Lambda School raises $74m for online computer science classes

24 Aug 2020511 Views

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The start-up, which has faced concerns about its business model, has raised $74m in a round led by SpaceX backer Gigafund.

On Friday (21 August), virtual education platform Lambda School announced that it has raised $74m for its online coding and computer science courses. The Series C investment round was led by Gigafund, which has previously backed Elon Musk’s SpaceX.

Lambda School’s CEO and co-founder, Austen Allred, said that the funding comes at an urgent time, with the economic impact of the Covid-19 pandemic and a forced “reckoning” in education.

“This new financing will support our mission to unlock student potential, regardless of circumstance, by developing career-oriented educational programmes and reducing the financial risks to pursuing a better career,” he added.

Lambda School’s education offering 

The virtual school’s computer science courses run for up to 18 months and cost $30,000. The school is currently running two courses covering data science and full-stack web development.

Lambda School’s unique offering over other coding bootcamps is that it only asks students to pay back tuition after they secure an annual income of $50,000 or more. The company provides some support to students through career coaches and job search trainers who help students source jobs and prepare for interviews.

“Our approach has remained the same since day one: invest in students, align incentives and lower barriers that prevent students from reaching their full earning potential,” Allred said.

“Student debt has reached alarmingly high levels, and the current pandemic has students feeling even less aligned with the interests of traditional education institutions. Increasingly, students feel treated as a means to an end.”

According to TechCrunch, Lambda School currently has around 3,000 students enrolled, taking live classes according to timetables programmed for different time zones in the US. The company employs 150 people, including operational and support staff as well as teachers and teaching assistants who all work remotely.

A controversial model?

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While Lambda School’s platform might ease some of the financial pressure students in the US face due to the “alarmingly high” levels of debt the start-up’s CEO refers to, critics have raised concerns.

An article published by The Verge in February 2020 entitled ‘The High Cost of a Free Coding Bootcamp’ outlined how the online course was not what some students expected. Instructors changed week to week and the curriculum advertised on the website “never fully materialised”, according to the publication.

The article claimed that students attempted to get out of the income-sharing agreements (ISAs) put in place by the school, requiring them to hand over 17pc of their income for two years once they began earning $50,000 or more. Students said they felt the education had “under-delivered” what was promised by the company’s marketing.

There have also been suggestions that students may not always know who owns the ISAs they sign. According to Intelligencer, Lambda School partnered with Edly, an ISA marketplace co-founded by former Merrill Lynch banker Chris Ricciardi, to sell the school’s ISAs to investors.

Wired reported in August 2019 that Lambda School sells the rights to a portion of returns on about half of ISAs to investors, in return for up-front cash. Allred denied this claim on Twitter, stating that the company “never, ever” gets paid up front for ISAs.

Intelligencer reported that Allred’s claim is “entirely untrue” and that private communications with his investors prove that as recently as 2018, a hedge fund payed $10,000 per ISA to purchase half of the school’s ISAs.

US senator Elizabeth Warren has warned that these ISAs are not wildly different to traditional private student loans, but they come with the “added danger of deceptive rhetoric and marketing that obscure their true nature”.

The start-up has also faced regulatory challenges in California, where it temporarily ceased teaching and received a fine of $75,000 for violating state law by failing to properly register with California state authorities.

Last week, the company announced that it has received approval from California’s Bureau for Private Postsecondary Education. As part of the approval deal, Lambda School said it cannot offer ISAs to new students in California for the foreseeable future.

Kelly Earley was a journalist with Siliconrepublic.com

editorial@siliconrepublic.com