketing and HR are amongst the top 10 graduate occupations experiencing the most skills shortage vacancies. Companies like SV Academy and Flockjay have built standalone sales bootcamps but we are yet to see many players building equivalent programmes in partnership with universities.
2. Embed tech education in undergrad: As we have written about before in our article on Employer-University Collaboration, we see huge potential in models that embed the same tech education provided by bootcamps to professional learners in courses for the undergraduate audience. Companies like Podium Education are developing this model. We see this mainly playing out in the US market, where the liberal arts education paradigm more easily allows universities to embed new programmes into existing UG degrees than for example in the UK, where such partnerships would require a lot more custom work.

Model 3: accredited digital credentials (ADC)

Model 3 summary

Definition: this model of revenue diversification for higher education encompasses providers that help universities create and market short, online accredited programmes. In particular, there are two types of ADCs:

1. Pathway programmes for domestic undergrad students — providers in this segment enable students to complete online and credit-bearing short courses that can act as a pathway into undergraduate degree programmes. These courses cover the General Education curriculum generally provided in the first year of liberal arts undergraduate programmes in the US, and allow students to earn sufficient transferable credits to effectively complete the first year of study with a cost saving of up to 50%, not counting room and board. This enables universities to attract a more diverse group of students. This trend has emerged in the US with key players such as StraighterLine and Outlier taking ownership across all parts of the value chain from student acquisition through to course delivery and learner outcomes.
2. Stackable credentials — providers in this segment enable professional learners to complete online and credit-bearing short courses. Like bootcamps, these courses are usually career-oriented and more affordable than full postgraduate degrees. However, unlike bootcamps, these courses are credit-bearing and are thus a compelling choice for professional learners that are considering a postgraduate degree but don’t have the time or money to commit to one. Leading players such as FutureLearn and FourthRev in the space own product development, course delivery and student acquisition and thus allow universities to build incremental revenue with minimal risk.

“The business case for microcredentials can be lower risk if developed as core to the university’s traditional postgraduate offer” — Matthew Jordan, Head of Operations at Coventry University Online

These models have seen rapid growth in demand, with one in four US universities now offering digital skills badges, and 73% stating that alternative credentials are “strategically important to their future” according to Pearson and UPCEA.

How this model creates value for universities: providers in this model play a significant role across all steps in the education value chain, creating and delivering courses, providing student support and acquiring students. The university’s crucial role here is to validate course content and accredit courses.

Market map — highlighted players

• FourthRev — connects universities and employers to co-create up-to-date industry relevant courses that provide learners with university credit and an employer credential. Founded in 2019 in Australia, Fourthrev is an Emerge Education portfolio company
• FutureLearn — online marketplace of stackable online short courses, microcredentials and degrees. Founded in 2012 in the UK, FutureLearn raised $65m from SEEK Group in 2019, and has enrolled >12mn learners to date
• Outlier — founded in 2018, Outlier offers cost-effective and high-quality online short courses that provide learners with the opportunity to earn transferable college credits. Created by the co-founder of MasterClass, Outlier raised their $11.7mn Series A led by GSV in early 2020

Model 3 trends

The core idea of this model is to enable universities to offer non-degree programmes that still award university credit. This concept unlocks the potential to create educational products that better serve the needs of various audiences, either as standalone offerings or as better pathways into degree programmes.

One example of this is the international student pathway industry, developed in response to the increasing globalisation of higher education. Traditional pathway providers such as INTO University, Studygroup, Navitas and Shorelight partner with universities to help them acquire and retain international students. The pathway product for international students is an on-campus “foundation year” designed to bring them up to speed academically, culturally and lingually before they enter second year as a full student.

Unbundling the higher education experience in this way makes sense for international students because they are both a highly lucrative market and have highly specialised needs (international school leavers, in particular, often don’t have the level of English required to succeed academically without a foundation year).

A more recent model is the creation of pathway programmes focused on domestic students. Companies like Straighterline significantly lower the barrier to entry to undergraduate studies by providing the option of earning first year college credit through low-cost, part-time and online study. This de-risks the decision to go to university and thus allows institutions to address more diverse learners.

Alternative digital credentials offer an attractive alternative to postgraduate programmes for professionals. Universities already serve the professional market through executive education programmes and many are looking for ways of expanding their continuing education offerings into tech as demand for digital skills soars. For learners, these credentials can be preferable to postgraduate degrees as they are shorter and less expensive, while also being preferable to non-accredited products like bootcamps and short courses as they signal greater academic rigour.

