Why One Online University Launched Two Edtech Investment Funds

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Why One Online University Launched Two Edtech Investment Funds

By Tony Wan     Jan 14, 2020

Why One Online University Launched Two Edtech Investment Funds
Western Governors University’s mascot is an owl (not this owl).

Universities have long served as incubators for promising ideas, and even as investors for some that turn into companies. And one of the biggest online universities in the U.S. is doubling down on digital educational tools with not one—but two—investment funds earmarked specifically for education technology startups.

Since 2018, Western Governors University has committed more than $30 million to two edtech investment funds. For early-stage startups, there is WGU Labs’ Impact Fund, which provides seed capital along with research, product and business development support. The other, NewU Venture Partners, invests in established companies that have more traction and revenue.

It’s unusual for a university to start multiple funds focused on the same objective. But then again, WGU has staked its operations and reputation on finding unconventional ways to serve nontraditional students. A fully online university, WGU currently enrolls more than 119,000 students, many of whom are working adults in their thirties. The average age is 36.

But that footprint so far isn’t large enough to match WGU’s grand ambitions to serve as many adult students as possible, says its president, Scott Pulsipher.

“Even as WGU has expanded, we realized we were reaching just a small percentage of adults who are going back for education,” he says. “We wanted to see, in our pursuit of WGU’s mission, how can we amplify and compound 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 they attend WGU or not.

More Than a Lab or a Seed

WGU Labs was created in July 2018 as a research-and-development incubator for prototyping and piloting educational tools with the university’s students. Some of these projects have since spun off as independent operations. A series of career and college-prep courses, for instance, is now its own nonprofit that now licenses that content to other institutions.

As the team worked on other projects, it also learned about other entrepreneurs working on the same problems. And WGU Labs wanted to offer more than a testbed for other companies. “We recognized that, whether we are building the tools ourselves or there are others already in the space, capital is key in enabling the next generation of education endeavors,” says Pulsipher.

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

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

Bloom is emphatic about distinguishing the Impact Fund from traditional ones. For one, there are rules. “We will not make an investment in a company unless we can provide additional services” that include user research, product development or business development, he says. In other words, companies should not expect to engage with WGU Labs solely for the purpose of raising capital.

WGU Labs currently has a staff of 28, which includes content developers, data scientists, learning experience designers and software engineers, who are available to support its portfolio companies. Bloom insists that any testing of products on students will strictly follow established research protocols, including getting their opt-in and consent.

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

Even though WGU Labs was founded to support the university’s adult learners, Bloom says its investment thesis has a broader mandate—to tackle challenges that affect learners of all ages. Tools that increase “access to postsecondary education, whether it’s a coding bootcamp or Harvard,” are high on his priority. As are those that lower tuition costs 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 is working on providing career readiness services to high school students, likening its approach to “the concept of taking a test drive of a career before saying it’s your favorite.”

Bloom expects that WGU Labs will have invested in a total of four startups by the end of June, and in the future it expects to work with up to eight companies each year.

Should one of those companies decide to tap WGU for additional investment capital, Bloom says he’s happy to make an introduction higher up the chain.

New Fund, New U

If the Impact Fund aims to get promising ventures 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 (for now) developer of the Canvas learning management system. WGU is the lead investor in NewU, whose other limited partners include Strada Education Network.

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

The new role will find him in a familiar position: scouting for businesses and writing checks. NewU will invest in companies raising Series A and subsequent rounds, writing check sizes that can range from $1 million to $5 million, according to Bennin. He expects to make upwards of 20 investments from this first fund, which has made its first investment.

Much of this fund’s investment interests overlap with its smaller counterpart. Like WGU Labs, NewU is looking to support startups focused on making higher education more affordable and accessible, preparing students for college, and helping adult learners learn new skills for career and workforce transitions.

And, like Bloom, Bennin is fond of using the “i” word in describing NewU’s mission. “This is an impact-driven fund. Everything we support will be in service of ensuring quality access and outcomes” for students,” he states.

But there are some differences. Unlike WGU Labs’ Impact Fund, there are no requirements for portfolio companies of NewU to enlist in research and product development services, although Bennin says he is happy to facilitate such requests and “open an entryway” to the WGU Labs team.

And NewU will operate from a playbook that’s more like a traditional investment fund. Most of its investment activity will happen during a 5-year window, and NewU will evaluate opportunities with a closer eye on financial risks and rewards. Any monetary returns from companies that are sold or go public will go to the fund’s limited partners, including WGU.

Let a Hundred Funders Bloom

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

If you find it hard to keep track of them all, you’re not alone. “I’m also curious as to why there’s been so many,” Bloom admits. “Do we need another one?”

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

Along with serving nontraditional students, WGU also claims to be among the first to design its instruction according to a competency-based model, where students advance based on demonstrating mastery of skills and topics.

All that makes it ripe as a testing ground for educational technology tools that aim to support college students who aren’t just coming fresh out of high school, says Bloom. “What’s unique about our lab is that the university that we’re hitched to serves a unique population, and if a company is interested in serving this student set, we can help them with that.”

“We’re quite encouraged by all the other” university-affiliated edtech investment funds, Pulsipher adds. “They know and see the same things we do. The timing is right to catalyze the pace of innovation that needs to occur in higher education.”

  

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