“When faced with a choice among colleges, go with the least expensive option,” Mark Cuban suggests. “Most 18-year-olds don’t know what they want to do with their life, nor do most 22-year-olds. Saddling graduates with high debt makes no sense.”
Before a panel with Keith Clougherty (CEO, Copley Retention Services) and Dr. Sara Goldrick Rab (Professor of educational policy studies and sociology, University of Wisconsin Madison) at the ASU+GSV Education Innovation Summit, Cuban shared with EdSurge his motivations for investing in the education space.
A savvy entrepreneur, Cuban has a history of getting in trouble with authorities for challenging rules that he doesn’t agree with and finds inefficient. Recently, he’s put money on several startups looking to shake up the higher education industry: Copley Retention Services, Ranku, Packback and Degreed.
“[Higher education] is a business that doesn’t know it’s going out of business,” says the graduate from Indiana University. “Colleges have been caught up with trying to keep up with the Jones’ instead of focusing on their customer. They’ve been too concerned with looking and sounding good instead of delivering a product.”
It’s no secret that universities spend millions on things that have nothing to do with student outcomes. Extreme examples can easily be found in the billions of dollars that top-tier sports programs spend to attract star athletes. (Cuban says he’s refused to fund an arena at his alma mater because he believes this is not what universities should be spending their money on--instead they should be focused on supporting student outcomes.)
Historically, Cuban says, colleges have catered to a particular segment of students who willingly pay full tuition for things like swanky cafeterias, climbing walls, and other amenities unrelated to educational outcomes. But he believes these students, “who will continue to get smarter about real value” will no longer be willing to pay for--let alone afford--such things.
“As the market begins to shift towards outcome-based [goals], colleges will have to change,” comments Cuban. Pushback against high tuitions from students and parents, along with increased scrutiny from the government (seen in efforts like President Obama’s proposed college ratings system), will force colleges to rethink what value they’re really bringing to the table--or go out of business. In five years, he expects some schools to close up shop and others to change their models radically.
Easy access to money for college is also part of the problem, he says. Cuban believes the industry is currently propped up by government loans which has skewed the higher education business model. Cuban would like to see loan limits capped at $10K.
Cuban admits that he’s not an expert in higher education, but his gut feeling tells him “it’s broken.” His investment decisions, he says, depend “on relationships with people he can trust.” And he only picks entrepreneurs who develop relationships with their first customers and build slowly, instead of focusing on raising capital too soon.
He is bearish on the proliferation of accelerators and incubators: “Entrepreneurs shouldn’t participate. These programs focus entrepreneurs on raising money and not on building a business.”
“Incubators can become an easy crutch that get in the way of the entrepreneur,” he adds, arguing that every entrepreneur has to find his or her own way rather than following templates that worked for other companies in the past.
His deals aren’t limited to the higher-ed space. On last Friday’s episode of the popular show, Shark Tank, Cuban committed $250K to Zoobean, an app that curates books and learning apps for children.
“I look for inflection points in the industry and I look for products that can scale,” he adds.