The concept of stacking such credentials into a postgraduate degree is on the horizon. At this point, the idea of using stackable credentials as a pathway into postgraduate programmes is still unrealised. However, given the growth in demand for online postgraduate degrees as well as the variety of backgrounds and needs of online students, it is natural to expect such unbundling to take place in this market also. Over time, we expect pathway providers to become as important for undergraduate and online postgraduate degrees as they are for the international student on-campus market. However, before this can happen at scale there needs to be a much bigger market of courses that will accept recognition of prior learning for postgraduate courses, and a clear and easy process to articulate into the latter. This doesn’t currently exist.

Model 3 white space and investment ideas

• New pathways into core programmes: we expect to see lots more experimentation with the pathway model, as providers cover a greater share of the addressable market. Generally, we’re interested in any venture that unbundles the purchasing decision by allowing students to gain academic credit through modularised course offerings — we’ve already invested in one leading provider in this space, Fourthrev
• Going B2G: To date, the majority of providers of accredited digital credentials is focused on B2C acquisition of learners. Brokering access to such credentials between governments and universities is another attractive opportunity. This is a B2G2C model would most likely be tied to national funding opportunities, requiring a team that is adept at navigating funding programmes in the EU, UK, Germany etc.
• Going B2B: Similarly, accredited digital credentials are a fantastic product to market to employers, many of whom are already involved in funding executive education programmes for their leadership teams.

Model 4: education brokering for employers

Model 4 summary

Definition: this model describes third party providers who act as the conduit between universities and employers to ensure the effective take-up and delivery of education as a work-benefit. We have written about this model before — see here.

There is growing evidence that investing in employee education can be a major driver of employee retention, which has led to larger numbers of employers investing in these programmes. Although the pandemic has negatively impacted corporate L&D budgets, this upward trend is expected to continue in the long-run.

However, creating partnerships between employers and universities is time-intensive and cannot be achieved bilaterally at scale. This has brought into existence players like Guild Education and InStride and is impacting the strategic direction of other education players like Zovio (formerly Bridgepoint). Specifically, such players provide employers with access to a curated marketplace of university programmes, and one-to-one coaching for employees to successfully enrol and complete these programmes. Conversely, this creates a scalable channel into a new customer base for partner universities.

How this model creates value for universities: providers ensure the success of education as a benefit programmes by investing in student success through one-to-one learner coaching. In addition, they remove the administrative burden of accessing state-funded tuition fee reimbursement programmes for employers.

Market map — highlighted players

• EdAssist helps employers create career pathways to their employees using its network of partner universities. It educates employees on the benefits of higher education and then provides them with discounted education options. Employees pay upfront for their education and EdAssist helps employers provide partial reimbursement to students and unlock state tax credits. EdAssist charges employers a fee for service and does not take a revenue share off its university partners
• Guild Education — founded in 2015, Guild transforms education as a work-benefit by offering high-quality low-cost programmes and personalised coaching for employees. Guild has raised $229mn to date, and demonstrated exceptional impact including ROI of $2.84 for ‘every dollar spent on education’
• InStride — incubated by Arizona State University (ASU) in 2019, and born out the university’s successful partnership with Starbucks, InStride now works with a range of large employers and innovative universities to facilitate the delivery of education as a work-benefit. In addition to ASU, the Rise Fund is also an early investor (and majority shareholder) in InStride.

“Over the past 6 years, we’ve built a strong and impactful relationship with Starbucks. In the fall of 2020 alone, 11,000 learners have enrolled to our online undergraduate programmes as part of this partnership” — Lisa Young, Managing Director of Enterprise Development at ASU

Model 4 trends

Employers see the benefit of paying for the higher education of their employees. According to the National Center For Education Statistics, a whopping 20% of US graduate students and 6% of US undergraduate students get some employer aid. Employers report higher talent retention and productivity as a result of these investments, which amount to $20b annually. An additional benefit is that US employers can provide up to $5.2k in tuition aid tax free. However, take up of these tuition reimbursement programmes is still relatively limited: usually only between two and five percent of employees participate. Education brokering was created in response to this.

