Announcing Our New ISA Financing Blueprint and $100M in New Financing(lambdaschool.com)
lambdaschool.com
Announcing Our New ISA Financing Blueprint and $100M in New Financing
https://lambdaschool.com/the-commons/announcing-our-new-isa-financing-blueprint-and-100m-in-new-financing
55 comments
What job and salary did this state school humanities degree promise?
I don’t know, I’m not a genius, but I kinda figured which majors may not help me in the economy.
I don’t know, I’m not a genius, but I kinda figured which majors may not help me in the economy.
It's clearer now, definitely. This was in the late 90s and both my parents were humanities academics.
I ended up getting a master's in English and taught essay writing for a while. Many decisions later, I work as security analyst and end up writing a lot on the job, so I like to think things have worked out. I guess. I wish I knew C and more low level cs concepts like some of my coworkers.
I ended up getting a master's in English and taught essay writing for a while. Many decisions later, I work as security analyst and end up writing a lot on the job, so I like to think things have worked out. I guess. I wish I knew C and more low level cs concepts like some of my coworkers.
It's not too late to learn. Just start playing around with stuff
Yeah. You could take just a single intro to cs class (or c)and go from there. Programming has so much demand you can start later in life than probably any other field.
Looks like there has been some departures in their senior leadership in the wake of continuing fallout from the NYMag article, and this announcement might be an attempt to overshadow that
https://twitter.com/KateClarkTweets/status/12302421245005701...
https://twitter.com/KateClarkTweets/status/12302421245005701...
Adam left because he had a number of serious illnesses happen in his family and (thanks to previous success) has the luxury not to need to work full-time and can focus on his family. We’ve always upheld that family is more important than Lambda School and are fully supportive. He’s still staying in as an advisor just not in a full-time role.
Jeff started as an investor in Lambda School but fell so in love with the company he came aboard full-time. After a couple months he realized he couldn’t do both investing and full-time work simultaneously, and decided to focus on investing with my full blessing.
Those two leaving had exactly 0% to do with any news articles.
Jeff started as an investor in Lambda School but fell so in love with the company he came aboard full-time. After a couple months he realized he couldn’t do both investing and full-time work simultaneously, and decided to focus on investing with my full blessing.
Those two leaving had exactly 0% to do with any news articles.
Austen, I think what your company is doing to help folks become developers is rather rad. Starting your response by laughing off concerns like this OP shared is not good.
Fair, will edit. It’s a shock of genuine amazement that that’s become the narrative.
The timing and content of this announcement is...confusing. I'm definitely not an expert in this, but the details here of the financing seem pretty general and straightforward, i.e. the type of document I'd assume they would've already drawn up when partnering with edly several months ago [0]. And that still doesn't explain why Lambda and Allred wouldn't have this info prepared by the time The Verge and NYMag (the latter which was a 5 month investigation) came calling around. It also doesn't explain why edly took the partnership announcement pages down the same day that @dhh started tweeting about them [1].
And then there's the issue of two prominent Lambda executives (one of them an investor, IIRC) stepping down this afternoon. [2]
[0] https://www.theverge.com/2020/2/12/21135134/lambda-school-st...
[1] https://twitter.com/dhh/status/1227317343539335168
[2] https://twitter.com/KateClarkTweets/status/12302421245005701...
And then there's the issue of two prominent Lambda executives (one of them an investor, IIRC) stepping down this afternoon. [2]
[0] https://www.theverge.com/2020/2/12/21135134/lambda-school-st...
[1] https://twitter.com/dhh/status/1227317343539335168
[2] https://twitter.com/KateClarkTweets/status/12302421245005701...
[deleted]
So they're basically admitting to what the news articles were accusing them of in the first place. And what they're describing seems to basically be a CDO. The thing that gets me about this company is that it very much seems that to the public they're saying "Aww man doesn't it suck that student debt is a $1.6Bn business" whilst saying "Aww man we're going to get some of that juicy juicy $1.6Bn business" to investors.
