Mass collaboration between employers and universities is the future of higher education | Part 2 — what does it take to build a unicorn in this space?

A detailed guide for founders addressing the £62bn market for employer-university collaboration (EUC), including 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 showed why we think the market for startups addressing the widening gap between higher education and industry will grow to £62bn by 2030. These startups are set to play a critical role in addressing global skills shortages by enabling mass collaboration between universities and employers (EUC).

This second part of the series is for founders: we explain the anatomy of existing unicorn startups in the space and what it takes to build one.

Here is what founders will get out of this post:

• The unifying strategic principle shared by all EUC companies
• Clear definitions of each of the four EUC models and how they create value for employers, universities and learners
• Highlights of today’s key market players
• A detailed value chain break down of each of the EUC models
• Advice on the business models and go-to-market approaches used by the most successful companies in this space, to help those who are just starting out
• 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 EUC 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 network of the world’s foremost education leaders and entrepreneurs.

The unifying strategic principle shared by all EUC companies

We have identified four models of employer-university collaboration which have produced or will produce unicorns. See Part 1 of this series for an introduction to these models.

Models one and two — Course co-creation & co-delivery and Experiential learning — are the most nascent models, with startups like FourthRev and Riipen starting to define the categories in which they operate.

Models three and four — Career navigation & application support and Education as a work-benefit — are more mature, having produced fast-growing and clear category leaders like Handshake and Guild Education.

These models all have one thing in common: at their core, they are networks of employers and universities

The easiest way to think about all of these companies is as networks of employers and universities that eliminate much of the pain that both sides usually experience when trying to set up new partnerships.

Here is how:

1. FourthRev aggregates demand for industry credentials from universities, creating a viable route for industry to roll out new training programmes at scale;
2. Riipen aggregates experiential learning projects from both employers and educators in an open marketplace that facilitates rapid matchmaking, so that rolling out meaningful experiential learning opportunities becomes viable across all disciplines for their university partners;
3. Handshake aggregates graduate talent from thousands of universities, while aggregating millions of job opportunities from employers, meaning even students in the smallest and most remote institutions have equal access to jobs;
4. Guild Education aggregates demand for online courses through a network of employers, making sales to employers a viable revenue stream for universities.

As we laid out in Part 1 of the series, the greatest challenge in scaling partnerships between employers and universities lies in the complexity of each individual partnership. By aggregating networks of employers and universities, these EUC startups directly address that challenge.

Under the hood: anatomy of EUC networks

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

Under each model, you will find the following headings:

• Definition: Clear definition of the model
• How it creates value for employers, universities and learners: laying out the role of the startup in the model and how each of the key stakeholders — employer, universities and learners — stand to gain from it
• Market map: Highlights of today’s key market players
• Value chain breakdown: We break down each model to explain in detail which elements of the value chain are owned by the startup, the university and the employer. We have broken the value chain into four parts:

Our four-step value-chain model for higher education

• Founder tips: Advice on the business models and go-to-market approaches used by the most successful companies in this space, to help those who are just starting out
• Investment ideas: How we think about this model in light of the economic impacts of the pandemic, where we see white space and the types of ideas we would love to invest in

Model 1: course co-creation and co-delivery

Definition: platforms that connect industry and universities to co-design and co-deliver courses, eg “Data science with Tableau” or “Cloud architecture with AWS”.

How this model creates value for employers, universities and learners:

• Role of the startup: to create courses in partnership with industry and university, provide the technology environment to teach it, support or own student acquisition and to support learners in connecting with industry
• Value to employers: increase take-up of industry credentials, growing qualified talent pool in high-demand skill areas
• Value to universities: source of revenue; improve rate of employment among graduates
• Value to learners: gain both a higher education and an industry credential, improving employability

“The provision of new courses that are both industry-led and university-accredited, with university credit as the common currency, can create a real step-change in addressing the growing skills needs of employers and learners” — Duncan Dunlop, Business Development Director at FutureLearn