The first iteration of this model was created by Bright Horizon’s EdAssist (see above). EdAssist reports increasing take up of tuition reimbursement programmes by up to 30%. However, this model is limited in two ways:

1. Having employees pay upfront and then get reimbursed is a great starting point but limits the addressable market to those with the ability to pay and/or those who have already made an investment in higher education but have not completed their degree. Companies like Guild and InStride have iterated on the model: their employer partners pay for employees’ education upfront, thus increasing the addressable market to more early stage employees, including those with no prior college education. In addition, these companies invest in one-to-one coaching of every employee to support them on their educational journey. This has the potential to increase take up rate even further.

“Our coaches make an enormous difference by building individual relationships with learners. This plays a significant role in our best-in-class retention rate of 93%, and ROI of $2.84 for every dollar spent on education by the employer.” — Matt Survis, Corporate Strategy at Guild Education

2. Still further, what all of these companies have in common is that they do not, in the main, provide genuine career pathways to learners. As Ryan Craig points out in one of his recent Gap Letters, increasing employee retention through education benefits is only a win-win for employer and employee if it also entails career progression for the employee. As we have said elsewhere, the best way to achieve this is for education provision to be built in direct partnership with employers such that it meets their specific skill requirements and provides learners with near guaranteed career opportunities upon completion. Guild’s strategy includes moving toward such more involved partnerships. For instance, it has created customised credentials in business and supply chain management in partnership with Walmart.

Model 4 white space and investment ideas

1. Build this in Europe: With only a small number of players, all of whom are concentrated on the US market, this category calls out for a European leader. This European market opportunity is large and growing, with a frontline worker population that is larger than the US, and corporate training budgets that are expected to grow by >$12bn over the next four years. We will publish our thoughts on how we would go about building a European player in this model next week here.
2. Expand the model to include talent acquisition: In addition to brokering degree programmes for existing employees, providers in this space could serve employers by expanding into acquiring new talent, then training this talent up through courses provided by university partners and then placing this talent with employers. This model is common in Germany, where four percent of all higher education students participate in what are known as dual studies (“Dualstudium”). In the UK, such a model could potentially be built on top of the apprenticeship levy

Model 5: Commercialising ‘education IP’ for other institutions

Model 5 summary

Definition: this model entails the licensing of one university’s educational content and/or pedagogy to another university or education provider. Unlike other models, providers in this space enable universities to increase their revenue in a highly cost-effective way, without the need to launch brand new product offerings. Specifically, students from one university will be able to access a course or content from another university while still remaining enrolled in their original institution.

This model is more nascent, with only a handful of players emerging in the US market at this time. There are two types:

1. College consortia marketplaces: companies that facilitate the transfer of courses between universities, thereby allowing students to take for-credit courses both at their home institution and others at the same time. This can create efficiencies, e.g. where the home institution has an undersupply of courses in a certain subject
2. University-as-a-service: companies that help highly ranked universities commercialise their content by making it available for use by other universities. As global enrolment in HE is expected to double and reach 400mn by 2030, this model will become increasingly important as it creates an opportunity for the >90% of students that attend ‘unranked’ institutions to access content from the world’s leading universities

How this model creates value for universities: for universities seeking to expand their online course offerings at a fast pace and low cost, providers in this segment offer a unique solution by providing access to courses from other universities. For each course that is ‘shared’ between two universities, the startup can play a key role in enabling seamless course registration and credit transfer for the student. In the value chain below, the ‘home institution’ refers to the university that is purchasing a course from the ‘teaching institution’. The ‘home institution’ then distributes the purchased course to their current students.

Market map — highlighted players

• Cintana — founded in 2019, Cintana has partnered with Arizona State University (ASU) to launch a global university network, a unique collaboration which will scale access to high-quality programs and help institutions globally meet rising demand for higher education. Cintana’s focus is to enable primarily non-profit universities outside the U.S. to draw upon expertise and innovation from both ASU and Cintana. Douglas Becker, who founded Laureate Education and co-founded Sterling Partners, is the founder and CEO of Cintana.
• Acadeum — founded in 2016, College Consortium rebranded to Acadeum in early 2020 and raised $7mn to increase it’s network of course sharing colleges. To date, Acadeum has formed >150 course sharing consortia, made up of 250 colleges who have collectively served 6,000 students.
• Coursera — although Coursera is popularly known as a ‘MOOC’ provider, recent additions to their product offering include the enablement of content sharing between different university partners through Coursera for Campus, taken up by over one thousand institutions. Founded in 2012, Coursera has established partnerships with 224 education providers to offer >5k courses.

