Blended Learning, Cost of Education, Domestic, Investors, Not-for-Profit, Public education, Required, Startups, Technology, University & College, Venture Capital - Written by on Friday, January 20, 2012 7:16 - 0 Comments

University Venture Fund Launches With $50 million Backing from Germany’s Bertelsmann

by AlanCleaver_2000 via Flickr under CreativeCommons

The New York-based University Ventures Fund just launched… serving as more evidence that smart money and more money is moving into education innovation and digital learning initiatives. The $100 million fund is led by four partners with a good deal of industry experience and with big financial backers. German media behemoth Bertelsmann and other players see it as a place to make money and create change. They are focused on helping existing universities expand and improve their innovation and digital strategies. The fund notes on its web site:

Many markets are not being served effectively by public, not-for-profit, and private sector institutions. University Ventures Fund invests in universities and service companies in areas where rising demand and shrinking supply create rapidly growing market and student service opportunities.

How do they see the industry and why are they placing a bet on it? Here is their overview:

The size of the global higher education sector – including all public and private expenditures at the tertiary level – is estimated to exceed one trillion dollars. After nearly one thousand years during which the delivery model (“sage on the stage”) has remained virtually unchanged, higher education is undergoing transformative change. Structural shifts such as massification (access in Emerging Markets), globalization, technology (e.g. online, mobile), rise of private supply and system transformation (i.e., public-private partnerships) are disrupting traditional higher education and opening the door to a greater role for innovative private sector models.

The pace of change is accelerating as US and EU governments pursue fiscal austerity policies and reduce public higher education funding (to allocate scarce resources elsewhere) at varying speeds and degrees in each market. In the US, 70% of students attend state-subsidized institutions and half of state university systems reported funding cuts for fiscal 2012. In Europe, the UK is leading the way with vast changes including market-based pricing, increased competition for student among public institutions and dramatic cuts to higher education teaching budgets.

In sum, the world of Higher Education will change dramatically over the coming decades, creating enormous opportunities for entrepreneurs and investors to play a transformative role in improving the quality of higher education and resulting student outcomes in the U.S., Europe, and globally.

….

Where are they focusing their investments?

University Ventures focuses on transformative venture and growth investments employing best-in-class education business models to deliver improved student outcomes. The fund offers a highly differentiated strategy centered on partnering with traditional institutions rather than competing against them. These models combine the entrepreneurship, capital and management expertise of the private sector with the academic quality, brand equity and excellence of traditional institutions. Education service models are quickly growing in size and number on a global basis and entering mainstream higher education.

UV’s principals have a unique combination of investment, operational and legal experience in higher education to establish next generation higher education companies that will lead the market in terms of student outcomes and scalability. UV helps its university partners succeed in the shifting landscape of higher education by establishing new revenue streams while reducing the cost and improving the quality of delivery.

Here is a section from a recent letter to investors:

If there’s any consensus at all in today’s debate about how to rekindle economic growth, it’s the importance of education, and particularly higher education. We need more educated workers to innovate and increase productivity.

Not coincidentally, the largest industry that has not seen much in the way of productivity improvements since 1982 is education. All but a handful of the 170 million students currently enrolled at tertiary institutions around the world are learning the way their parents and grandparents learned (often learning virtually the same curriculum). The ‘sage on a stage’ model remains unchanged, and the well over $1 trillion in annual spending on higher education continues to be directed to the same functions.

And so the stage (if not the sage) is set for the world to focus on higher education as it never has before, and for dramatic changes in programs, delivery models, costs and learning outcomes. While the private sector will play a key role in this next revolution, it cannot succeed alone. Traditional universities and colleges – public and private — will be the crucibles of change, in partnership with entrepreneurs and companies. The resulting models – partnerships, hybrids, service providers – will transform higher education, enhance productivity and foster economic growth.

Via University Venture Fund

EducationInvestor reports that Bertelsmann has invested $50 million into the fund as anchor-investor, with US investors providing the rest of the capital.

The University Ventures fund will partner with universities in the Europe and the US to give them capital to expand or change how they deliver teaching. The fund is expected to create six to 10 joint ventures over the next five years.

One of the firm’s first projects is Higher Education Online, a London-based project which will provide capital and business expertise to universities that wish to offer courses online. Another is a partnership to help Brandman University in California to improve access among Hispanic students, using bilingual teaching programmes.The fund’s other investors include the University of Texas Investment Management Company.
Recent years have seen increasing convergence between the media and education sectors.  Other firms with interests in both sectors include Pearson, McGraw Hill and the Washington Post Company. Rupert Murdoch’s News International has also expressed an interest in getting a foothold in the education sector.
Cornelius Rahn reports in Bloomberg News on Bertelsmann’s strategy and motivation for the investment:

Bertelsmann Chief Executive Officer Thomas Rabe (BTG), who took over from Hartmut Ostrowski on Jan. 1, is accelerating a drive into growth markets including digital publishing and e-commerce as well as emerging economies. The company already invests in education via two funds, Bertelsmann Digital Media Investments and Bertelsmann Asia Investments.

