Summer's Over

new beginnings

Every fall, students around the world journey back to campus in pursuit of their degree. The fresh academic year marks a time of opportunity, a time of excitement.

College costs skyrocketing in the past decades is nothing new. But the numbers still have a level of shock value when exposed.

The most expensive college in the U.S., Northwestern University, costs $94,878 to attend.

Other schools such as Yale, UPenn, USC, and Pepperdine are not far behind

Costs for a top-tier private school education generally escalate 3-6% per year, and schools like Northwestern are on track for $120K+ per year by 2030.

There is a market for overpriced higher education, both now and in the future, but the next decade will see a breakthrough in the form of alternative education for specific subsets of individuals.

the thiel experiment

The Thiel Fellowship welcomed their 14th inaugural class earlier this year, a group of 20 would-be college students who are getting paid $100,000 over two years to found a startup

Here’s how the story started.

In 2011, Jim O’Neill, Peter Thiel, Jonathan Cain, and Luke Nosek are on a flight from New York back to San Francisco. All four were working on the Thiel Foundation at the time, which was focused on supporting other nonprofits such as the Committee to protect journalists.

So they’re on this long cross country plane ride and the conversation turns to why innovation was slowing down. Thiel goes on a rant about how in the 1970s, the smartest young people wanted to become doctors, in the 80s, they became lawyers, and in the 90s they went to Wall Street. Sky high tuition and student debt forced would-be innovators into defined careers.

Four lightbulbs went off and the guys realized a potential solution.

They landed in San Francisco and announced the Thiel Fellowship to the world less than 24 hours later.

The first calls were to Danielle Strachman and Michael Gibson, both educators who impressed the Thiel Foundation at Ephemerisle.

What is Ephemerisle?

Known as “Burning Man on boats”. An annual week long gathering on the Sacramento Delta River in July. Has no tickets or central leadership. The only rule is “no dying”.

Michael and Danielle helped the team design an application around open ended questions

What truth does the world overlook or deny?

The last step was tapping their networks to produce a group of 100+ mentors for filtering out initial applications and selecting fifty finalists.

Finalists would then be cut down to 20 - 25 Fellows, hand selected by Peter Thiel, Jim O’Neill, Danielle Strachman, Michael Gibson, Deepali Roy, and Jonathan Cain.

Originally dubbed 20 under 20, the initiative generated widespread controversy from educators and press.

In 2013, former Harvard President Larry Summers declared “I think the most misdirected bit of philanthropy in this decade is Peter Thiel’s special program to bribe people to drop out of college.”

For those not familiar with Mr. Summers:

• President Obama’s Chief Economic Advisor

• made $5.2M a year working one day per week as a consultant to DE Shaw

• OpenAI board member

• wrong about Thiel Fellows

Safe to say criticism of the program has not aged well.

Thiel Fellows have founded nearly a dozen unicorns to date:

• Vitalik Buterin, Ethereum founder ($270B)

• Lucy Guo, Scale AI founder ($13.8B)

• Dylan Fields, Figma founder ($12.5B)

• Robert Habermeier, Polkadot founder ($6B)

• Ritesh Agarwal, Oyo Rooms founder ($2.5B)

• Sean Henry, Stord founder ($1.3B)

Fellows have collectively founded companies worth more than $400B in value

The system is not without its flaws. As critics point out, the vast majority of individuals under the age of twenty need more education before contributing to society through entrepreneurship. Thiel Fellows benefit from having a very small class of individuals, which gives them direct access to a powerful network of Silicon Valley execs and VCs, which means that at least one outlier student every year will produce an outlier outcome.

Many Thiel Fellows are already on the path to success considering the program’s 0.1% acceptance rate; the roughly two dozen kids are curated from a global assortment of abnormally ambitious applicants.

Another problem is the necessity of elongated, traditional education for students in the sciences, law, and engineering fields. It’s hard to get behind the idea of an alternate version of medical school; certain professions demand many hours in the classroom. Finance, econ, comp sci majors would generally be the target for alternative education structures

The most interesting part of the experiment is how it started the conversation around higher education. Who is willing to create value when such an large gap exists?

the hoop experiment

Quick crossover from the class to the court

In 2016, Overtime was founded with an early investment from former NBA commissioner David Stern. Overtime made connections with young prospects by building a media presence in high school gyms across the country, where filming rights are free.

