John Katzman, long-time education entrepreneur and founder of several successful education businesses, once waggishly told an investor conference audience that venture capitalists were very pleased to invest in education—for the rich. And in the market of companies tackling the infamous employment gap between willing workers and open jobs, this maxim appears correct.
According to Manpower’s annual labor shortage survey, 45 percent of U.S. businesses reported difficulty finding appropriately trained workers, up from 32 percent reported in 2015. And, per the survey, the shortages span the hiring spectrum from skilled trades to sales people, engineers to accounting and finance staff. Yet at the same time, would-be workers are leaving the labor force in droves, frustrated, economists believe, in part from difficulty in finding work. An historically low labor force participation rate of 63 percent in September 2017 represents nearly 100 million Americans neither employed, nor looking for work.
This dichotomy is not lost on investors. The collection of edtech companies aimed at prepping educated, but still underprepared workers represents a virtual stampede of unicorns. The likes of Coursera, Udacity, Udemy, MasterClass, Lynda, and Pluralsight have together raised more than $1 billion and represent combined enterprise value of more than $5 billion. And this is just online. There are also bootcamps, internship marketplaces, career placement technology companies, employment assessment companies, and dozens of other category-creating models aimed at paving the last mile between college and employment or otherwise providing retraining for those looking to change careers.
But there is another employment gap that is arguably far more pressing that receives much less attention from professional investors and budding entrepreneurs. This is the gap that exists among the 103 million Americans who do not have a college degree, but are in no less need of a bridge between their formal education and employment.
(Source: Sources: U.S. Census Bureau 2016; U.S. Bureau of Labor Statistics 2017; Tyton Partners analysis.)
Existing solutions for this population include government-sponsored job training programs, community colleges and private two- and four-year schools. But apart from concerns about poor completion rates and high loan defaults, the evidence suggests these solutions are ineffective relative to the size of the challenge. According to the Georgetown Center for Education and the Workforce, of the 7.2 million jobs lost in the 2008 recession, 5.6 million were held by workers with a high-school diploma or less. These workers recovered only 80,000, or 1 percent, of those job losses between 2010 and 2016.
Despite the acuity of the problem, there is a paucity of compelling consumer-oriented digital tools focused on meeting the education and employment needs of low-income, low-skilled workers. Research conducted by Tyton Partners, SRI Education, and MIT Media Labs revealed a lack of infrastructure and capacity currently to support digital tools for the adult education community. Solutions developed by socially-minded entrepreneurs for this market have had little success with existing commercial sources of venture capital—which, as Katzman wryly noted, is directed at more upscale targets. In fact, companies directed at supporting middle- to high-skilled white-collar workers have attracted more than three times the amount of funding as those companies directed at low-skilled, low-income workers.
N.B.: List is illustrative, not comprehensive. (Source: Tyton Partners)
But there is an encouraging end note to this story. Based on work conducted by Tyton Partners on their behalf, four foundations have pooled resources to form a social impact fund to support for-profit and not-for-profit companies aiming to serve low-skilled workers, their advocate organizations, and their prospective employers. (Note: Tyton has no financial ties or interest in this fund.)
Launched in September as an initiative of the New Venture Fund, the Employment Technology Fund (ETF) seeks to invest in enterprises that are working to remove barriers to employment and to enhance opportunities for millions of underemployed adults in the U.S. labor market who are otherwise unable to find meaningful or sustained employment. So far it’s supported two companies: Cell-Ed, a mobile tool used to train and engage frontline workers, and NorthStar, an online, self-guided digital literacy assessment widely used in Adult Basic Education, junior colleges, community-based nonprofits, libraries, and workforce centers.
ETF’s initial funders include The Joyce Foundation, W.K. Kellogg Foundation, The Rockefeller Foundation, and the Walmart Foundation. Their hope is that ETF can jumpstart and ultimately unplug a flow of commercial capital to fund the innovative ideas that this sector and population so sorely needs.
The dearth of tools focused on low-skilled workers is not particularly surprising: low wages and low stakes means there is less money on the part of employers or consumers to invest in bridging the skills gap. But the scale of the opportunity is promising and with philanthropic resources applied with an investors’ sensibility, perhaps the Katzman maxim can be upended.
