student_readingWhen I knew we were doing a section on education, I knew I needed to get in touch with Phil Bronner. The last time we spoke, Bronner was a partner at Novak Biddle, one of the few venture firms dedicated to investing in online education — including the time when it used to be hot, the time when it was so not, and now that it’s becoming hot again. Bronner was always a go-to source for a sector that people tend to flit in and out of.

Apparently, he got tired of watching. In 2011, Bronner downshifted from general partner to venture partner in order to co-found American Honors College, a company that creates an honors program at community colleges to help ease students into four-year universities — and get them out into the world with far cheaper degrees. It’s raised $11 million to date from Novak Biddle, NEA, and others.

Bronner has looked at the various problems with education from a lot of angles. But to him, the biggest immediate problem is college affordability. And while there aren’t any easy solutions, he was sick of the endless debate. Someone needed to do something to actually help kids graduating from high school now.

I caught up with Bronner to talk about life on the entrepreneur side of the table, and why so many VCs talk about the need for more innovation around education but ultimately do so little about it.

So you had a comfortable life as a VC. Why make the jump?

I wasn’t planning to found a company, but I was focused on the college affordability problem. I was looking at all these companies out there, and there is fantastic work going on, but they are not focused on saving money for students today. I wanted to help a student graduating from high school today graduate from college with less debt in four years.

So your program focuses on getting students a better education and guidance out of community colleges, so they can then transition into four year institutions. By doing this two years in community college and two years in university pathway, how much can they actually save?

It depends, but most can save between 30 and 40 percent of the cost of a typical four-year education. A public university can cost between $8,000 and $15,000 per year, and out of state public tuition is closer to $30,000 to $60,000 all in. Private can be even higher. A community college is between $2,000 and $5,000. Our price point is between in state public and a community college. So the first two years of this program, students can save a lot of money.

How do four year institutions feel about it? 

They see the same thing we all see: The price of a four year degree for a middle/upper income and lower income students is extremely high. The 80th percentile in this country makes $150,000 in income, and paying $40,000 or more for college — especially with multiple kids — is extremely high even for them. Universities are all trying to find more affordable pathways for students. They are starting to think about forming relationships with community colleges. But there are 1,100 community colleges out there and it’s hard to figure out.

Private colleges and universities are just starting to dabble in these relationships as well. Many of them have relationships with community college close to them, and they’re looking to broaden that to community colleges out of state.

Isn’t there still a stigma to community college? Particularly when it comes to private universities? 

Clearly there is still a stigma. But more high quality students are starting out there. There are a couple of perfect math SAT students and valedictorians in our programs. The quality of students is going way up because of the shift in price point. These colleges need to figure out a solution for that.

The stigma still exists with faculty and administration, but they are more open than they have been in the past. There are those who really see their colleges as a four year experience, but if that experience costs more than $200,000 there just are not many people win this country who can pay that. Schools are being forced to think about other pathways for students.

The first two years are typically full of classes with large lecture halls with material that’s taught plenty of other places. It’s the second two years where colleges and universities really differentiate. Schools need to think about bifurcating between those first two and last two years. California has already been doing this for years, because it had to.

This is a sector that VCs talk about investing more money in, but are we really seeing more of them invest?

Higher education is a large segment of our GDP that is going through a significant transition, so a lot of VCs are looking at this space. This is really a true inflection point. A lot of folks are interested, some have been active for a long time, and others are seeing the change in the higher education market and are saying they want to be a part of it. But when you start spending a lot of time in the education spaces, you find that there’s a complicated regulatory backdrop. People initially have high interest in this space and then they start to understand the nuances and they start taking more time to really find the right opportunity.

The way I’ve seen the cycle, people are initially enamored, they spend more time looking at it, and then they get cold feet. I assume we’ll continue to see more investment though as as folks do initial deals and start to get their sea legs.

Who is actively investing? 

Well, there is my old firm, and some private equity firms like Warburg Pincus and Sterling Partners. Then some of the venture guys like Bessemer that have been in it for a while, along with NEA, which has been active over the last five to ten years. The Carlyle Group has been in it for a while. On the West Coast, Benchmark, Accel, and others are starting to look at it.

I think there’s a lot of opportunity. It’s such an important issue for this country, and I think the private sector can play an important role it. More people are open to that now than they ever have been before.

I get that it’s a big chunk of the GDP, and it’s important. But given some of the challenges, is it really a venture style opportunity? 

Venture capital is all about great businesses being built by solving big, huge, hairy problems. $500 billion is spent on higher education every year. There are big dollars being spent there. And you have a price point now that’s unattainable — and it’s growing. Everyone in the market now knows this. And I think it’ll be challenging for them to disrupt themselves. They are open to partnering with folks who have a different scale and lens on the problem. Those dynamics tend to lead to great businesses.

We are seeing interesting stuff from Coursera and others. There are dozens of colleges offering free courses online right now. Schools wouldn’t have just done this if they didn’t realize there was a problem. It shows how open they are.

We keep talking about the opportunities around higher education, but there are also huge problems in K-12. Why not focus on them? 

The big difference between higher education and K-12 is that the purchaser is the government, when it comes to K-12, and with higher education the purchaser is the consumer. That’s a fundamentally different dynamic — from a purchasing perspective and a political perspective.

You’ve been investing in this space for a long time. What’s been the biggest disappointment? 

For me, it’s still K-12. It’s just really, really difficult to build a large business in the K-12 sector. The purchaser is the state government, and it’s just a Byzantine purchase process. There are a number of interesting, innovative businesses, but they are really, really difficult to scale. It’s disappointing. 

Given your passion around education and how few VCs are really committed to this space, did you wrestle at all with where you’d add the most value — as an investor or an entrepreneur? 

For me, founding a company isn’t really a rational decision. You are just so passionate that you have to do it. That’s what this was like. This issue of college affordability was just one that I couldn’t not do something about. I have never worked harder or been more stressed in my life, but it’s the happiest I’ve ever been professionally.

You hear the stats that college tuition has increased at three times the rate of inflation over the past 25 years, but most people who aren’t faced with it don’t really think about what that means. This is not just a problem for low-income families — $60,000 a year is a lot of money for anyone. When you start talking to families who have seniors and juniors in high school, you realize how big this problem is. These families didn’t necessarily see this issue coming, and a lot of folks think if a student gets a 4.0 they’ll find a way to go to a good school. It’s just not the case. It’s hard to wrap your arms around the economics of the issues, if you are removed from the problem.

Families don’t want to let these kids down. That kid with a 4.0 has worked so hard, and they always felt like their reward was going to a real great school. They’ve spent their whole lives working hard to get into a great school. Once you see how big this problem is, it’s hard not to try to do something about it.

[Image courtesy Greenmonster]