
Announcing Our New ISA Financing Blueprint and $100M in New Financing - loganfrederick
https://lambdaschool.com/the-commons/announcing-our-new-isa-financing-blueprint-and-100m-in-new-financing
======
hpliferaft
I went to a bootcamp with an ISA. I'm thankful for the temporary relief it
offered, but I'm almost positive most of the students in my cohort don't have
coding jobs right now. I'm convinced the low admission standards ("Never code
before? Do this module of Ruby.") and the ISA demotivated them to always keep
learning and hustle their way into interviews, which is what everyone who
learns MVC app development in three months will need to do.

Anecdotally, the older or previously successful students who could keep up
went on to succeed, but these people already knew how to hustle. Bootcamp
can't teach people how to hustle.

(I learned to hustle after previously participating in an even bigger scam - a
state school humanities undergraduate education. ... )

~~~
runawaybottle
What job and salary did this state school humanities degree promise?

I don’t know, I’m not a genius, but I kinda figured which majors may not help
me in the economy.

~~~
hpliferaft
It's clearer now, definitely. This was in the late 90s and both my parents
were humanities academics.

I ended up getting a master's in English and taught essay writing for a while.
Many decisions later, I work as security analyst and end up writing a lot on
the job, so I like to think things have worked out. I guess. I wish I knew C
and more low level cs concepts like some of my coworkers.

~~~
qeqeqeqe
It's not too late to learn. Just start playing around with stuff

~~~
NotSammyHagar
Yeah. You could take just a single intro to cs class (or c)and go from there.
Programming has so much demand you can start later in life than probably any
other field.

------
duckfruit
Looks like there has been some departures in their senior leadership in the
wake of continuing fallout from the NYMag article, and this announcement might
be an attempt to overshadow that

[https://twitter.com/KateClarkTweets/status/12302421245005701...](https://twitter.com/KateClarkTweets/status/1230242124500570114)

~~~
austenallred
Adam left because he had a number of serious illnesses happen in his family
and (thanks to previous success) has the luxury not to need to work full-time
and can focus on his family. We’ve always upheld that family is more important
than Lambda School and are fully supportive. He’s still staying in as an
advisor just not in a full-time role.

Jeff started as an investor in Lambda School but fell so in love with the
company he came aboard full-time. After a couple months he realized he
couldn’t do both investing and full-time work simultaneously, and decided to
focus on investing with my full blessing.

Those two leaving had exactly 0% to do with any news articles.

~~~
godzillabrennus
Austen, I think what your company is doing to help folks become developers is
rather rad. Starting your response by laughing off concerns like this OP
shared is not good.

~~~
austenallred
Fair, will edit. It’s a shock of genuine amazement that that’s become the
narrative.

------
danso
The timing and content of this announcement is...confusing. I'm definitely not
an expert in this, but the details here of the financing seem pretty general
and straightforward, i.e. the type of document I'd assume they would've
already drawn up when partnering with edly several months ago [0]. And that
still doesn't explain why Lambda and Allred wouldn't have this info prepared
by the time The Verge and NYMag (the latter which was a 5 month investigation)
came calling around. It also doesn't explain why edly took the partnership
announcement pages down the same day that @dhh started tweeting about them
[1].

And then there's the issue of two prominent Lambda executives (one of them an
investor, IIRC) stepping down this afternoon. [2]

[0] [https://www.theverge.com/2020/2/12/21135134/lambda-school-
st...](https://www.theverge.com/2020/2/12/21135134/lambda-school-students-
edly-isa-debt-swapping-partnership-shares-investors)

[1]
[https://twitter.com/dhh/status/1227317343539335168](https://twitter.com/dhh/status/1227317343539335168)

[2]
[https://twitter.com/KateClarkTweets/status/12302421245005701...](https://twitter.com/KateClarkTweets/status/1230242124500570114)

------
Traster
So they're basically admitting to what the news articles were accusing them of
in the first place. And what they're describing seems to basically be a CDO.
The thing that gets me about this company is that it very much seems that to
the public they're saying "Aww man doesn't it suck that student debt is a
$1.6Bn business" whilst saying "Aww man we're going to get some of that juicy
juicy $1.6Bn business" to investors.

If Lambda school worked, their ISAs would be paying off at this point, they'd
be seeing a profit from their first cohorts and so not only would they have
fresh cash to invest, but VCs would see the ROI and growth and throw down some
cash. It seems very clear to me that they've failed to demonstrate the
business model. So they hand off the core of their business (taking the risk
students don't pay off) to a 3rd party and try to just spin some cash from the
classes. If I were them I'd be looking for an exit, quick.