Model 5 trends

Both types of this model are nascent and we are excited to see other players emerge that pursue this exciting space. In order to succeed, players will need to:

• Provide seamless systems integration: partner universities need to be able to securely share student data, enable student access across different LMS’s, align a complex range of course timetables and navigate complex fee structures and billing processes. This is only possible through integration across different institutional systems
• Establish robust vetting of courses: one of the biggest blockers is academic approval for awarding credit to content from other institutions. Third party providers can expedite this by aligning approval processes with the needs of their university partners, and proactively establishing greater trust between the different universities in the consortium.

“Although many universities opt to ‘build’ their online learning capability in-house, or ‘buy’ this capability by partnering with OPMs, course sharing with other institutions is the least common but also the fastest and most cost-effective solution for launching new online courses.” — Nathan Green, Co-founder and CDO at Acadeum

• Approach the right universities: the course distribution element of this model is most appealing for universities with relatively large numbers of vacant seats in existing courses. When it comes to purchasing courses, universities with strong appetite to scale online offerings at high speed and limited upfront investment will be more inclined to establish course sharing partnerships.

Model 5 white space and investment ideas

Most of the activity in this space has been focused on course sharing in the US domestic market. In future, we see potential for these players to facilitate international partnerships. Although course sharing partnerships have predominantly been focused on specific regions and local consortia, there is a growing opportunity for more scalable cross-border collaborations. This is likely to become increasingly commonplace as more countries (e.g. the UK) adapt regulations, and enable more flexible funding and credit transfer options for universities.

“Partnerships between universities can play a significant role in driving innovation. For example, through the PLuS Alliance we’ve established with ASU and UNSW Sydney, opportunities have been opened up to enable greater access to world-class higher education across a range of high-need areas” — Nicola Phillips, Vice-Principal (Education) at King’s College London

At Emerge, we invest in companies that will shape revenue diversification in HE over the coming decade.

If you are a founder building a business across any of the ideas below, we want to hear from you.

Ultimately, we believe revenue diversification has never been a more important topic for universities than it is today. Scaling higher education provision to reach new audiences with a new set of programmes will play a critical role in solving the skills gap.

Our mission is to invest in and support entrepreneurs that enable this to happen right from the early stage.

This is also why we have convened dozens of university leaders to produce a green paper on the future of revenue diversification for higher education, chaired by Keith Zimmermann, COO at Bath University. Over the coming months, we will be connecting this group of universities to leading startups in this space to facilitate the types of partnerships we have described here.

As a founder, you can get in touch with us here.

For more regular updates, you can keep up to date with our future thought pieces and upcoming events by signing up to our newsletter here.

Acknowledgements

• Ahmed Haque, Founder and CEO at Didactic Labs
• Andy Morgan, VP of Corporate Development at 2U
• Bennett Dwosh, Director of Strategy at ASU Enterprise Partners
• Burck Smith, CEO at StraighterLine
• Chris Gyngell, Assistant Director of University Partnerships at Coursera
• Dan Sommer, Managing Partner and Co-Founder at 10XImpact
• Dan Vigdor, Executive Chairman at HackerU
• Desiree Young, Executive Director at the University of Miami
• Diane Landsiedel, Executive Director of Nexus at the University of Michigan
• Diane Morgan, Director of Talent at Zinc
• Emal Dusst, Investment Professional at Sterling Partners
• George Straschnov, Managing Director at Bisk Ventures
• Jack Hylands, Co-Founder at FourthRev
• Keith Zimmerman, COO at the University of Bath
• Lisa Haueisen Rohrer, Head of University Partnerships at Eruditus
• Lisa Young, Managing Director of Enterprise Development at ASU
• Matthew Jordan, Head of Operations at Coventry University Online
• Nathan Green, Co-founder and CDO at Acadeum
• Nicola Phillips, Vice-Principal (Education) at King’s College London
• Matt Survis, Corporate Strategy at Guild Education
• Rob Cohen, Senior Advisor at 2U
• Shadee Barkan, SVP of Global Partnerships at 2U
• Sue Attewell, Head of Edtech at Jisc