“Education in general, and services for educational providers in particular, represent a promising and custom-made opportunity for a global media and services company like Bertelsmann,” Rabe said in today’s statement. The company “deliberately opted for an entrepreneurial concept that relies on building the business gradually.”

Doug Lederman, writing for InsideHigherEd, highlights some of the strategy of the fund after speaking with one of the partners, David Figuli, a lawyer. Figuli says the fund is focused on boosting innovation within the academy rather than competing with it from the outside.

The projects will include helping institutions expand the scale of their academic programs, re-engineer how they deliver instruction, and better measure student outcomes; the first two investments, also announced today, will be creating a curriculum through Brandman University aimed at improving the educational outcomes of Hispanic students, and a company that helps universities in Britain and elsewhere in Europe deliver their courses online.

“Most of the attempts to bring about innovation in higher education have come from people trying to buy their way in,” Figuli said, citing the many takeovers of traditional institutions by for-profit colleges over the last decade (quite a few of which he helped engineer). “Our way is to find good ideas within the existing institutions and fund those.”

Figuli, a former general counsel for the South Dakota and Montana university systems, said he and his partners don’t buy the critiques of traditional postsecondary institutions as unimaginative or fearful of change. “I’ve been in higher education for 30-some years, and most of the nonprofit institutions I’ve worked with have been frustrated by the fact that they’re capital-constrained. They usually have a rich bank of ideas, but most get left on the boardroom floor. Because they know there are funding limitations, they never think about taking big ideas forward. We think we can help them do that.” (Figuli’s colleagues are Ryan Craig, Daniel Pianko and Gregg Rosenthal.)

Much of the growth in higher education came from for-profit colleges “converting” (essentially taking over) struggling or failing nonprofit institutions — a practice that has been chilled in the last two years by scrutiny from accreditors — or from companies like 2tor, Embanet-Compass, Bisk, Academic Partnerships, Learning House and Deltak that help traditional colleges take their academic programs online.

In the last few years, though, a new strain of entities has emerged. These use private (often investor-provided) capital to work with existing institutions to create entirely new institutions or enterprises; foremost among them is Altius Education’s Ivy Bridge College (in tandem with Tiffin University), but others include Fidelis Education, which is designed to help former military service members make their way to selective colleges and universities.

Much of that activity has focused on online education, but while virtually all of University Ventures’ projects — a half-dozen or so, which it will finance either contractually or through joint ventures — will seek to capitalize in some way on technology-enabled innovations, they will “not primarily be online,” Figuli said. “To the extent we’re trying to remodel higher education, you have to remodel it at the core of the institution, which is still primarily on-ground.”

The project at Brandman reflects that focus, he said. Brandman, which is part of the nonprofit Chapman University System, operates both online and on 26 campuses, most of which are in California and in areas with large Latino populations. The fund’s “multimillion-dollar” investment — Figuli declined to be more specific than that — will help Brandman create a suite of bilingual degree programs and student support services that are specifically designed to meet the language and cultural needs of the United States’ fastest-growing, but educationally lagging, population.

Its other initial investment will be in distance education. University Ventures has created Higher Education Online, which will, like 2tor and the other American companies mentioned earlier, work with leading European universities to build, market and deliver their academic programs online not only in their home countries but across the continent. The company will begin in Britain, which in the last two years has revamped its system for funding universities and students’ educations.

Via InsideHigherEd

Rip Empson writes in TechCrunch

In light of all this, I was intrigued by the news yesterday that some education veterans have launched something called the University Ventures Fund, a $100 million fund, which is essentially endeavoring to bring private capital to help colleges and universities push forward. Interestingly, while the fund has a whole mess of investors, German media giant Bertelsmann and the University of Texas Investment Management Company are the two largest investors.

The fund, which will make investments in about six projects, is looking to approach innovation from within rather than from the outside, partnering with “rather than competing against” (in their words) traditional institutions. The fund is partnering with a host of the top 30 colleges and universities to direct private capital into programs “that address major economic and social needs”, and University Ventures Fund Partner David Figuli told Inside Highered that all of these projects will look to take advantage of “technology-enabled innovations”.

And judging by one of its projects, Higher Education Online, part of that focus will be on distance learning, as the organization will be partnering with top European universities to bring undergraduate and postgraduate degree programs online (and market them) both in Europe and abroad.

Again, this is only part of the answer, but these public-private partnerships can certainly make some waves. Check out University Venture Funds’ announcement here.

Via TechCrunch



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