Why an online university launched two Edtech investment funds

Universities have long served as incubators of promising ideas, and even as investors for some which turn into companies. And one of the largest online universities in the United States is doubling the number of digital educational tools with not one, but two investment funds specifically aimed at educational technology startups.

Since 2018, Western Governors University has committed more than $ 30 million to two edtech investment funds. For startups in the early stages, there are WGU Laboratories‘Impact Fund, which provides seed capital as well as research, product and business development support. The other, NewU business partners, invests in established businesses that have more traction and income.

It is unusual for a university to launch more than one fund focused on the same goal. But then again, WGU has built its operations and reputation on finding unconventional ways to serve non-traditional students. A fully online university, WGU currently hosts over 119,000 students, many of whom are working adults in their 30s. The average age is 36 years old.

But so far, that footprint is not large enough to match WGU’s grand ambitions to serve as many mature students as possible, said its president, Scott Pulsipher.

“Even though WGU has grown, we have realized that we are only reaching a small percentage of adults who go back to school,” he says. “We wanted to see, in our pursuit of the WGU mission, how can we amplify and worsen our impact? ”

For him, these two investment funds are just the latest extensions of the nonprofit university’s ongoing efforts to expand access to higher education for adult learners, whether or not they attend WGU. .

More than a laboratory or a seed

WGU Labs was created in July 2018 as a research and development incubator for the prototyping and piloting of educational tools with university students. Some of these projects have since evolved into independent operations. A series of career and college preparation courses, for example, are now his own non-profit which now licenses this content to other institutions.

As the team worked on other projects, they also discovered other entrepreneurs working on the same issues. And WGU Labs wanted to offer more than a test bed for other companies. “We recognized that whether we are building the tools ourselves or there are others already in space, capital is essential to enable the next generation of education efforts,” Pulsipher said. .

In December 2019, WGU Labs created the Impact Fund, with $ 3 million directly from WGU.

That’s enough capital to invest around $ 250,000 in 10 to 12 startups, according to Todd Bloom, managing director of WGU Labs. In return, the university will take a stake in the companies, usually in a single-digit percentage, he adds. Returns from the Impact Fund, in the event that a company is acquired or becomes public, will be donated to WGU Labs.

Bloom emphasizes the distinction between the Impact Fund and traditional funds. On the one hand, there are rules. “We will not invest in a business unless we can provide additional services” which include user research, product development or business development, he says. In other words, companies shouldn’t expect to engage with WGU Labs just for the purpose of raising capital.

WGU Labs currently has 28 employees, which include content developers, data scientists, learning experience designers and software engineers, who are available to support companies in its portfolio. Bloom insists that any product testing on students will strictly follow established research protocols, including obtaining their consent and consent.

The Impact Fund recently made its first investment in Edquity, a startup that helps universities provide emergency financial aid to students. As part of the deal, WGU Labs will distribute a small portion of WGU’s help through the Edquity app and study its impact on student outcomes such as retention.

Even though WGU Labs was founded to support adult learners in college, Bloom says his investment thesis has a broader mandate: to address the challenges that affect learners of all ages. Tools that improve “access to post-secondary education, whether it’s a coding bootcamp or Harvard,” are high on her priority. So are those that lower tuition fees and improve employment outcomes.

WGU Labs has already made a second investment but the details are still under wraps. Bloom only teased that the startup was working to provide career preparation services to high school students, likening its approach to “the concept of taking a career test drive before you say it’s your favorite.”

Bloom expects WGU Labs to have invested in a total of four startups by the end of June, and going forward, he plans to work with up to eight companies each year.

If either of those companies decides to turn to WGU for additional investment capital, Bloom says he’s happy to make an introduction higher in the chain.

New fund, new U

If the Impact Fund aims to get promising companies off the ground, NewU wants to help them expand their reach.

NewU is a partnership between WGU and EPIC Ventures, a Salt Lake City-based investment firm whose portfolio includes Instructure, the publicly traded developer (for now) of the Canvas learning management system. WGU is the primary investor in NewU, whose other sponsors include Strada Education Network.

New U filed at raise $ 52 million but the final amount could be higher. Andre Bennin, who joined NewU as a managing partner earlier this year, helps manage the fund. He previously led corporate development efforts at Strada, where he says he was involved in more than a dozen financing deals and transactions involving companies in the education sector.

The new role will find him in a familiar position: finding businesses and writing checks. NewU will invest in companies that elevate Series A and subsequent rounds, issuing checks ranging from $ 1 million to $ 5 million, according to Bennin. He expects to make more than 20 investments from this first fund, which made its first investment.

Much of this fund’s investment interests overlap with its smaller counterpart. Like WGU Labs, NewU seeks to support startups aimed at making higher education more affordable and accessible, preparing students for college, and helping adult learners acquire new skills for career and labor transitions. of work.

And, like Bloom, Bennin likes to use the “i” word to describe NewU’s mission. “This is an impact fund. Everything we support will be in the service of ensuring quality access and results “for the students,” he said.

But there are differences. Unlike the Impact Fund of WGU Labs, the companies in the NewU portfolio have no obligation to engage in research and product development services, although Bennin says he is happy to facilitate such requests and “d ‘opening a front door’ to the WGU Labs team.

And NewU will operate from a playbook that looks more like a traditional investment fund. Most of its investing activity will take place over a 5-year window, and NewU will assess opportunities with a closer eye on financial risks and rewards. All monetary returns from companies that are sold or go public will go to fund sponsors, including WGU.

Let a hundred donors flourish

It has become popular for universities to set up acceleration programs that support and invest in early stage education businesses. Arizona State University launched its own accelerator in 2016 which has since invested in 19 education startups. In 2017, Southern New Hampshire University partnered with a venture capital firm to create a $ 15 million seed fund. The following year, Strategic Education, a publicly traded company resulting from a merger between Strayer Education and Capella University, launched a $ 5 million seed fund.

If you have a hard time keeping up with them all, you are not alone. “I’m also curious as to why there have been so many,” admits Bloom. “Do we need another one? ”

He answered his own question with a categorical yes. “What’s unique about our lab is that our university serves a unique population, and if a company is interested in serving this set of students, we can help them with that.”

In addition to serving non-traditional students, WGU also claims to be among the first to design its education according to a competency-based model, where students progress by demonstrating mastery of skills and subjects.

All of this makes it a testing ground for educational technology tools that aim to support students who haven’t just graduated from high school, Bloom says. “What’s unique about our lab is that the university we’re attached to serves a unique population, and if a company is interested in serving this set of students, we can help them do that.” . “

“We’re very encouraged by all the other ‘edtech investment funds affiliated with universities,’ adds Pulsipher. “They know and see the same things as us. Now is the time to catalyze the pace of innovation that must occur in higher education.