SAN FRANCISCO (Private Equity Week)- In the wake of the largest financial sector downturn in decades, venture capitalists have been frugal about funding most cash-hungry startups.
One sector that’s bucked the trend in recent months, however, is online education.
To date this year, venture firms nationwide have invested in more than two dozen startups that are developing technologies and services for delivering academic courses and job training over the Internet.
Just last week, Maveron and Spark Capital invested $8 million in a Series A round of funding for Altius Education, a San Francisco-based company that partners with universities to launch two-year study programs.
“This is undoubtedly the worst period in venture financing since the creation of the asset class, but I think education is one of the holdouts,” says Paul Freedman, an education serial entrepreneur and the founder and CEO of Altius.
In some ways, the sluggish economy is helping to give the education a market a boost, he says, since “one of the things people do when they can’t get a job is go back to school.”
With an estimated two-year cost of about $18,000, or $300 per credit, the program is more expensive than a typical community college. However, Freedman says, it boasts extensive tutoring and mentoring services, as well as lower faculty-student ratio and higher retention rate (about 80% term-over-term) than most community colleges.
In addition, students who complete the program with a required minimum GPA, are guaranteed entrance to one of more than 20 four-year colleges. Currently, Altius is working with about 300 students through its initial effort, called Ivy Bridge College, a joint venture with Tiffin University in Northern Ohio.
The ability to easily move from a two-year degree to a four-year program at accredited universities was one of the factors for investment cited by Amy Errett, a senior advisor at Seattle-based Maveron, a consumer-focused venture fund, which took part in the venture financing in conjunction with Boston-based Spark Capital.
“Many would say your traditional two-year degree has had questionable value if it isn’t parlayed into a four-year degree,” says Errett, who has overseen her firm’s multiple investments in education-related startups. In addition to Altius, Maveron has backed Livemocha, a provider of Internet-based interactive language instruction, and Capella Education, an online university that went public in 2006.
Looking ahead, Errett says she expects the online education space will continue to be a hotbed of entrepreneurial and venture activity, particularly in the post-secondary space.
Other trends she expects will be gaining steam include use of games as teaching tools and increasing globalization of the online education market.