If Lambda school worked, their ISAs would be paying off at this point, they'd be seeing a profit from their first cohorts and so not only would they have fresh cash to invest, but VCs would see the ROI and growth and throw down some cash. It seems very clear to me that they've failed to demonstrate the business model. So they hand off the core of their business (taking the risk students don't pay off) to a 3rd party and try to just spin some cash from the classes. If I were them I'd be looking for an exit, quick.
If Lambda school worked, their ISAs would be paying off at this point, they'd be seeing a profit from their first cohorts and so not only would they have fresh cash to invest, but VCs would see the ROI and growth and throw down some cash. It seems very clear to me that they've failed to demonstrate the business model. So they hand off the core of their business (taking the risk students don't pay off) to a 3rd party and try to just spin some cash from the classes. If I were them I'd be looking for an exit, quick.
They are not doing anything wrong so I'm not sure why anyone is "accusing" them of something.
I've read this post, what they do is clear and makes sense to me.
Most of all it preservers "if the student doesn't get the job, LambdaSchool fails" property. This alignment of incentives is really the only thing that matters and it lacks in traditional colleges (which is why Lamda will either fail or, in the long term, will kill traditional colleges or force them to change).
Comparing what they do to CDO is done to make a negative association. "CDO are bad, this shares some similarity of CDO, this is bad".
The bad aspect of CDO was that it was used to hide bad investments by packaging them together and re-selling as a better investment.
What Lambda is doing is more like pooling of risk used in insurance: if you (as an investor) bet on ISA of a single student, you have a high-risk, binary outcome (loose all your money or get some reward).
If you bet on 1000 students as a group, you significantly de-risk the whole thing while only reducing potential reward a little bit.
I've read this post, what they do is clear and makes sense to me.
Most of all it preservers "if the student doesn't get the job, LambdaSchool fails" property. This alignment of incentives is really the only thing that matters and it lacks in traditional colleges (which is why Lamda will either fail or, in the long term, will kill traditional colleges or force them to change).
Comparing what they do to CDO is done to make a negative association. "CDO are bad, this shares some similarity of CDO, this is bad".
The bad aspect of CDO was that it was used to hide bad investments by packaging them together and re-selling as a better investment.
What Lambda is doing is more like pooling of risk used in insurance: if you (as an investor) bet on ISA of a single student, you have a high-risk, binary outcome (loose all your money or get some reward).
If you bet on 1000 students as a group, you significantly de-risk the whole thing while only reducing potential reward a little bit.
Fully agree with you. People who'd prefer no non-govt school are using scary words like "CDO" to manipulate the conversation instead of look at its merits. There's still a high probability for failure for any new model, but I'm excited to see innovation on the finance side, and people need to regard finance like engineering, as a tool that can be used for good or evil. This seems mostly good.
As far as Lambda's management/culture situation, I've heard it's turbulent, but that's also par for the course with most startups, especially in growth mode. This will always be hard because student outcomes can sometimes feel this turbulence, but it's not like the students think this is a sure thing.
As far as Lambda's management/culture situation, I've heard it's turbulent, but that's also par for the course with most startups, especially in growth mode. This will always be hard because student outcomes can sometimes feel this turbulence, but it's not like the students think this is a sure thing.
>What Lambda is doing is more like pooling of risk used in insurance: if you (as an investor) bet on ISA of a single student, you have a high-risk, binary outcome (loose all your money or get some reward).
>If you bet on 1000 students as a group, you significantly de-risk the whole thing while only reducing potential reward a little bit.
Risk is surely part of it, but I think cash flow is a big issue as well. Very hard to run a business where you provide a service now and get paid over a couple years starting ~6 months from now. Better the split the company into the entity that provides the service and another that provides the financing.
>If you bet on 1000 students as a group, you significantly de-risk the whole thing while only reducing potential reward a little bit.
Risk is surely part of it, but I think cash flow is a big issue as well. Very hard to run a business where you provide a service now and get paid over a couple years starting ~6 months from now. Better the split the company into the entity that provides the service and another that provides the financing.
