Acquisition Autopsy: Details—and Questions—Behind MissionU’s $4M Sale to...

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Acquisition Autopsy: Details—and Questions—Behind MissionU’s $4M Sale to WeWork

By Tony Wan     May 30, 2018

Acquisition Autopsy: Details—and Questions—Behind MissionU’s $4M Sale to WeWork

Usually, when a hot startup gets acquired by an even hotter one, the industry cheers. But reactions to this month’s announcement that MissonU has been bought by WeWork have been lukewarm, if not entirely absent. Few, if any, of MissionU’s financial backers publicly celebrated the transaction on Twitter or elsewhere.

MissionU’s end felt as abrupt as its mission was bold. Its founder, Adam Braun, combined two ambitious experiments: a one-year program focused on preparing students for jobs and an income-share agreement model where students give a cut of their paycheck to the school as tuition after landing a job. Two years ago, the “college-alternative” company launched to glowing coverage on TV shows, raised $11.5 million in venture capital and worked with some 30 students. After the acquisition, MissionU said it will not accept any future classes and will wind down its one-year program.

A company’s closure naturally raises questions about the viability of its ideas and business model. Yet the sudden end to MissionU has even its once-vocal supporters wondering: Did those ideas even have a shot? How did it start and end so quickly?

The details behind the deal offer clues as to why reactions have been tepid.

What were the terms of the deal?

Fast Company, which broke the story, reported that the acquisition was an all-stock deal.

According to financial documents obtained by EdSurge, that stock is valued at roughly $4 million, based on WeWork’s most recent equity fundraise—a $4.4 billion round, led by Softbank, which valued the office-sharing startup at $20 billion in August 2017.

There are more terms, too: As part of the deal, WeWork made a compensation offer worth close to $5 million over several years to Braun, who is now chief operating officer at WeGrow. A handful of other MissionU employees are also joining WeGrow, but terms and duration of their employment deals have not been not disclosed.

Braun’s lucrative offer is one reason why the acquisition has been described as an “acqui-hire.” WeWork’s interest appears to focus on bringing him onboard to run its WeGrow education program (which, at least for now, focuses squarely on K-12 learners.)

Did MissionU’s investors lose out?

At first glance, it would seems so, based on the $4 million of stock that was part of the deal. MissionU had raised $11.5 million, starting with a $3 million seed round in 2016, and followed by a $8.5 million Series A round in 2017.

But MissonU had only spent a portion of that money. It had about $8 million left at the time of the deal, EdSurge learned, and MissionU is returning that cash back to its investors. Coupled with the WeWork stock, MissionU’s investors will get most, if not all, of their money back. (It may be more, depending on the actual value of WeWork’s stock—which could be worth nothing or a lot—in the future.)

Reactions from the company’s investors have included surprise, disappointment and a desire to forget the deal ever happened. In any case, it’s a recurring lesson in the venture capital business: rushing to get into a “hot” startup based largely on an entrepreneur’s track record and the promise doesn’t always pay off. In addition to MissionU’s institutional investors, the company attracted executives and well-known names in the education industry including Chip Paucek (CEO of 2U), Dan Rosenzweig (CEO of Chegg) and Ted Dintersmith, a former investor-turned-education philanthropist.

Why sell if there was still that much left in the bank?

That’s the question that many people are asking. With some $8 million still in the bank, MissionU seemed to have enough runway to continue developing and iterating on its program.

According to the documents, the deal was crafted in three months. WeWork’s founders invited MissionU’s executive team to meet on Feb. 15, 2018. MissionU received an acquisition offer on April 1. On May 11, MissionU’s board of directors, which consists of Braun, his co-founder and MissionU chief technical officer, Michael Adams, and Matt Turck, managing director at FirstMark Capital (which led the Series A round), approved the deal.

A simple and plausible answer would be that Braun found the terms of WeWork’s offer too good to pass up, and was attracted by the opportunity to run an even more ambitious education project at a company with more spotlight and financial resources. (He declined via email to comment on the deal.)

A source suggested to Inside Higher Ed that applications for the school’s second cohort dipped “significantly,” and the company closed “when things got a little hard.”

But according to several MissionU investors, what the company provided was not always consistent with what the students were looking for. Some of the learners were not a fit for what the school actually offered: an intensive, one-year program for people pursuing careers in data-related fields.

“The students who were attracted in MissionU were interested in career discovery, but that’s not what a ‘last-mile’ training program should be,” says Ryan Craig, managing director of University Ventures, an investor in MissionU. “I think they were attracted by Adam and his mission, more so than a career in data analytics.”

He added that the company may have overreached in trying to accommodate a broad range of students. “MissionU was trying to do it all—a college replacement, with a focus on improving soft skills and EQ [emotional intelligence] and provide a holistic education, on top of a data analytics program,” he adds. “But if your goal is to get students good jobs, you have to focus on the technical training.”

Was MissionU a failure or a false start?

Make no mistake about it: MissionU was not under financial stress. Nevertheless, its closure prompts questions about whether the program’s income-share agreement tuition model was financially sustainable. Here’s a refresher of how it was supposed to work: MissionU charged students no upfront tuition. Instead they promised to return 15 percent of their income for three years, once they had graduated an landed a job paying at least $50,000 a year.

Doing the rough math, that meant MissionU should have expected to make at least $22,500 from each graduate that landed a job. The company needed several years to realize those returns: students need to finish the program and land jobs, and even then, no money comes in until they start working.

Given that MissionU still had $8 million in the bank, its investors say what the company lacked was not resources, but patience. The company “closed not because its model doesn’t work,” said one financial backer who asked to be unnamed. “It closed because [Braun] left.”

What seemed most concerning to its investors are not the financials—they got their money back, after all—but rather the market signal sent by abrupt closure. One worries it may well “poison the well” and discourage trust and investment in other alternative postsecondary education and financing models. It affirms the skepticism sometimes held by the higher-ed community towards brash entrepreneurs who promise to “disrupt” education.

Not only were investors hot on MissionU’s promise; so, too, was at least one academic who endorsed MissionU’s mission: Tony Wagner, a Harvard scholar, senior research fellow at the Learning Policy Institute and former advisor to MissionU, sees its closure more as a premature ending, and not an invalidation of efforts to provide career-focused educational programs.

“I continue to believe that the concept is worthwhile, and that others will come along to further disrupt higher education,” Wagner said in an email.

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