Udacity Raises Fresh $35M to Expand the ‘University of Silicon Valley’

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Silicon Valley companies often clamor about the shortage of qualified STEM workers--particularly those in the computer science and engineering ranks. Sometimes, competition gets so fierce that they allegedly collude in illegal “non-poaching” agreements.

But those days may be coming to an end. Udacity, the Mountain View, CA-based online learning startup that now bills itself as “built by industry for industry,” is focused on building a talent funnel to help its fellow Silicon Valley neighbors. And to grow, it’s raised a fresh $35 million round from names not commonly seen in U.S. edtech funding circles.

Leading the deal is Drive Capital, a Columbus, OH-based venture firm that focuses on technology companies based in the Midwest. Drive Capital’s founder and managing partner, Mark Kvamme, who led investments in companies like LinkedIn during an earlier stint at Sequoia Capital, will join Udacity’s board.

Also joining the round are German media publishing house, Bertelsmann, Japanese information service, Recruit and Brazil-based Valor Capital. U.S. investors include Cox Enterprises and previous funders Andreessen Horowitz, Charles River Ventures, Peter Levine and George Zachary. Udacity says it has now raised $58 million across three rounds.

Udacity CEO, Sebastian Thrun, tells EdSurge that he chose these investors “not just for capital, but for strategic importance” as industries around the world search for technical talent. Drive Capital, he says, “is focused on bringing jobs to the country’s heartland,” starting with Ohio’s insurance and banking sectors. Recruit, a popular publication for employment opportunities in Japan, has recently seen an increase in tech openings. Thrun believes “these alliances will help grow Udacity as the premier industry education institution.”

The company leaves no room for doubt about delivering job outcomes, with messages like “We obsess over getting you ready for a job you’ll love in tech” and “Grab that promotion” plastered throughout its website.

It’s a far cry from the lofty expectations set when Udacity launched out of Stanford University in January 2012. Once tasked with “disrupting” traditional higher education, Udacity’s experience working with schools left much to be desired. Remedial math pilots with San Jose State University during the summer of 2013 resulted in student passing rates that were lower than, or at best equal to, in-person classes.

By November 2013, Udacity pivoted, eschewing universities in favor of helping neighboring tech behemoths like AT&T, Google, Facebook and Salesforce build and deliver courses for skills in demand. Now, “we are almost like a University of Silicon Valley,” Thrun half-jokingly proclaims.

With the change comes a new student demographic, one already equipped with foundational arithmetic and literacy skills. So far, the company claims nearly three million enrollments from 119 countries, the majority of whom range from age 24 to 35.

Udacity’s product focus is now on “nanodegrees,” credentials created with industry partners for technology skills. In June 2014, Udacity announced it was working with AT&T to develop four nanodegrees for data analyst, web and mobile developer jobs. Two hundred hand-picked students recently received scholarships that cover the cost of the pilot, which begins this week. Afterwards, AT&T will choose up to 100 of the top-performing graduates for paid internships.

Building a bigger tech workforce has become a hot business. General Assembly, with campuses in 12 cities around the world, aims to graduate 40,000 tech-savvy design, business and programming students by 2015. (It’s also raised nearly $50 million.) And according to a Course Report survey, the number of graduates from coding bootcamps will nearly triple from 2,178 in 2013 to 5,987 in 2014.

Thrun, who recently moved on from advising "moonshot" projects at Google X, says he’s working with other Bay Area companies for more nanodegrees that will be available to the public by March 2015. His long-term vision is that any nanodegree holder will qualify for a relevant entry-level position, regardless of the company involved in the design of the program.

For $200 per month, students can enroll in nanodegree programs and get classes, mentoring, project feedback and certified examinations--all of which can be done remotely. Most students are expected to take six to 12 months to finish.

Not everyone has viewed Udacity’s makeover positively. The “learning for the sake of getting a job” value proposition has disappointed a fair number of critics who probably did not envision Silicon Valley tech workers when Thrun first promised to deliver a world-class education for everybody.

He’s since backtracked: “We make no claim that we should be the sole and only pathway to education.”

Thrun tells EdSurge it’s “unlikely” that Udacity will work with universities again. In a July 2014 interview with Reuters, Thrun said that, following the San Jose State University experience, he encountered “strong opposition...from the side of California faculty associations and unions that really don’t want to see an education model that’s much, much cheaper.”

Udacity’s remaining tie to the traditional system is the sub-$7,000 online Master’s in Computer Science program with Georgia Tech, where 1,268 students are currently enrolled. (It's four times the size of the physical program.) Still, Thrun views this more as a “professional education degree” sponsored by AT&T where students have specific job outcomes in mind.

Thrun no longer believes the “MOOC” label applies to Udacity. “We really moved away from the college space,” he says. Pointing out that Coursera and edX serve traditional institutions, he states that Udacity’s main value and differentiation lies in serving “a modern world where the duration of employment is becoming shorter and technology is changing faster.”

So one could still make a case that Udacity is “disrupting” education--albeit in a boutique vocational field, serving educated, motivated people looking for white collar jobs offering healthy six-figure salaries.

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