~~~
kjksf
They are not doing anything wrong so I'm not sure why anyone is "accusing"
them of something.

I've read this post, what they do is clear and makes sense to me.

Most of all it preservers "if the student doesn't get the job, LambdaSchool
fails" property. This alignment of incentives is really the only thing that
matters and it lacks in traditional colleges (which is why Lamda will either
fail or, in the long term, will kill traditional colleges or force them to
change).

Comparing what they do to CDO is done to make a negative association. "CDO are
bad, this shares some similarity of CDO, this is bad".

The bad aspect of CDO was that it was used to hide bad investments by
packaging them together and re-selling as a better investment.

What Lambda is doing is more like pooling of risk used in insurance: if you
(as an investor) bet on ISA of a single student, you have a high-risk, binary
outcome (loose all your money or get some reward).

If you bet on 1000 students as a group, you significantly de-risk the whole
thing while only reducing potential reward a little bit.

~~~
nickpinkston
Fully agree with you. People who'd prefer no non-govt school are using scary
words like "CDO" to manipulate the conversation instead of look at its merits.
There's still a high probability for failure for any new model, but I'm
excited to see innovation on the finance side, and people need to regard
finance like engineering, as a tool that can be used for good or evil. This
seems mostly good.

As far as Lambda's management/culture situation, I've heard it's turbulent,
but that's also par for the course with most startups, especially in growth
mode. This will always be hard because student outcomes can sometimes feel
this turbulence, but it's not like the students think this is a sure thing.

------
minimaxir
_Interesting_ timing, given the recent articles about Lambda School.

It appears they are _doubling down_ on the ISA brokering with Edly. (Which had
_deleted references_ to Lambda after they were exposed.)

~~~
TheTrotters
Yeah, this announcement is clearly meant to overshadow NYMag’s investigative
reporting.

~~~
istjohn
Which is here: [https://nymag.com/intelligencer/2020/02/lambda-schools-
job-p...](https://nymag.com/intelligencer/2020/02/lambda-schools-job-
placement-rate-is-lower-than-claimed.html)

------
joshi4
I don't quite understand the "100 million in new financing for ISAs" is this a
new round of funding from VC's or something else ?

~~~
thesausageking
It's investment into the ISAs themselves. Students will sign up for an ISA
with Lambda School who will then package up a lot of ISAs and sell a
percentage stake of them to investors. Lambda School gets some of their cash
upfront and investors (in theory) get a revenue stream as students pay them
back.

They've partnered with Edly, a marketplace to sell ISAs founded by Chris
Ricciardi, the "grandfather of collateralized debt obligations".

~~~
joshi4
So does this announcement mean they have sold 100mn worth of isas on edly
already?

------
newfeatureok
ISAs are a good idea, but there's no way you can start a _hyper-profitable_
business around it. It's literally a ponzi scheme under those circumstances as
the total amount of students "pending" will always exceed those who are paying
out as the mandate is to grow.

The potential solutions are three fold:

1\. Limit growth of students - impossible if your organization received
venture capital.

2\. Reduce the cost to educate - Unfortunately if you make education a
commodity, ironically it will be replicated, leading to alternatives,
ultimately leading to (1).

3\. Guarantee the loans somehow

I think the only type of organization that could pull it off is one that
doesn't mind waiting a long time to do it sustainably. Probably a not-for-
profit. Alternatively, you could sustain it by doing it at a loss, e.g. you
have some other organization to ensure (3).

~~~
nickpinkston
I believe that's why you do the ISA packaging described in the article where
you sell the ISAs off to the get the cash to keep going while someone else
gets to think about the long-term cash flows. Banks do the same thing with
loans.

This all works unless the instruments aren't audited well where the risk is
higher. (think: ratings agencies in the housing crisis) Here the risk is that
payback is bad, but we don't know yet, so investors are left holding the bag.

