Tech jobs pay well, and companies that train people for them have been enjoying a payday. Earlier this month, coding bootcamp provider Springboard snagged $31 million from investors.
Last Friday, one of the splashiest names in the bootcamp world, followed suit, backed by an investor known for making moonshot bets. Lambda School raised $74 million in a Series C round led by Gigafund, a venture firm that’s cut big checks for Elon Musk’s SpaceX and The Boring Company.
Lambda has received—and turned down—“multiple” investment offers since its last fundraise in 2019, including one reportedly worth $100 million, according to its founder and CEO, Austen Allred. With Gigafund, he says their interests are more aligned in building a lasting relationship that extends beyond the “typical 5- to 7-year window after which most investors want to get their money back.”
Founded in 2016, Lambda School offers 9-month and 18-month courses in web development and data science. Currently, about 3,000 students are enrolled, according to Allred.
The company has been the poster child for coding bootcamps and income-share agreements (ISAs), a model where students don’t pay upfront but instead pay a percent of their salary after landing a job. The company invented neither of those things but were their loudest proponents, with Allred frequently taking to social media. Ashton Kutcher, one of its early investors, often sported Lambda baseball caps and cheered.
Others jeered. Some dissatisfied students shared stories of disorganization and frequent changes to the curriculum, asking to be released from their ISAs.
Allred acknowledged that the constant fiddles flummoxed students, attributing those missteps to trying to grow too fast. “In the past, if we thought there was a better way to do things, we just did it and and thought students will obviously also think it is better,” he says. “That’s not the case. What we ended up doing is creating whiplash for some students.”
Allred says the company has reined in its aggressive growth approach to focus on improving student outcomes. He declined to share specific metrics. In a self-published report, the company noted that of the 284 students who graduated in the first half of 2019, 201, or about 71 percent, were confirmed to have found a job with a median salary of $70,000.
“I hope this is the last money we need to raise,” says Allred, who adds that the company is not profitable and that getting to “long-term sustainability” remains a priority. Lambda laid off 19 employees in April, citing uncertainty over how the pandemic would impact its business.
With the new capital, Lambda will regrow its headcount from a current staff of 160, with a focus on hiring more instructors.
As part of the deal, Gigafund’s co-founder and managing partner Stephen Oskoui will join the company’s board of directors. Other participants in this round include GGV, Neo, Quiet Capital, Tandem, Stripe and Y Combinator. To date, the company has raised $122 million.
Lambda School is headquartered in San Francisco but its home state hasn’t always been welcoming. Last year, the California Bureau of Private Postsecondary Education (BPPE), which regulates private education providers in the state, fined it $75,000 for operating without approval.
A sticking point is Lambda’s ISAs. The company prices its tuition at $30,000. Students can pay upfront, but most opt for the ISA, where they give 17 percent of their paycheck every month, for two years, after they graduate and get a job that pays at least $50,000 in annual salary. (That means, at a minimum, students pay $17,000.) Repayments are capped at $30,000, regardless of how much one earns.
Currently, ISAs are not in compliance with BPPE’s standards for operating. Matt Woodcheke, a public information officer for the California Department of Consumer Affairs (which the BPPE is a part of), said in an email that “income share agreements are not compatible with the Bureau’s laws.”
In a February 2019 memo to the BPPE reviewed by EdSurge, Mina Hamilton, an attorney for the California Department of Consumer Affairs, noted that the state education code requires that the total cost of any program be disclosed as part of any enrollment agreement. But because what students pay back under an ISA varies, “the ISA may not meet this requirement.”
Other California bootcamps that offer ISAs, including Holberton School and Make School, have also been fined by the agency.
To get clearance, Lambda made a concession. In a statement, the BPPE said it “has awarded Lambda School state approval to operate following Lambda’s agreement to cease offering a loan structure known as an Income Share Agreement.”
Instead of ISAs, what Lambda will offer to future California students is a “retail installment contract” (RIC). That has some similarities with ISAs; graduates don’t pay until they land a job earning at least $50,000, and payments are still 17 percent of their monthly income. But there is no two-year payment cap; students must keep paying until they repay the full tuition—$30,000.
In other words, whereas some students will pay a maximum of $30,000 under Lambda’s ISAs, all future California students will pay that amount under a RIC.
This term applies only to future California students; those in other states are still eligible for ISAs (for now). Currently, about 10 to 15 percent of Lambda School students reside in California, according to Allred.
While this concession legally clears its way to operating in California, Allred says it is “just the beginning of our effort to make ISAs work for all students.” It strikes him as odd that rules to protect students from getting ripped off by educational institutions are leading to situations where some students will pay more than they would otherwise.
Despite the run-in with BPPE, Allred says Lambda is committed to working with regulatory agencies to make the case for ISAs so that they are available to all students. “We want it to be regulated,” he says.
In many states, ISAs exist in legal limbo. Their advocates and government regulators disagree over whether it is a debt and a loan (which would subject them to existing financial and consumer-protection laws), or an alternative financial instrument that deserves different rules and regulations.
The issue has attracted notice from government officials. In July 2019, Senators Chris Coons (D-Del.), Marco Rubio (R-Fla.), Todd Young (R-Ind.) and Mark Warner (D-Va.) introduced a bipartisan bill to outline safeguards and protections for students. There has been no action on it since.