Market map — highlighted players

• FourthRev: connects universities and employers to co-create up-to-date industry relevant courses; founded in 2019 in Australia; pre-seed round led by Emerge Education in 2020
• Pathstream: partners with software companies to build branded digital skills career programmes delivered through university partnerships; founded at Entangled in 2018 in the USA; raised $13m to date
• Virtanza: delivers practitioner-led 5-week sales bootcamps for university students and adult learners; founded in 2015 in the USA
• Greenfig: develops industry-led content at the intersection of business and technology that is then embedded within existing university courses; founded in 2017 in the USA; seed round led by Wildcat Venture Partners in 2017
• FutureLearn: online marketplace of stackable online short courses, microcredentials and degrees, often with a focus on co-creation with industry. Founded in 2012 in the UK; raised $65m from SEEK Group in 2019; has enrolled 12m+ learners to date and 16o+ world class partners across the HEI sector and Industry

Value chain breakdown

We found two key variants to this model: the “embed” and the “cred” model. In the “embed” model, these new courses are made available to the university’s existing student population — as such, the university owns the marketing function in this model. By contrast, in the “cred” model, the courses are stand-alone products offered to new students — in this model, the startup owns the marketing function.

Founder tips

Levers for maximising value capture as a startup: the business model here is to take commission on university tuition fee revenue in exchange for owning large parts of the value chain. There are three principal strategies for increasing value capture:

• Own as much of the value chain as possible: at the extreme, the university partner only validates the learning and provides a credential, with all student acquisition, course design, course delivery and student success owned by the provider. This approach is not always appropriate and instances course co-creation and co-design will sit along a spectrum in terms of relative ownership of the value chain. In any case, the more you own, the more you take off the table.
• Deliver powerful industry partnerships: focus on new, in-demand skill areas that universities will be keen to offer to their students and where bringing in an industry credential adds differentiated value to the student. These include cloud, machine learning, e-commerce, digital marketing, sales, UX/UI and product management. Stand out by building a broad set of highly credible industry partnerships that it would take years for universities to build themselves.
• Mass customisation: protect margin by resisting going bespoke for individual university partners. Instead, deliver quality by frequently updating to content in line with advances in industry. One of the university vice-chancellors we spoke to named this approach “mass customisation”.

Go-to-market approach: The source of value in these models lies in aggregating university demand for industry credentials. Key go-to-market considerations are:

• For the Embed model, prioritise universities which have a track record in marketing online programmes to their existing students early on
• For the Cred model, student acquisition costs will be inversely related to the strength of the university partner’s brand. Prioritise universities with strong brands early on
• MOOC providers such as FutureLearn and Coursera are well-positioned to use their existing student audiences to provide student acquisition support for Cred model courses — they can be valuable partners to newer players in the space

Investment ideas

• Post-pandemic outlook: we expect demand for short-term, vocationally oriented programmes to increase in response to the economic downturn. We expect this to impact both Embed and Cred models positively.
• We want to invest in one of these players in every major high-growth skill category: we are investors in FourthRev, which covers a wide range of digital skills. We believe specialist providers for areas such as sales can be massive, stand-alone players. If you are building one of these (sales or other), we’re all ears.
• CFA for X: industry credentials aren’t new. As an example, the Chartered Financial Analyst (CFA) Institute creates value for the financial services industries by providing an independent process for the validation of learning. Just like the financial services industry, nascent high-growth industries would benefit from independent verification bodies that credibly validate skills. We imagine industry consortia that come together to create universally accepted, industry-wide credentials for junior data scientists, for cloud architects, etc. If you’re building one of these consortia, we want to hear from you.

Model 2: experiential learning

Definition: platforms that embed industry experience in the form of project-based learning in academic programmes.

How this model creates value for employers, universities and learners:

• Role of the startup: to facilitate the integration of employer projects directly into university courses and to provide a platform to manage those relationships. At a deeper level, this is about aggregating meaningful applied learning experiences and then making it easy to move these out of the career office and into the hands of faculty
• Value to employers: gain flexible access to talent to help complete real world projects (especially for SMEs), while also improving the talent pipeline by getting data via smaller interactions with a larger number of students than a traditional internship programme would allow for
• Value to universities: improve rate of employment amongst graduates; improve learning experience, outcomes and retention
• Value to learners: consolidate learning by applying it to real-world projects, gain access to employers boost employability by building a portfolio of projects

Market map — highlighted players

• Riipen: experiential learning platform that connects employers and universities at scale to deliver real-world projects for students as a credit-bearing part of their degree; founded in 2014 in Canada; raised $5mn to date; currently partners with 5,000+ employers and 200+ post-secondary institutions
• Practera: online tool that enables universities to deliver experiential learning projects for students; founded in 2010 in Australia; the platform also includes virtual internships, mentoring programmes and volunteering activities for students