It sounds like Lambda is growing so fast that it's not realistic to be profitable. Early cohorts of ~100 students can't possibly pay for newer cohorts of ~1,000 students.
Indeed. So, as per the article, they take $100M investment to keep this weird chain going.
> core of their business (taking the risk students don't pay off) to a 3rd party
The core of their business should be educating the students. The financing and loan servicing are secondary concerns that are probably better off done by a different entity.
The core of their business should be educating the students. The financing and loan servicing are secondary concerns that are probably better off done by a different entity.
Interesting timing, given the recent articles about Lambda School.
It appears they are doubling down on the ISA brokering with Edly. (Which had deleted references to Lambda after they were exposed.)
It appears they are doubling down on the ISA brokering with Edly. (Which had deleted references to Lambda after they were exposed.)
Timing is actually coincidental. It closed today, as SEC documents will show in the future.
Yeah, this announcement is clearly meant to overshadow NYMag’s investigative reporting.
I don't quite understand the "100 million in new financing for ISAs" is this a new round of funding from VC's or something else ?
It's investment into the ISAs themselves. Students will sign up for an ISA with Lambda School who will then package up a lot of ISAs and sell a percentage stake of them to investors. Lambda School gets some of their cash upfront and investors (in theory) get a revenue stream as students pay them back.
They've partnered with Edly, a marketplace to sell ISAs founded by Chris Ricciardi, the "grandfather of collateralized debt obligations".
They've partnered with Edly, a marketplace to sell ISAs founded by Chris Ricciardi, the "grandfather of collateralized debt obligations".
So does this announcement mean they have sold 100mn worth of isas on edly already?
ISAs are a good idea, but there's no way you can start a hyper-profitable business around it. It's literally a ponzi scheme under those circumstances as the total amount of students "pending" will always exceed those who are paying out as the mandate is to grow.
The potential solutions are three fold:
1. Limit growth of students - impossible if your organization received venture capital.
2. Reduce the cost to educate - Unfortunately if you make education a commodity, ironically it will be replicated, leading to alternatives, ultimately leading to (1).
3. Guarantee the loans somehow
I think the only type of organization that could pull it off is one that doesn't mind waiting a long time to do it sustainably. Probably a not-for-profit. Alternatively, you could sustain it by doing it at a loss, e.g. you have some other organization to ensure (3).
The potential solutions are three fold:
1. Limit growth of students - impossible if your organization received venture capital.
2. Reduce the cost to educate - Unfortunately if you make education a commodity, ironically it will be replicated, leading to alternatives, ultimately leading to (1).
3. Guarantee the loans somehow
I think the only type of organization that could pull it off is one that doesn't mind waiting a long time to do it sustainably. Probably a not-for-profit. Alternatively, you could sustain it by doing it at a loss, e.g. you have some other organization to ensure (3).
I believe that's why you do the ISA packaging described in the article where you sell the ISAs off to the get the cash to keep going while someone else gets to think about the long-term cash flows. Banks do the same thing with loans.
This all works unless the instruments aren't audited well where the risk is higher. (think: ratings agencies in the housing crisis) Here the risk is that payback is bad, but we don't know yet, so investors are left holding the bag.
This latter scenario is really only bad for the investors and wastes the student's time, but then again the current college system already does this, so at least this doesn't shackle them with debts they can't pay.
Of course later investors won't buy the ISA packs if they first blow up, but seemingly no one gets hurt if it all goes up in flames.
This all works unless the instruments aren't audited well where the risk is higher. (think: ratings agencies in the housing crisis) Here the risk is that payback is bad, but we don't know yet, so investors are left holding the bag.
This latter scenario is really only bad for the investors and wastes the student's time, but then again the current college system already does this, so at least this doesn't shackle them with debts they can't pay.
Of course later investors won't buy the ISA packs if they first blow up, but seemingly no one gets hurt if it all goes up in flames.
You should read the attached article because it’s not structured as a one-off sale; it’s actually aligned between student and school, with the focus being repayment cashflow.
Even better - but for clarity, it's still generating some cash up front, addressing OPs question.
