An experiment to create an inexpensive pathway for students to attend prestigious, four-year universities ended up costing one company a lot of money. As a result, it has pivoted from its original mission and has been sold—at a fraction of the venture capital it raised.
Quad Learning, a company based in Washington, D.C. best known for its “American Honors” program, has been acquired by Wellspring International Education, a student recruitment firm for universities around the world. Educated Ventures, a Chicago-based investment and advisory firm in the education industry, helped facilitate the deal.
Terms of the transactions were not disclosed, although a source close to the deal described it as a distress sale, worth a “small fraction” of what Quad Learning had raised. Since its founding in 2012, the company had received more than $40 million in funding; about $35 million of it was raised as equity capital, and the rest in the form of convertible debt. Major investors in Quad include Comcast Ventures, New Enterprise Associates, SWaN & Legend Venture Partners and New Market Venture Partners.
Quad Learning’s original vision was to provide community-college students with a low-cost and academically-rigorous honors program designed to help them transfer to four-year institutions. The honors classes were taught by the community college faculty in consultation with Quad Learning’s instructional designers. These courses were initially delivered digitally, but after tepid reception to the online experience most schools taught them in a traditional class setting.
On top of offering an honors curriculum, Quad Learning also helped community colleges recruit students for the honors program. It also provided these students additional supports around housing, tutoring and transfer advisement.
For students, the most alluring part of the program was a commitment from Quad’s four-year college partners to enroll them, as long as they completed the honors program and met the academic requirements established by these schools. Graduates have been accepted into prestigious universities including Columbia, Cornell, Stanford and Vanderbilt.
Since 2012, roughly 6,000 students have enrolled in an American Honors program across eight community colleges and multi-college districts across Indiana, Michigan, New Jersey, Pennsylvania, Texas, and Washington state.
Preliminary findings from Columbia researchers found that 64 percent of the first cohort of students in 2012 graduated in two years. (By comparison, the national 2-year community college graduation rate hovers around 11 percent, according to federal data). Of these graduates, 92 percent of those who intended to transfer did so by the end of 2014, and 63 percent of them got into a top-100 university.
The Pivot
By 2016, one major problem was apparent: the model wasn’t financially sustainable. Providing recruiting, coaching, advising and instructional services required significant human resources capital.
“While the mission was fantastic, it was a very difficult process to actually make money out of it as a for-profit company,” said LeRoy Pingho, Quad Learning’s former CEO, in an interview with EdSurge.
According to a Columbia University report on the program, students taking the American Honors program paid, on average, 50 percent more in tuition than the normal rate charged by the community college. The tuition revenue was split 50-50 between the community college and the company.
A source close to the deal estimated that Quad Learning earned about $2,500 per student per year—a sum that did not cover the costs of operating the program and services. In other words, the company lost money on each student it worked with. The company also did not cross $5 million in revenue in any year.
Jason Palmer, a general partner at New Markets Venture Partners, which invested in Quad, believes the company scaled its operations too early, before fully understanding its profit margins.
“The company tried to do everything itself in providing coaching, technology, recruiting and other support services, rather than finding capital-efficient ways to take advantage of existing college services,” says Palmer. He believes Quad Learning was duplicating efforts community colleges were already offering, in areas such as college advising and tutoring.
By early 2017, according to Pingho, the company had decided to start winding down the American Honors program. “It was not a viable option for us as a for-profit institution.”
A sliver of the business seemed salvageable, however: recruiting international students, whom colleges can charge higher tuition. Pingho was brought on as CEO in December 2017 to lead this pivot.
Foreign students had not been a focus for the company; until 2015, overseas students never exceeded 200 enrollments, or 15 percent of the total. Under Pingho, these learners became the target market. Last year, the company recruited about 350 international students for its seven college clients, including the University of Arizona, he told EdSurge. That number was double the previous year, he added, a notable feat that he says bucks the trend of declining international student enrollments at U.S. higher-ed institutions.
As Quad Learning changed course, it has also rebranded its offering as American Success. It’s similar to its predecessor (American Honors) in that it is still focused on attracting students to community colleges. But there is much less focus on content and curriculum, and more of an emphasis on recruitment services.
By the summer of 2018, Pingho says Quad’s business and operations had been restructured in a way that was more financially attractive to buyers, and began looking for an acquirer in August. But making the transition came at a cost: Quad Learning cut its staff from a peak of 75 employees down to about 20 today. Most of the remaining staff work in recruiting roles, with a handful based in China, Taiwan and Vietnam.
Founded in 2013, Wellspring offers an online portal where users can search through a list of more than 12,000 academic programs across 200 institutions (mostly in the U.S.). Last year, the company helped enroll 446 student students, according to Wellspring’s CEO, Greg Shrader.
Wellspring currently has a lean staff of four who so far have been focused on building the technology behind its college-search platform. The addition of Quad Learning’s networks and staff, says Shrader, “offers us the the sales team and footprint in other countries that we think have been the missing link in our operations.” What Quad also brings, he adds, is experience and existing relationships in the community-college space—a new market for Wellspring.
New Market’s Palmer believes that had Quad remain focused on being the bridge between two-year and four-year institutions, the company’s prospects may look different today. “In the end, the transfer network was one of the most valuable assets of the company built, and it didn’t cost that much to build that network, relative to all the other services that the company was providing,” he says. Quad Learning, he adds, “was not a success from a venture capital return perspective, but it was successful from an academic one.”
