Online coding bootcamp Lambda School just raised $74 million, even as it loses the ability to offer its controversial income share agreements in California
- The online coding bootcamp Lambda School announced a $74 million Series C round of funding, TechCrunch's Ingrid Lunden first reported Friday.
- Lambda School has also received approval to operate from the California Bureau for Private Postsecondary Education (BPPE), over a year after being fined and ordered to shut down by that agency.
- While Lambda School has been approved to operate, it cannot offer income share agreements to new California students.
Lambda School, an online coding bootcamp known for a financial model where students don't have to pay until they find a job, just announced a $74 million Series C round of funding on the heels of approval to continue operating in California — with a catch.
Lambda School, headquartered in San Francisco, was built on the promise of income share agreements, or ISAs, where students do not have to pay upfront tuition when they enroll in the coding bootcamp, which boosters say increases opportunity. The California Bureau for Private Postsecondary Education (BPPE), a state agency that regulates coding bootcamps and other types of schools, has approved Lambda to continue to operate in the state, a year after it fined it and ordered it to shut down (Lambda appealed and continue to operate). The caveat, though, is that Lambda School cannot offer ISAs to new California students, according to a blog post by CEO and cofounder Austen Allred on August 20.
On Friday, it announced it raised $74 million in equity in a Series C round led by Gigafund, with participation from GV (formerly Google Ventures), GGV, and Stripe, TechCrunch's Ingrid Lunden first reported.
Lambda School had faced some business uncertainty during the pandemic: In April, it laid off 19 employees, while members of the executive team, including Allred, took a 15% pay cut.
ISAs, which experts say are currently in a legal gray area, are a major selling point for Lambda School. If graduates land a job that pays over $50,000 within five years, they pay the school back 17% of their salary for two years, with a $30,000 cap. Students can also choose to pay an upfront tuition of $30,000, which was raised from $20,000 in January.
Now that new California students will not have the ISA option, Lambda School is offering new financing options that work similarly to the current ISA. However, the ISA contract doesn't expire after two years of payment or five years of deferment: Students will need to pay the $30,000 eventually, no matter what.
"Following a student complaint that lead to an initial citation for Lambda operating without approval, the Bureau determined that Lambda's operation was inconsistent with the Bureau's laws. Since that time, the Bureau has worked with the school to bring it into compliance. Regulatory approval ensures that institutions provide a quality education to students, in turn opening pathways to career opportunities and financial independence," the BPPE said in a statement.
Allred says even though the school currently can't offer ISAs to new California students, it plans to keep fighting for regulated ISAs.
"We needed to work with regulators to make the approval happen in the short-term, but I believe more strongly than ever that incentive-aligned financing options like ISAs are the most consumer-friendly option schools can offer," Allred said in a statement. "It's incredibly frustrating to have to take extra protections away from CA students at a time they need them most."
Previous trouble with Lambda School
It's the ISA that attracted many students to this school, with hopes of learning programming or user experience design and landing a high-paying job. However, former students previously told Business Insider that the school falls short of providing adequate training: They accused the school of having under-qualified instructors and an incomplete curriculum where students had to rely on teaching themselves from free, third-party resources. Many also said the program had a culture of fear, as students feared publicly criticizing the school and getting kicked out. At the time, Lambda School said it could not "respond to specific inquiries out of respect for privacy" but "appreciate the concerns of any and all of our students" and are "continuously aiming to be transparent on where we need improvement and the steps we are taking to address them."
Also, a May 2019 memo obtained by New York Magazine's Vincent Woo, said that Lambda School told investors that it's at a "roughly" 50% placement rate for students that are six months post-graduation, although Lambda School said the numbers were taken out of context. According to Lambda School's data, 22% of students withdraw from the program, and of those who graduated, 71% found jobs.
Last year, Lambda School received a $75,000 fine from the Bureau for Private Postsecondary Education for not registering properly with authorities, and the BPPE ordered it to cease operations and enrolling new students. Lambda School appealed this and continued to operate as it worked to obtain approval.
Below is the full statement from the BPPE:
The Bureau for Private Postsecondary Education has awarded Lambda School state approval to operate following Lambda's agreement to cease offering a loan structure known as an Income Share Agreement. As with all applications, the Bureau performed an individual review of Lambda's application, performing a case-specific analysis to determine whether Lambda comports with the Bureau's laws. Following a student complaint that lead to an initial citation for Lambda operating without approval, the Bureau determined that Lambda's operation was inconsistent with the Bureau's laws. Since that time, the Bureau has worked with the school to bring it into compliance. Regulatory approval ensures that institutions provide a quality education to students, in turn opening pathways to career opportunities and financial independence. As an approved institution, new and existing students are afforded all of the rights and protections offered by the Bureau and the state of California.
Below is the full statement from Allred:
"This is a big win for students in California. It was hard-won and took a huge amount of effort and time. It's a vote of confidence in our model, and comes at a time when more and more people are demanding alternatives to the status quo in higher education.
That said, we're disappointed this decision didn't include ISAs. We needed to work with regulators to make the approval happen in the short-term, but I believe more strongly than ever that incentive-aligned financing options like ISAs are the most consumer-friendly option schools can offer. It's incredibly frustrating to have to take extra protections away from CA students at a time they need them most. This isn't the endpoint -- the fight for regulated ISAs is ongoing and not something we're giving up on."
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