Hey, CEO of Lambda School here.
We’ve been working on this for over a year, and it finally closed today. We’ve been intensely focused on incentive alignment since the early days of Lambda School, and finally got to design an incentive-aligned ISA financing mechanism from scratch. Glad to have it out there.
We’ve been working on this for over a year, and it finally closed today. We’ve been intensely focused on incentive alignment since the early days of Lambda School, and finally got to design an incentive-aligned ISA financing mechanism from scratch. Glad to have it out there.
Congrats and thanks for your work on this. Been following Lambda and ISAs for a while, and really glad to see this making progress.
I have not read the NYMag article, but I personally think this approach makes a lot of sense.
My own favorite higher education reform idea is to have the gov't fund higher education by paying schools a percentage of the student's increase in W2 earnings for a period after graduation. That would avoid the 'indentured servitude' aspect, because the gov't would be paying, but would only reward schools that could increase students' W2 earnings.
To the extent that lambda school is exploring models that do something similar, it might eventually make space for a gov't funding model build around the insights they have had (like the one in this announcement, about how to pull future revenues forward to fund the school in a practical way).
My own favorite higher education reform idea is to have the gov't fund higher education by paying schools a percentage of the student's increase in W2 earnings for a period after graduation. That would avoid the 'indentured servitude' aspect, because the gov't would be paying, but would only reward schools that could increase students' W2 earnings.
To the extent that lambda school is exploring models that do something similar, it might eventually make space for a gov't funding model build around the insights they have had (like the one in this announcement, about how to pull future revenues forward to fund the school in a practical way).
There's already a highly successful model in most modern countries where the government fund all education and recovers some of the cost the higher progressive tax brackets, leaving the rest as a public good as an educated populace is a good thing.
No need for fancy securitization or business models!
No need for fancy securitization or business models!
There wouldn't be a need if our government was good at school execution and innovation, but it isn't.
I fully agree with gov't providing education for everyone, but it's not a panacea. Non-gov't innovation could discover really interesting models that gov't wouldn't take the risk on. We just need to make sure there's no fraud going on.
I fully agree with gov't providing education for everyone, but it's not a panacea. Non-gov't innovation could discover really interesting models that gov't wouldn't take the risk on. We just need to make sure there's no fraud going on.
> Non-gov't innovation could discover really interesting models that gov't wouldn't take the risk on.
When it comes to education the literature is littered with failed "innovation" models that sound good but fail. In fact, we could commission research institutions (publicly owned universities!) to do the legwork...in fact many of them have varied educational models. The government merely funds them; it doesn't execute the teaching model. (And Lambda's teaching model is pretty bog-standard, all said and told)
For profit vocational schools have existed for eons. If the only novelty is the "ISA" -- which is not all that new, innovative or effective what with progressive taxation -- then what exactly are Lambda offering? Overpriced, poorly executed courses for 0-upfront cost, subsidized "teaching" by TAs w/o any actual knowledge?
The price of failure in this space is very high. It's gambling with student's futures. Fast iteration and failure recovery is not easily possible. This is not a space where VC acceleration makes sense.
When it comes to education the literature is littered with failed "innovation" models that sound good but fail. In fact, we could commission research institutions (publicly owned universities!) to do the legwork...in fact many of them have varied educational models. The government merely funds them; it doesn't execute the teaching model. (And Lambda's teaching model is pretty bog-standard, all said and told)
For profit vocational schools have existed for eons. If the only novelty is the "ISA" -- which is not all that new, innovative or effective what with progressive taxation -- then what exactly are Lambda offering? Overpriced, poorly executed courses for 0-upfront cost, subsidized "teaching" by TAs w/o any actual knowledge?
The price of failure in this space is very high. It's gambling with student's futures. Fast iteration and failure recovery is not easily possible. This is not a space where VC acceleration makes sense.
The reason we should encourage new private educational models beyond publicly funded research / execution is for the same reason we do for almost everything else in the economy: the gov't and private sector have different incentive structures / possible funding modes that allow for different kinds of programs to be developed / run, sometimes both can work.