Value chain breakdown

Founder tips

Levers for maximising value capture as a startup: the business model is predicated on monetising both universities and employers. More than anything, this is dependent on being able to demonstrate the impact of these interventions. Approaches to this include:

• Impact studies: startups in this category therefore invest in high quality studies to prove commercial and impact ROI
• Project flexibility: making it easy for employers to create projects that fit their business and talent needs, including variable project lengths, support for online and offline projects, group projects etc.
• Marketplace: what matters most to universities in this model is the startup’s ability to bring with it a varied and large network of employers of different sizes and from different industries. Create leverage by investing in a strong network of employers

Go-to-market approach: this model relies on maintaining the right balance of supply and demand as it scales. One tactic is to be proactive about successively growing regional ecosystems of university and employer partners to avoid being spread too thinly.

Investment ideas

• Post-pandemic outlook: during the immediate health crisis, startups in this category have seen increased demand from companies and universities. Virtual internships are viewed as a way to rescue companies’ summer internship programmes. Our medium term outlook is that students will increasingly demand exposure to employers from universities as the job market tightens, putting universities under pressure to invest here. Employers, on the other hand, may find it harder to justify spend — business model changes ahead?
• Credit-bearing and paid: we have yet to find startups that manage to scale work-based learning activities that both pay the student and are credit-bearing. Any university able to offer such experiences immediately stands out to students — who is working on this?

Model 3: career navigation and application support

Definition: platforms that provide better access to internship and job opportunities for learners.

How this model creates value for employers, universities and learners:

• Role of the startup: this is a marketplace model — just like a jobs board, but for the specific sub-segment of students — they create scale on the graduate side by, essentially, digitising career centres in universities, and then scale on the jobs side by aggregating employers
• Value to employers: widen the pool of talent they can reach through graduate recruitment programmes by placing their opportunities in institutions they would not otherwise reach
• Value to universities: improve rate of employment among graduates
• Value to learners: get access to a broader pool of internship and job opportunities than their institution would otherwise be able to signpost

“Employers have both a quantity and a quality problem when it comes to technology talent— it feels like no one has yet organised an efficient two-sided marketplace to remove the friction for employers in acquiring this talent.” — Scott McKinley, Global Lead at AWS Academy

Market map — highlighted players

• Handshake: online platform that connects students with job opportunities at scale through partnerships between universities and employers; founded in 2014 in the USA; raised $74mn to date; currently has 5mn+ active student users, 900+ education partners and 500k+ employers on its platform
• Mentor Collective: online mentoring platform for university students, founded in 2015 in the USA, supporting students on a number of issues including career navigation; raised $5mn to date with seed investors including Lumina Foundation and Emerge Education

Value chain breakdown

Founder tips

• Levers for maximising value capture as a startup: this business model is predicated on charging employers for premium access to the talent pool acquired via university career services. Pricing power is proportional to the size and quality of the talent pool. Platforms in this category therefore invest in gaining market share quickly, as well as in tools that better qualify talent for each employer, such as student portfolios, career advice etc.
• Go-to-market approach: the source of value in this model principally lies in the aggregation of talent via university career services. New entrants should therefore focus on university market share rather than maximising value captured from university partners, and monetise employers later. As there are clear network effects in this model, new entrants should focus on markets/geographies that don’t already have a clear category leader.

Investment ideas

• Post-pandemic outlook: the total addressable market here is proportional to total job growth and will therefore undoubtedly take a hit for the foreseeable future. At the same time, the provision of online mentoring in universities may see growth as it can be viewed as a worthwhile investment to replace physical activities that can no longer take place.
• Skills verification: this category is shaping up to have a clear category winner in Handshake. While we therefore wouldn’t back another jobs marketplace, we remain interested in companies that are solving the slightly thornier problem of verifying candidates’ skills. This is the next hardest piece to solve in the reduction of hiring friction and it remains to be seen whether this will be achieved by existing players or not — room for something new?

Model 4: education as a work benefit

Definition: platforms that aggregate demand for online courses through a network of employers.

