Lambda School raises $74M for its virtual coding school where you pay tuition only after you get a job

In the world of technology, online learning has been one of the bigger beneficiaries of the last several months, with people staying home and away from their normal routines because of the coronavirus pandemic and using that time to expand their knowledge, or more critically, figure out what to do next if they want to change careers, or have found themselves without a job.

Now, one of the startups building a business around virtual computer science education — teaching people sitting at home before it became a mandate — is announcing a large round of funding to capitalise on that demand.

Lambda School, which runs virtual nine- and 18-month (part time) computer science courses for $30,000 — currently covering data science and full-stack web development — with payments for the course based on a sliding scale that only kicks in after you land a job that makes at least $50,000, has raised $74 million in equity in a Series C round.

The investment is largely coming from Gigafund, the VC started by ex-Founders Fund partners in 2017 originally to put more money into SpaceX, with Tandem Fund and Y Combinator (where Lambda School was incubated) also participating. Its list of other backers include GV, GGV, and Stripe. (Tommy Collison, the head of business development at Lambda, is the younger brother of the two Collison brothers who co-founded Stripe.)

Lambda School is not disclosing its valuation but CEO Austen Allred (who co-founded the company with Ben Nelson) confirmed that it is higher than the $150 million that Lambda had reached in its $30 million Series B in January 2019. He also said that he hopes that this will be the last funding that Lambda raises, not because it’s planning an IPO but because it’s aiming to become profitable. Allred confirmed that is not the case yet.

Allred added that the plan will be to use the funds to help the startup meet a surge in demand for its courses.

“There is more demand than we can handle right now, even with the fundraise,” he said. “I don’t know if that’s a good or bad thing.”

Currently there are about 3,000 students enrolled, all taking live (not on-demand) classes according to timetables programmed for different timezones. All the classes are set up on a specific personalised basis, with labs to extend your learning and “live” projects to put you in the middle of the kind of work that you would be expected to do with the skills your’re picking up. (It’s partly for this reason that Lambda doesn’t work like a typical MOOC and is more complicated to scale.)

The money will specifically be used to continue expanding the range of what Lambda School offers, both in terms of content but potentially also in terms of developing its business model.

Case in point: just yesterday, the startup got approved by California’s Bureau for Private Postsecondary Education, after a prolonged period of difficulties with the bureau that saw Lambda cease teaching in the state and get fined.

But part of the deal for approval involved Lambda no longer offering Income Share Agreements to students, for the moment at least. With ISAs a cornerstone of how the company presents its deferred-payment model, Allred said Lambda is still working on making ISAs available but is also looking at “student-friendly substitutes” in the interim.

To be clear, getting approved by that board is not the same as accreditation: Lambda School doesn’t offer official degrees but certificates when students complete the courses. Currently there is no plan to get accreditation to offer degrees, Allred said.

“From a regulatory standpoint we could receive accreditation and grant degrees but [boards] require you to submit changes to curriculum a year in advance and our students can’t afford that. Things like that are a nonstarter until the accrediting bodies change their requirements,” he said, and added that schools that have accreditation are not always better than this.

“There are thousands of schools fully accredited that have a 20% graduation rate,” he said. “It doesn’t make you good. We have to prove our worth to students in other ways, usually through outcomes.”

Lambda School’s funding may be coming amid a surge of demand for its courses — and interest in online education companies in general, as a way to keep learning even as schools close — but that doesn’t mean it hasn’t also been a tricky time for the startup.

In April, Lambda cut 19 staff and executives took a 15% pay cut amid market uncertainty due to the coronavirus pandemic (and maybe also to sharpen up its accounts, something that regularly happens when startups are in the process of raising money). The company currently has a team of around 150, which includes both operational and support staff as well as course teachers and team leads (which are essentially teaching assistants). All of them are working remotely at the moment, Allred said.

But even before April, Lambda has faced a lot of negative opinion around how it applies the deferred payment business model. Critics have described the process of paying back fees based on your income as indentured servitude and predatory. And they claim the business model is impractical because of how Lambda itself has to the risk when students don’t make their expected salaries, since the ISA model gives paybacks on a sliding scale based not just on salary. Also, because of the limit of 24 months to pay back the fees, some students will pay back the full $30,000 but some will not.

Lambda’s model is based around taking 17% of your pay each month, and so if you earn even more, you pay back before the 24 month period, and you may more. One reader who finished the Lambda program tells me that he is paying $1,700 / month at the moment, for example.

Allred didn’t disclose how many default on payments but said that about 15% of students drop out before the end of the first month, which means they pay nothing at all.

These may be sticking points for some people, but not enough to curtail the startup’s growth, or interest among investors at a time when others in the space, like Coursera, Vedantu, Kahoot, and many others are also getting big injections of funding.

“We were attracted to Austen as a CEO,” said Stephen Oskoui, a Gigafund partner who is joining Lambda School’s board, in an interview. “Gigafund is very focused on the strength of those that we think will build for multiple decades, and the model for how Lambda School is operating has the potential for tremendous impact.”

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