I don't see how student failure risk is higher than a 4 year degree or vocational school (i.e. the null hypothesis) - either way has time / foregone wages you spend without knowing you're going to get it back. Lambda's programs are actually less risky than a 4 year agree on a time/wage basis, and we have to see how they are on an $ ROI basis (i.e. how long is payback on the degree and how much is the net wage increase).
Also, we allow high-risk private sector stuff all the time: aerospace, automotive, medical, etc. all have literal life and death stakes beyond a school that doesn't work out. Regulation should be proportional to the risk involved, and I just don't see it with the Lambda / ISA model.
As far as what Lambda offers, it seems like they're currently the strongest executors from company growth perspective in the ISA/bootcamp space, and we'll have to see how they do on the factors I named above to see if it's effective. Being a trailblazer is high risk / high reward. I welcome their attempt.
Please correct me where you think I'm wrong. (said earnestly)
I don't see how student failure risk is higher than a 4 year degree or vocational school (i.e. the null hypothesis) - either way has time / foregone wages you spend without knowing you're going to get it back. Lambda's programs are actually less risky than a 4 year agree on a time/wage basis, and we have to see how they are on an $ ROI basis (i.e. how long is payback on the degree and how much is the net wage increase).
Also, we allow high-risk private sector stuff all the time: aerospace, automotive, medical, etc. all have literal life and death stakes beyond a school that doesn't work out. Regulation should be proportional to the risk involved, and I just don't see it with the Lambda / ISA model.
As far as what Lambda offers, it seems like they're currently the strongest executors from company growth perspective in the ISA/bootcamp space, and we'll have to see how they do on the factors I named above to see if it's effective. Being a trailblazer is high risk / high reward. I welcome their attempt.
Please correct me where you think I'm wrong. (said earnestly)
>Also, we allow high-risk private sector stuff all the time: aerospace, automotive, medical, etc. all have literal life and death stakes beyond a school that doesn't work out. Regulation should be proportional to the risk involved, and I just don't see it with the Lambda / ISA model.
Except getting yourself into huge amounts of debt $30000! is life ruining for basically everyone that Lambda is targeting.
We don't allow experiments on high risk populations with medical testing without informed consent. This was faulty in the Lambda case, where they out and out lied about their funding model. We don't allow the public to fly on planes without tons of testing. We don't allow people to drive cars that haven't passed independent crash testing.
So Lambda's ISA shouldn't be allowed to be sold to the public without independent financial advice, like any other complex debt product. And yes I think the same should apply to student loans.
You and I cannot just go and enter into a debt futures contract (well, maybe if you're an "accredited investor" i.e. rich enough to be ok if it goes south). So why do we let vulnerable folks enter into a shady financial agreement with an operator who's more concerned about growth than a good education? It's not good for society for every 1 new engineer there's 3 debt-enslaved washouts. Lambda's still profitable at those horrible numbers.
>As far as what Lambda offers, it seems like they're currently the strongest executors from company growth perspective in the ISA/bootcamp space, and we'll have to see how they do on the factors I named above to see if it's effective. Being a trailblazer is high risk / high reward. I welcome their attempt.
The problem is that their failures ruin people financially. Growth at all costs is a _bad_ thing. Going slower and getting things right is required to create a good product that first does no harm.
Except getting yourself into huge amounts of debt $30000! is life ruining for basically everyone that Lambda is targeting.
We don't allow experiments on high risk populations with medical testing without informed consent. This was faulty in the Lambda case, where they out and out lied about their funding model. We don't allow the public to fly on planes without tons of testing. We don't allow people to drive cars that haven't passed independent crash testing.
So Lambda's ISA shouldn't be allowed to be sold to the public without independent financial advice, like any other complex debt product. And yes I think the same should apply to student loans.
You and I cannot just go and enter into a debt futures contract (well, maybe if you're an "accredited investor" i.e. rich enough to be ok if it goes south). So why do we let vulnerable folks enter into a shady financial agreement with an operator who's more concerned about growth than a good education? It's not good for society for every 1 new engineer there's 3 debt-enslaved washouts. Lambda's still profitable at those horrible numbers.