How this model creates value for employers, universities and learners:

• Role of the startup: the startup creates a bespoke education investment plan with the employer and then helps it source and administer university programmes for its employees. Crucially, companies in this model provide coaching for every learner to maximise course completion
• Value to employers: improve employee retention, enhance talent-facing brand and develop mission-critical skills in the employer’s workforce, all while unlocking government tax benefit, which partially covers the cost
• Value to universities: source of revenue — a reliable channel for acquiring adult learners
• Value to learners: career-proofing through employer-reimbursed university courses that fit around their working day; often used to complete unfinished bachelor degrees

Market map — highlighted players

• Guild Education: online platform that transforms education as a work-benefit by offering high-quality low-cost programmes and personalised coaching for employees; founded in 2015 in the USA; raised $229mn to date; exceptional impact demonstrated including RoI of $2.44 for ‘every dollar spent on education’
• InStride: similar model to Guild with a focus on “top-tier academic institutions”; launched by ASU in 2019 with early investors including The Rise Fund; this venture is also backed by the former founder and CEO of Laureate Education

Value chain breakdown

Founder tips

Levers for maximising value capture as a startup: this business model is predicated on taking a commission on university tuition fee revenue.

• Coaching element: Because tuition fee revenue is proportional to completion rates, it makes sense for these players to invest in a high-touch learner support model whereby learners are coached through to course completion.
• Consultative sales: Similarly, because tuition fee revenue is related to employer engagement, startups in this model invest in consultative customer support in the form of aligning the education offer with the client’s business goals and providing detailed reports.

Go-to-market approach: the source of value in this model principally lies in the aggregation of employer demand for university programmes. This is both the hardest problem to solve and the side of the equation any new provider should start with. Getting universities on board is relatively easy as agreeing to partner means additional revenue for the university.

Investment ideas

• Post-pandemic outlook: as Haley Glover, strategy director at the Lumina Foundation, points out, employers’ discretionary budgets for tuition reimbursement may disappear during this economic downturn. Conversely, some employers may feel compelled to continue investing here as a means of keeping furloughed employees. Similarly, employee demand for short-term, vocationally focused programmes is likely to increase sharply. And some employers offering tuition benefits, such as Amazon and Walmart, are continuing to hire. 1.6% of Walmart’s 950k employees use tuition benefits. In response to this, Guild Education has launched Next Chapter, its new outplacement use case. This provides corporates employers with a service to provide employment-oriented education programmes to employees who have been furloughed or laid-off.
• 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. We’d be excited to kick around ideas with anyone looking to build something here.

If you are a founder building a business across any of these models, we want to hear from you. We’re particularly excited about early-stage companies across models 1 and 2 (course creation and co-delivery, and experiential learning) where we see the greatest potential for growth. We are also on the lookout for companies innovating in the removal of hiring friction (model 3) and any founders who are looking to build solutions focused on education as a work-benefit (model 4) in Europe.

Ultimately, we believe that these are the businesses that will play a critical role in solving the skills gap, and our mission is to invest in and support these entrepreneurs right from the early stage. As a founder, you can get in touch by submitting your deck 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

• Shauntel Garvey, General Partner at Reach Capital
• Hamoon Ekhtiari, Founder and CEO at FutureFit AI
• David Shull, Head of UK and Europe at Handshake
• Dana Stephenson, Co-founder and CEO and Riipen
• Karen Bakker, Director of Strategy at Riipen
• Mohamed Mansour, Chairman at Riipen
• Duncan Dunlop, Business Development Director at FutureLearn
• Scott McKinley, Global Lead at AWS Academy
• Obum Ekeke, Global Lead of Educational Partnerships at DeepMind
• Nick Petford, Vice-Chancellor at the University of Northampton
• Bennett Dwosh, Director of Strategy & Venture Acceleration at ASU Enterprise Partners
• Paul Fairburn, Director of Enterprise & Innovation at Coventry University
• Deepak Farmah, Digital Transformation Consultant at the Institute of Coding
• Ed Broadhead, Head of Adecco Analytics at the Adecco Group
• Hannah Rolph, Head of Graduate Recruitment at Allen & Overy
• Andy Durman, Managing Director at Emsi UK
• Josh Nester, Education Director at SEEK
• Jack Hylands, Co-founder at FourthRev
• Omar de Silva, Co-founder at FourthRev
• Elizabeth Garlow, Investment Officer at Lumina Impact Ventures
• Christine Cruzvergara, VP of Higher Education at Handshake
• Scott Lomas, VP of University Partnerships at Pathstream
• Chris Edwards, SVP of University Partnerships at MindEdge
• Sara Leoni, CEO at GreenFig
• Glenn Campbell, Executive Director & CEO at DeakinCo
• Chris Freire, CEO at the Student Opportunity Center