Market Update- Q1 2017 Skills Training Bootcamp

BOOTCAMPS ATTRACTING INVESTORS AND STRATEGIC ACQUIRERS

Skills training bootcamps have seen explosive growth, driven by compelling employment outcomes and a high student return-on-investment. The success of this innovative model has drawn the interest of capital providers, strategic acquirers, private lenders, and the Department of Education. We expect continued growth, but also anticipate the competitive landscape to evolve with the entry of new models and other talent ecosystem players. Providers focused on disciplined student acceptance criteria, regulatory compliance, and strong employment outcomes will ultimately be the long term survivors.

OVERVIEW

The “bootcamp” or “accelerated learning program” model is a relatively young one, and first surfaced roughly five years ago. These programs (many of which focus on software coding roles) offer shorter-form, immersive experiences lasting around 12 weeks, and are designed to provide students with the entry level skills employers require. They are typically delivered in full-time and part-time face-to-face formats, although online offerings ultimately provide the potential for the greatest scale and margin opportunity. These programs are thriving in large part because they address a significant supply imbalance for technology skills that are in high demand, and an acknowledgment on the part of employers that long, expensive degree programs aren’t necessary to develop many entry level skills.

Tuition generally runs $10,000 – $15,000, although some programs can be more or less expensive. Importantly, the curriculum is typically developed and regularly updated with direct employer input, resulting in programs that are structured and aligned to meet employer needs. With a clear line of sight to career outcomes, reported job placement rates can exceed 90% in certain cases. However, these placement rates advertised by many industry participants will likely become an area of greater debate as there is no consistent definition for an employment outcome. State licensing bodies are also likely to place much greater scrutiny on these metrics in order to provide better transparency to students.

Tuition is funded privately with cash, payment plans with schools, and through private lenders. Private lending platforms have emerged to support the growth in student enrollment, with Climb Credit and Skills Fund being two of the more prominent players. Given the success of the bootcamp model, the Department of Education launched an initiative in 2015 to experiment with alternative credential models that could ultimately lead to making some models eligible for participation in Title IV funding programs. While it is far too early to predict what types of alternative models, if any, might qualify, a successful outcome could have a very positive impact on the space.

CODING BOOTCAMPS DRIVING GROWTH

Coding bootcamps in particular have thrived. Course Report, which helps potential students find and research coding bootcamp programs, conducts an annual survey of 91 qualifying accelerated learning programs throughout the U.S. and Canada. In 2016, they expect the coding bootcamp market to grow 1.7x, to an estimated 17,966 graduates, up from 10,333 in 2015. By comparison, there were an estimated 61,408 undergraduate computer science graduates from accredited U.S. universities in 2015. Tuition revenue from qualifying U.S. bootcamps (excluding scholarships) is expected to be approximately $200 million in 2016.

This impressive growth captures a wide variety of students, including career switchers and those derailed from the traditional college/community college track, who are attracted to the strong job placement successes and high salaries offered to bootcamp graduates. In the Course Report 2015 annual survey, 66% of graduates surveyed reported being employed in a full-time job requiring the skills learned at their bootcamp, with an average salary increase of 38% and an average salary lift of $18,000. At the Flatiron School in New York City, an impressive 98% of its 2015 graduates who sought a job landed one, with an average salary of $74,000 – Flatiron’s coding program typically costs around $12,000 per student. Meanwhile, Hack Reactor reports a graduate hiring rate of 98% in its San Francisco market with an average graduate salary of $104,000; its onsite software engineering immersive program costs $17,780.

IMPLICATIONS

As the model matures, some bootcamp players are developing delivery mechanisms beyond the face-to-face immersive model. Online offerings with comparable student outcomes provides the greatest scale and margin opportunity, although at this point it is unclear if the vast majority of participants have the capital, sophistication, and discipline to deliver face-to-face efficacy in an online environment. The positive experience employers have had with bootcamp graduates has also created a meaningful B2B training opportunity for some bootcamp players. Large employers, such as Google and JPMorgan, have significant re-skilling needs with current employees that can be effectively addressed with modest modifications to the core bootcamp curriculum. The model’s success is also driving bootcamps into delivering additional programs beyond coding, such as data science, digital marketing, cyber security, and sales.

As the space continues to develop, new models are beginning to emerge that could alter the competitive landscape. Just as online program management players emerged several years ago to help develop online and adult learner degree programs for traditional universities, so too are players emerging to develop bootcamp models in partnership with universities (Trilogy Education and Learning House/Software Guild being the most noteworthy). The development of this model in partnership with strong, established educational brands will be one to watch closely.

Staffing firms are another category of a talent ecosystem player that may play a meaningful role in reshaping the competitive landscape over the next few years. Traditional staffing firms understand employer skill gap pain points and are positioned to play an interesting role in the evolution of the alternative credential space. Revature is a noteworthy example of a staffing firm entering the bootcamp space, but we suspect others will follow.

ATTRACTING ATTENTION OF CAPITAL PROVIDERS AND STRATEGIC ACQUIRERS

Growth and opportunity have captured the attention of capital providers. Over the past few years, approximately $255 million has been raised by bootcamp models, and other private equity and venture capital firms are looking for new platforms for additional investment. The table below summarizes the most noteworthy investments made to date.

Bootcamp models have also garnered the interest of larger for-profit education firms. While we understand some of these investments have experienced growing pains, these players do bring strengths to the bootcamp model – capital, multi-location campus operations, online and hybrid program delivery, and regulatory compliance expertise. The table below summarizes recent investments made by strategic education players.

CONCLUSION

We believe the bootcamp model will have long-term success as it addresses employment demand for specific job skills that do not require long, expensive associates or bachelors degrees. Student demand for more innovative alternative credentials that validate employment-ready skills (developed through a curriculum created in partnership with employers) at a very attractive return on tuition investment creates a significant market opportunity. While there is likely to be a shake out of players that cannot grow beyond a local market or meet regulatory requirements that may become more rigorous, the model clearly addresses a need traditional educational institutions are not providing. Expect to see a vibrant competitive landscape with larger talent ecosystem participants and education brands vying for leadership in this compelling sector.

INVESTMENT BANKING

CHRISTOPHER CURRAN
Founder and Managing Partner
203.674.9955
ccurran@tytonpartners.com

VIVEK KAMATH
Partner and Managing Director
203.674.9989
vkamath@tytonpartners.com

RICH FLYNN
Managing Director
312.343.2185
rflynn@tytonpartners.com

TIMOTHY LOOMER
Senior Advisor and Managing Director
203.674.9988
tloomer@tytonpartners.com

MICHAEL WHITE
General Manager, Capital Markets,
and Managing Director
203.674.9962
mwhite@tytonpartners.com

CONSULTING

ADAM NEWMAN
Founder and Managing Partner
617.366.2815 x101
anewman@tytonpartners.com

GATES BRYANT
Partner
617.366.2815 x110
gbryant@tytonpartners.com

JEFF DINKSI
Director
917.679.3064
jdinski@tytonpartners.com

ANDREA MAINELLI
Senior Advisor
617.366.2815 x117
amainelli@tytonpartners.com