Beyond the Noise: The Rise of Alternative Credentials

This month, we share our perspectives on the growing market for alternative credentials and consider the role specifically for higher education institutions. The demand for faster, cheaper pathways to employment creates enormous opportunities for colleges and universities, but these opportunities also raise significant questions. Understanding where these programs properly fit, whether adjacent to or inside the degree-granting ecosystem, requires careful consideration by institutional leaders. Developing a clear business plan is key to managing both executional and reputational risk. 

Tyton Partners has been at the heart of the development of this emergent phenomenon in a variety of forms. In the transaction world this has included, among other assignments, advising Carrick Capital in its purchase of Flatiron School from WeWork, as well as acting as leading sellside engagement of DevelopIntelligence to Pluralsight.

As the end of 2020 approaches, we wish you all a healthy and peaceful holiday season and a prosperous 2021 and beyond. We’ve been grateful for the opportunity to partner with many of you throughout this year across projects involving entering new markets, restructuring online offerings, finding partners to support continued growth, and identifying best practices in delivering online learning and supporting student success. We welcome the opportunity to speak with you about how we can help you in 2021 and beyond.

Alternative Credentials and Higher Education

New credentials are emerging to solve for systemic problems                            Over the past 10 years, the market for private pay educational content for adults has exploded. Whether for the purpose of developing a hobby or reskilling for employment, the ease with which content can now be offered and consumed online has allowed a robust, non-institutional alternative credential market to emerge. The runaway inflation in higher education tuition, combined with apprehension regarding the labor market value of a university degree has also played a role in fueling this trend toward alternative pathways to employment. Faster, cheaper alternatives and supplements to traditional post-secondary education have become more appealing options for those that might have otherwise turned to institutional degree program offerings.

Not surprisingly, investors have heartily embraced this trend and private alternative credential providers – particularly those whose training leads directly to an occupational certification – are white hot. In November, Stride (NYSE: LRN), formerly K-12 Inc., announced two such acquisitions. The longtime virtual charter school operator acquired tech training provider Tech Elevator for $23.5 million, or roughly 12x EBITDA. Tech Elevator joins coding bootcamp provider Galvanize in Stride’s growing stable of post-secondary alternatives. In the same month, Stride also announced the acquisition of healthcare training provider MedCerts for $70 million, or 17.5x EBITDA. MedCerts offers training directly to consumers in a variety of healthcare fields as well as a suite of services to employers looking to recruit trained professionals into those fields.

Education as entertainment has also emerged as a new and growing category  But investors remain equally enthusiastic about consumer-oriented training that is less specifically geared toward employment. With the pandemic leaving more people home-bound and reliant on screens for contact with the outside world, education as entertainment has boomed as well. While some MOOC content is geared toward reskilling and upskilling, much of it falls into the category of self-edification. Class Central reports that through August, new user growth at Coursera jumped from 8 million in the 12 months of 2019 to 20 million in eight months of 2020; EdX grew from 5 million in 2019 to 8 million in 2020, and Future Learn grew from 1.3 million in 2019 to 4 million in 2020.

This month, TechCrunch reported that Udemy, which serves as a marketplace for more than 130,000 courses ranging from those supporting casual hobbies to those preparing students for employment, is raising $100 million in a Series F round at a valuation of $3.32 billion, or more than $25,000 per published course.

Higher education institutions face opportunities and risks                             Higher education institutions are not oblivious to this growing consumer phenomenon and, in the face of declining undergraduate enrollment and demand for cheaper, faster workforce-aligned pathways, have entered the market as well. In many cases they are doing so in partnership with private companies. Indeed, given the rapid growth in demand, there is some urgency for institutions to establish a foothold if they intend to be relevant players in this emerging market. Yet unlike investor-backed start-ups, institutions have well-established brands to protect and the association of their names with training that falls outside of existing accreditation structures, and is often supplied by third parties, can be a double-edged sword.

The alternative credential market encompasses a broad range of offerings that serve diverse target markets via different levels of intensity, price points, and outcomes. Given this noise, there are not consistent indications of quality or a common set of definitions shared by institutions, consumers, or employers. Higher education institutions enter this market with a distinct advantage as their brands can have strong signal power to prospective students. But at the same time, the absence of traditional accreditation processes can also create risks as the program outcomes are tested in the labor market.

The rapid growth of this market also raises the question of pre- and post-baccalaureate certificate programs inside existing accreditation structures. As a competitive response to the demand for shorter, more workforce-aligned offerings, increasing the quantity and breadth of these types of programs seems an imperative for institutions. But oversight by academics sometimes ill-equipped to design training with an unabashed labor market focus and the requirements imposed by accreditors and federal financial aid requirements can limit the scope of these types of offerings to compete in this highly dynamic market. Crafting an institutional response to the emergence of this phenomenon – whether inside or outside the academy – we believe is a critical step in planning for the future of higher education.