This latter scenario is really only bad for the investors and wastes the
student's time, but then again the current college system already does this,
so at least this doesn't shackle them with debts they can't pay.

Of course later investors won't buy the ISA packs if they first blow up, but
seemingly no one gets hurt if it all goes up in flames.

~~~
austenallred
You should read the attached article because it’s not structured as a one-off
sale; it’s actually aligned between student and school, with the focus being
repayment cashflow.

~~~
nickpinkston
Even better - but for clarity, it's still generating some cash up front,
addressing OPs question.

------
austenallred
Hey, CEO of Lambda School here.

We’ve been working on this for over a year, and it finally closed today. We’ve
been intensely focused on incentive alignment since the early days of Lambda
School, and finally got to design an incentive-aligned ISA financing mechanism
from scratch. Glad to have it out there.

~~~
seibelj
No matter what anyone says, at least you’re _trying_ to change the “give $200k
to college full of cushy administrators” problem that has turned higher
education into an absolute disaster. If someone else has a better idea, go
ahead and try it.

------
ttcbj
I have not read the NYMag article, but I personally think this approach makes
a lot of sense.

My own favorite higher education reform idea is to have the gov't fund higher
education by paying schools a percentage of the student's increase in W2
earnings for a period after graduation. That would avoid the 'indentured
servitude' aspect, because the gov't would be paying, but would only reward
schools that could increase students' W2 earnings.

To the extent that lambda school is exploring models that do something
similar, it might eventually make space for a gov't funding model build around
the insights they have had (like the one in this announcement, about how to
pull future revenues forward to fund the school in a practical way).

~~~
nimish
There's already a highly successful model in most modern countries where the
government fund all education and recovers some of the cost the higher
progressive tax brackets, leaving the rest as a public good as an educated
populace is a good thing.

No need for fancy securitization or business models!

~~~
nickpinkston
There wouldn't be a need if our government was good at school execution and
innovation, but it isn't.

I fully agree with gov't providing education for everyone, but it's not a
panacea. Non-gov't innovation could discover really interesting models that
gov't wouldn't take the risk on. We just need to make sure there's no fraud
going on.

~~~
nimish
> Non-gov't innovation could discover really interesting models that gov't
> wouldn't take the risk on.

When it comes to education the literature is littered with failed "innovation"
models that sound good but fail. In fact, we could commission research
institutions (publicly owned universities!) to do the legwork...in fact many
of them have varied educational models. The government merely funds them; it
doesn't execute the teaching model. (And Lambda's teaching model is pretty
bog-standard, all said and told)

For profit vocational schools have existed for eons. If the only novelty is
the "ISA" \-- which is not all that new, innovative or effective what with
progressive taxation -- then what exactly are Lambda offering? Overpriced,
poorly executed courses for 0-upfront cost, subsidized "teaching" by TAs w/o
any actual knowledge?

The price of failure in this space is very high. It's gambling with student's
futures. Fast iteration and failure recovery is not easily possible. This is
not a space where VC acceleration makes sense.

~~~
nickpinkston
The reason we should encourage new private educational models beyond publicly
funded research / execution is for the same reason we do for almost everything
else in the economy: the gov't and private sector have different incentive
structures / possible funding modes that allow for different kinds of programs
to be developed / run, sometimes both can work.

I don't see how student failure risk is higher than a 4 year degree or
vocational school (i.e. the null hypothesis) - either way has time / foregone
wages you spend without knowing you're going to get it back. Lambda's programs
are actually less risky than a 4 year agree on a time/wage basis, and we have
to see how they are on an $ ROI basis (i.e. how long is payback on the degree
and how much is the net wage increase).

Also, we allow high-risk private sector stuff all the time: aerospace,
automotive, medical, etc. all have literal life and death stakes beyond a
school that doesn't work out. Regulation should be proportional to the risk
involved, and I just don't see it with the Lambda / ISA model.

As far as what Lambda offers, it seems like they're currently the strongest
executors from company growth perspective in the ISA/bootcamp space, and we'll
have to see how they do on the factors I named above to see if it's effective.
Being a trailblazer is high risk / high reward. I welcome their attempt.

Please correct me where you think I'm wrong. (said earnestly)

~~~
nimish
>Also, we allow high-risk private sector stuff all the time: aerospace,
automotive, medical, etc. all have literal life and death stakes beyond a
school that doesn't work out. Regulation should be proportional to the risk
involved, and I just don't see it with the Lambda / ISA model.

