If Lambda school worked, their ISAs would be paying off at this point, they'd be seeing a profit from their first cohorts and so not only would they have fresh cash to invest, but VCs would see the ROI and growth and throw down some cash. It seems very clear to me that they've failed to demonstrate the business model. So they hand off the core of their business (taking the risk students don't pay off) to a 3rd party and try to just spin some cash from the classes. If I were them I'd be looking for an exit, quick.
I've read this post, what they do is clear and makes sense to me.
Most of all it preservers "if the student doesn't get the job, LambdaSchool fails" property. This alignment of incentives is really the only thing that matters and it lacks in traditional colleges (which is why Lamda will either fail or, in the long term, will kill traditional colleges or force them to change).
Comparing what they do to CDO is done to make a negative association. "CDO are bad, this shares some similarity of CDO, this is bad".
The bad aspect of CDO was that it was used to hide bad investments by packaging them together and re-selling as a better investment.
What Lambda is doing is more like pooling of risk used in insurance: if you (as an investor) bet on ISA of a single student, you have a high-risk, binary outcome (loose all your money or get some reward).
If you bet on 1000 students as a group, you significantly de-risk the whole thing while only reducing potential reward a little bit.
As far as Lambda's management/culture situation, I've heard it's turbulent, but that's also par for the course with most startups, especially in growth mode. This will always be hard because student outcomes can sometimes feel this turbulence, but it's not like the students think this is a sure thing.
>If you bet on 1000 students as a group, you significantly de-risk the whole thing while only reducing potential reward a little bit.
Risk is surely part of it, but I think cash flow is a big issue as well. Very hard to run a business where you provide a service now and get paid over a couple years starting ~6 months from now. Better the split the company into the entity that provides the service and another that provides the financing.
The core of their business should be educating the students. The financing and loan servicing are secondary concerns that are probably better off done by a different entity.
Edit: a bit of confirming evidence is that most of those early voters voted for both threads, i.e. this one and https://news.ycombinator.com/item?id=22366474.
Anecdotally, the older or previously successful students who could keep up went on to succeed, but these people already knew how to hustle. Bootcamp can't teach people how to hustle.
(I learned to hustle after previously participating in an even bigger scam - a state school humanities undergraduate education. ... )
I don’t know, I’m not a genius, but I kinda figured which majors may not help me in the economy.
I ended up getting a master's in English and taught essay writing for a while. Many decisions later, I work as security analyst and end up writing a lot on the job, so I like to think things have worked out. I guess. I wish I knew C and more low level cs concepts like some of my coworkers.
https://twitter.com/KateClarkTweets/status/12302421245005701...
Jeff started as an investor in Lambda School but fell so in love with the company he came aboard full-time. After a couple months he realized he couldn’t do both investing and full-time work simultaneously, and decided to focus on investing with my full blessing.
Those two leaving had exactly 0% to do with any news articles.
It appears they are doubling down on the ISA brokering with Edly. (Which had deleted references to Lambda after they were exposed.)
The potential solutions are three fold:
1. Limit growth of students - impossible if your organization received venture capital.
2. Reduce the cost to educate - Unfortunately if you make education a commodity, ironically it will be replicated, leading to alternatives, ultimately leading to (1).
3. Guarantee the loans somehow
I think the only type of organization that could pull it off is one that doesn't mind waiting a long time to do it sustainably. Probably a not-for-profit. Alternatively, you could sustain it by doing it at a loss, e.g. you have some other organization to ensure (3).
This all works unless the instruments aren't audited well where the risk is higher. (think: ratings agencies in the housing crisis) Here the risk is that payback is bad, but we don't know yet, so investors are left holding the bag.
This latter scenario is really only bad for the investors and wastes the student's time, but then again the current college system already does this, so at least this doesn't shackle them with debts they can't pay.
Of course later investors won't buy the ISA packs if they first blow up, but seemingly no one gets hurt if it all goes up in flames.
My own favorite higher education reform idea is to have the gov't fund higher education by paying schools a percentage of the student's increase in W2 earnings for a period after graduation. That would avoid the 'indentured servitude' aspect, because the gov't would be paying, but would only reward schools that could increase students' W2 earnings.
To the extent that lambda school is exploring models that do something similar, it might eventually make space for a gov't funding model build around the insights they have had (like the one in this announcement, about how to pull future revenues forward to fund the school in a practical way).
No need for fancy securitization or business models!
I fully agree with gov't providing education for everyone, but it's not a panacea. Non-gov't innovation could discover really interesting models that gov't wouldn't take the risk on. We just need to make sure there's no fraud going on.
When it comes to education the literature is littered with failed "innovation" models that sound good but fail. In fact, we could commission research institutions (publicly owned universities!) to do the legwork...in fact many of them have varied educational models. The government merely funds them; it doesn't execute the teaching model. (And Lambda's teaching model is pretty bog-standard, all said and told)
For profit vocational schools have existed for eons. If the only novelty is the "ISA" -- which is not all that new, innovative or effective what with progressive taxation -- then what exactly are Lambda offering? Overpriced, poorly executed courses for 0-upfront cost, subsidized "teaching" by TAs w/o any actual knowledge?
The price of failure in this space is very high. It's gambling with student's futures. Fast iteration and failure recovery is not easily possible. This is not a space where VC acceleration makes sense.
They've partnered with Edly, a marketplace to sell ISAs founded by Chris Ricciardi, the "grandfather of collateralized debt obligations".
We’ve been working on this for over a year, and it finally closed today. We’ve been intensely focused on incentive alignment since the early days of Lambda School, and finally got to design an incentive-aligned ISA financing mechanism from scratch. Glad to have it out there.
And then there's the issue of two prominent Lambda executives (one of them an investor, IIRC) stepping down this afternoon. [2]
[0] https://www.theverge.com/2020/2/12/21135134/lambda-school-st...
[1] https://twitter.com/dhh/status/1227317343539335168
[2] https://twitter.com/KateClarkTweets/status/12302421245005701...