By moving downstream, the brand was able to hitch its wagon to young up and coming prospects like Zion Williamson and Jalen Green. For free

The brand amassed 3.6M followers on Instagram by 2020, picking up checks from Spark Capital, a16z, and Kevin Durant as well.

In 2021, Overtime launched the Overtime Elite (OTE) league

• a league for 16-20 year old prospects, paying a minimum of $100,000 / year + $100,000 in scholarship money

• initial brand partners included State Farm and Gatorade

• initial $80M funding round from Jeff Bezos, Alexis Ohanian, Drake, Trae Young, and Devin Booker

• brought Overtime’s total capital raised to $140M

OTE has seen plenty of success, including notable NBA draft picks:

• Amen Thompson (2023, 4th pick)

• Ausar Thompson (2023, 5th pick)

• Rob Dillingham (2024, 8th pick)

Shortly after the launch of OTE, the NCAA approved the name, image, and likeness policy, allowing athletes to monetize their brands.

Overtime was last valued at $500M in 2022 and has raised $250M to date.

The key learning here is that Overtime recognized that players were the assets. Without the players, there is no value. Coaches, managers, and staff bring tons of value when high level players are there. So Overtime created a model where players can capture value earlier on in their careers, and a positive feedback loop occurred.

Without college students, there is no college. Of course, teachers are the driver for value and get compensated as a result. But if students decide to forgo college for an alternative, the college cannot function. Students pay for tuition and help build the college’s prestige / brand post-graduation, so that in the future, smarter students choose that school.

Key difference between academics and a sport like basketball is the ability to monetize: OTE is able to sign a media rights deal with Amazon Prime because people enjoy watching kids fly towards the rim. As it stands, higher education pays off over a more long term horizon and overcoming this barrier will prove difficult, but not impossible.

the apprentice

On the topic of alternative education, it is useful to bring the apprenticeship model into focus.

The apprenticeship model was developed in the Middle Ages, first recorded in the 12th century. Parents would send their teenagers to learn a trade from a skilled craftsman, who would then nurture the apprentice in all things trade related. Depending on the occupation, parents sometimes paid “premiums” to the master craftsman.

In addition to the skills learning, apprentices benefited from having a personal relationship with a respected craftsman, similar to how entrepreneurs today benefit from a mentor.

When Warren Buffett graduated from Columbia Business School, he had an offer to join a firm on Wall Street but instead asked his mentor and professor, Ben Graham, if he could work under him for free.

Graham said no.

After more than a year of sending handwritten letters to Graham, Buffett got the job; he worked alongside Ben in NYC for 2 years, making $12,000 per annum.

Graham retired in 1956, and Buffett moved back to Omaha to start his own fund. Many of Buffett’s early clients were Graham’s old clients.

An apprenticeship model allows for a level of intimacy that internships cannot match. Tweaking and scaling this model to make high value apprenticeships a reality for future risktakers could make for a great business.

The most transformative education-focused startups of the next decade will address issues of rising college costs and early career dissatisfaction.

Make no mistake, there are numerous obstacles that lie in the way

• Credentialism: higher education thrives on the demand for credentials from parents/students. Jobs reinforce the feedback loop. One of the reasons why solutions must be tailored for high-performing risktakers at first

• Scalability: it’s hard to scale intimate learning environments, look to massive open online courses (MOOCs) as proof. Scalable solutions win the arms race

• Red Tape: higher education is a $190B market with significant lobbying resources.

Nonetheless, extraordinary riches await the founders that figure out how to navigate these issues and educate America’s next innovators.

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Headlines

• Thoma Bravo founder vows to never touch crypto again after FTX failure. CNBC article here

• Oaktree calls out Advent and Silver Lake over failed startup. FT article here

• European VC Atomico closes $1.24B across two funds for early and growth stage startups. TC article here

• NBA’s Orlando Magic join Lead One fund as a venture partner. Sportico article here