Except getting yourself into huge amounts of debt $30000! is life ruining for
basically everyone that Lambda is targeting.

We don't allow experiments on high risk populations with medical testing
without informed consent. This was faulty in the Lambda case, where they out
and out lied about their funding model. We don't allow the public to fly on
planes without tons of testing. We don't allow people to drive cars that
haven't passed independent crash testing.

So Lambda's ISA shouldn't be allowed to be sold to the public without
independent financial advice, like any other complex debt product. And yes I
think the same should apply to student loans.

You and I cannot just go and enter into a debt futures contract (well, maybe
if you're an "accredited investor" i.e. rich enough to be ok if it goes
south). So why do we let vulnerable folks enter into a shady financial
agreement with an operator who's more concerned about growth than a good
education? It's not good for society for every 1 new engineer there's 3 debt-
enslaved washouts. Lambda's still profitable at those horrible numbers.

>As far as what Lambda offers, it seems like they're currently the strongest
executors from company growth perspective in the ISA/bootcamp space, and we'll
have to see how they do on the factors I named above to see if it's effective.
Being a trailblazer is high risk / high reward. I welcome their attempt.

The problem is that their failures ruin people financially. Growth at all
costs is a _bad_ thing. Going slower and getting things right is required to
create a good product that first does no harm.

~~~
nickpinkston
(1) I think you're misunderstanding the Lambda model where you don't pay the
loan unless you make over a certain amount and it adjusts as a proportion of
income. It's designed to get around the actual "debt enslavement" issues of
the current government debt. __*

(2) A few months of education isn't a plane crash or fatal drug, it's a major
inconvenience, but no more than any other bad life decision people make freely
all the time (taking a bad job, buying a boat, etc.). As I said, regulation
needs to be proportional to the down side.

(3) If you make everything really restrictive there is no innovation. Going
slow does do harm. Harm that you don't see because it's a positive externality
and hence never happens and you don't see it. Growth isn't the enemy and
neither is regulation, you just have to be smart about it, and I would argue
you're too far on the conservative side.

 __* The only exception, which I believe is still unclear legally, is whether
ISA aren 't releasable under bankruptcy, which I would definitely oppose as a
big supporter of bankruptcy law.

------
freewilly1040
Inflating job placement stats and using brand new students to write curriculum
is shady, but I don't get why the ISA is controversial. The incentives between
student and school are still aligned and better than those of traditional
higher ed. If the students don't get jobs, no one buys the ISA, the school
goes under.

------
exolymph
Here's the other thread, for anyone who's missing context:
[https://news.ycombinator.com/item?id=22366474](https://news.ycombinator.com/item?id=22366474)

------
urda
I'm 100% concerned that this post was AstroTurf'd to the front of HN given the
negative article posted against Lambda hours before. This managed to hustle up
in less than 15 minutes and kept climbing.

~~~
dang
I took a quick look at the early votes and they look legit to me. Several of
them came from people posting the article all at once, which converts into an
upvote of an existing submission if there already is one. Perhaps the presence
of the other thread contributed to this being particularly topical today.

Edit: a bit of confirming evidence is that most of those early voters voted
for both threads, i.e. this one and
[https://news.ycombinator.com/item?id=22366474](https://news.ycombinator.com/item?id=22366474).

~~~
urda
OK thanks for checking it out I feel a lot better about it then.

~~~
dang
In the future, it'd be helpful to email questions like this to
hn@ycombinator.com. The site guidelines ask you not to post about this in
threads, and also it's basically random whether we end up seeing it. An email
is nearly certain to get seen, and if we see it, we'll look into the issue and
get back to you.

[https://news.ycombinator.com/newsguidelines.html](https://news.ycombinator.com/newsguidelines.html)

~~~
urda
Will do, I had not thought of that.

------
taytus
Is Austen Allred the Elizabeth Holmes of coding bootcamps?