>As far as what Lambda offers, it seems like they're currently the strongest executors from company growth perspective in the ISA/bootcamp space, and we'll have to see how they do on the factors I named above to see if it's effective. Being a trailblazer is high risk / high reward. I welcome their attempt.
The problem is that their failures ruin people financially. Growth at all costs is a _bad_ thing. Going slower and getting things right is required to create a good product that first does no harm.
(1) I think you're misunderstanding the Lambda model where you don't pay the loan unless you make over a certain amount and it adjusts as a proportion of income. It's designed to get around the actual "debt enslavement" issues of the current government debt. *
(2) A few months of education isn't a plane crash or fatal drug, it's a major inconvenience, but no more than any other bad life decision people make freely all the time (taking a bad job, buying a boat, etc.). As I said, regulation needs to be proportional to the down side.
(3) If you make everything really restrictive there is no innovation. Going slow does do harm. Harm that you don't see because it's a positive externality and hence never happens and you don't see it. Growth isn't the enemy and neither is regulation, you just have to be smart about it, and I would argue you're too far on the conservative side.
* The only exception, which I believe is still unclear legally, is whether ISA aren't releasable under bankruptcy, which I would definitely oppose as a big supporter of bankruptcy law.
(2) A few months of education isn't a plane crash or fatal drug, it's a major inconvenience, but no more than any other bad life decision people make freely all the time (taking a bad job, buying a boat, etc.). As I said, regulation needs to be proportional to the down side.
(3) If you make everything really restrictive there is no innovation. Going slow does do harm. Harm that you don't see because it's a positive externality and hence never happens and you don't see it. Growth isn't the enemy and neither is regulation, you just have to be smart about it, and I would argue you're too far on the conservative side.
* The only exception, which I believe is still unclear legally, is whether ISA aren't releasable under bankruptcy, which I would definitely oppose as a big supporter of bankruptcy law.
Inflating job placement stats and using brand new students to write curriculum is shady, but I don't get why the ISA is controversial. The incentives between student and school are still aligned and better than those of traditional higher ed. If the students don't get jobs, no one buys the ISA, the school goes under.
Here's the other thread, for anyone who's missing context: https://news.ycombinator.com/item?id=22366474
I'm 100% concerned that this post was AstroTurf'd to the front of HN given the negative article posted against Lambda hours before. This managed to hustle up in less than 15 minutes and kept climbing.
I took a quick look at the early votes and they look legit to me. Several of them came from people posting the article all at once, which converts into an upvote of an existing submission if there already is one. Perhaps the presence of the other thread contributed to this being particularly topical today.
Edit: a bit of confirming evidence is that most of those early voters voted for both threads, i.e. this one and https://news.ycombinator.com/item?id=22366474.
Edit: a bit of confirming evidence is that most of those early voters voted for both threads, i.e. this one and https://news.ycombinator.com/item?id=22366474.
OK thanks for checking it out I feel a lot better about it then.
In the future, it'd be helpful to email questions like this to [email protected]. The site guidelines ask you not to post about this in threads, and also it's basically random whether we end up seeing it. An email is nearly certain to get seen, and if we see it, we'll look into the issue and get back to you.
https://news.ycombinator.com/newsguidelines.html
https://news.ycombinator.com/newsguidelines.html
Will do, I had not thought of that.
You're surprised that people are interested in the next installment of an SV Twitter / YC world startup kerfuffle? Everyone's getting out their popcorn.
The news is absolutely timed by Lambda itself to counter the negative coverage, but it made HN because it's relevant and people are watching the play-by-play.
I upvoted because it's newsworthy, even if the timing is suspicious.
How do you do that?
Anecdotally, the older or previously successful students who could keep up went on to succeed, but these people already knew how to hustle. Bootcamp can't teach people how to hustle.
(I learned to hustle after previously participating in an even bigger scam - a state school humanities undergraduate education. ... )