Udacity’s Education Revolution
To our Valued Investors:
This week, if you will indulge me, I would like to start with a little storytelling of a somewhat personal nature (note the change from the first-person plural to the singular).
In 1990, after my college graduation, I immediately embarked on a career on the floor of the New York Stock Exchange. My employer was Henderson Brothers, Incorporated. Henderson Brothers was a “specialist firm”, charged with overseeing the fair and orderly execution of all trading in its designated securities. From the 9:30 opening bell to the 4:00 close, our job was to put buyers and sellers together, and to step in to buy when there was a lack of demand and sell when supply was thin. From my first day, I was spellbound by the excitement that permeated the “Big Board”, the commitment to professionalism that defined every NYSE community member, and the sense of true belonging that rose from the affability of every man and woman who called 11 Wall Street their home. The pay was great, too. At age 21, I was already envisioning myself at my retirement party, surrounded by my grandchildren, perhaps around 2050 or so.
In March of 2000, Henderson Brothers was acquired by another specialist firm called LaBranche & Company. The move to this much larger outfit would, I knew, mean some significant changes were on the horizon for me. Although I knew I would miss the comforting familiarity we all felt at Henderson Brothers, LaBranche would present great opportunities as it continued to expand its influence across the floor. At the time, it seemed that LaBranche was in a dogfight with rival Spear, Leeds, & Kellogg to become king of the hill, and I was energized by the renewed sense of corporate might and legitimacy. At the same time, though, some discouraging writing on the wall was gradually becoming clearer. LaBranche had conducted an IPO a few months before they bought Henderson, so the jaw-dropping amounts of money NYSE specialists routinely pulled in were no longer a secret. This became a catalyst to perfect the art of electronic market making. In what seemed to be the blink of an eye, computers were programmed to do my job millions of times faster and at a tiny fraction of the cost. It quickly became apparent that my retirement party fantasy would never become a reality.
After about a year of watching my friends being laid off left and right, I decided to move on while I was still standing. My first attempt at reinvention was with another NYSE firm, and it provided a few good years until I pivoted in an entirely different direction, in 2012. Still reacting to the effects of the 2008 credit crisis, jobs in finance were sparse, so I tried my hand at a variety of different gigs, including residential real estate and writing children’s books. I explored the possibility of buying into a food or exercise franchise so I could call myself an entrepreneur. None of these felt right, though, and none of them stirred in me the passion I had for the stock exchange. Without that kind of enthusiasm, I knew, I would have a hard time bringing home the kind of income that could support my family.
The uncertainty grew steadily until March 8, 2017, when I was approached about an investment in Palantir Technologies. At the time, I had never heard of Palantir, but it sounded intriguing to me. When I was later told that the company was privately held but I could still buy in before it went public, my attention was fully captured. I knew that my true calling had found me. For eighteen months, I learned everything I could about pre-IPO investment. In October 2018, I founded Iron Edge VC, which quickly began to evolve into the institution it is today. The combination of hard work, partnering with the best people in the industry, and a strong conviction for what we do has created something special. I don’t say this to be boastful or immodest; my partners, employees, and I are always cognizant of the abundant good fortune that brought us together. We know that we owe a huge debt of gratitude to our many faithful clients. We value the relationships we have found during this journey, and we look forward to watching them grow. For my part, I’m most thankful to have discovered something that easily rivals the NYSE in job satisfaction.
Sorry if I’m getting too mushy, but there is a point to all of this. Palantir, which had not too long before been a total mystery to me, became a prominent part of my life as it was by far the most popular investment in Iron Edge VC’s formative years. It made a lot of money for our investors. Similarly, we sold a great deal of Social Finance, Inc., and that one seems to be very much on track to bring home great returns when it goes public though a SPAC (see NYSE: IPOE) in the coming weeks. With Palantir and SoFi finally in the books, we have found many other opportunities, some of which have decidedly lower current valuations. We do not randomly pull companies out of the air, though. A lot of work goes into identifying which investments might have the greatest potential to make money for our clients. One such name is Udacity, Inc., headquartered in Emeryville, California.
One of the great benefits of dealing in a diverse stable of private companies is the requirement to conduct extensive research on them so I can fully understand the products we offer and so I can write captivating weekly newsletters on them. Udacity seized my interest in a very specific way, partly because my own career path reflects upon the company’s specific and very meaningful usefulness. Udacity falls into the education technology, or “edtech” category, providing Massive Open Online Courses (MOOCs). Their peers are familiar names like Udemy and Coursera, which also offer users the opportunity to learn from the comfort of any home with an internet connection. In a time when public gatherings are limited, the popularity of edtechs has exploded with more than 100% growth in the past year alone. When the Udacity opportunity came our way, I was eager to share the knowledge in a weekly email (Audacious for You, the Student, February 10, 2021).
What separates Udacity from the others is its extremely specific concentration on vocational instruction. Whereas Coursera’s offerings most closely resemble a liberal arts college’s curriculum and Udemy provides more casual classes on a wide range of topics from photography to French cooking, Udacity supplies its users with undistilled job skills. Its certifications, or “nanodegrees”, are the result of a laser focus on the skills that are truly sought out by prominent employers. Their content, in fact, is created through collaborations with companies like IBM, Google, Slack, and countless others. As an example, Udacity’s nanodegree in self-driving car engineering is sponsored by Mercedes-Benz, Uber, Nvidia, DiDi Chuxing, and McLaren Applied Technologies. These companies not only support Udacity’s program, but they also write the content with their own needs in mind. The nanodegree, then, equips the learner with precisely the knowledge needed to land a job at one of these companies. Instead of Greek Philosophy or How to Win at Chess, Udacity offers AI Machine Learning, Cloud Computing, and Data Science. In this regard, Udacity has a stronger and better-defined purpose than other edtechs. It cuts through the noise and gets straight to business by arming determined jobseekers with the skills and knowledge they need the most.
To bring it back to a personal level, Udacity immediately struck a chord with me because in between the two felicitous pillars of my long career in finance, I experienced a measure of rather unsettling ambivalence about how I would earn a good income. This is easy to admit because my story is by no means unique, and my path has led me right to where I belong. Had this not been the case, though, I am certain that I would be enthusiastically pursuing a Udacity nanodegree to augment my resume and to set the stage for rewarding employment in an emerging technology field. As automation rapidly changes the nature of what one needs to know in order to launch a prosperous career, Udacity responds by keeping its content at the very forefront of what’s most in demand.
At the beginning of this month, Coursera announced its intention to go public with an SEC S-1 filing. Udemy is in great demand, but share transfers in the second market are increasingly uncommon as company insiders and large private equity firms routinely exercise a Right of First Refusal (ROFR) clause to purchase the shares for themselves. This leaves Udacity, which we at Iron Edge VC presently have in inventory. It is reminiscent of a time, not long ago, when so many people were clamoring for access to Uber when it was still private. Those who took the time to consider Lyft discovered that the smaller company was trading at a much lower valuation. For this reason, Lyft went on to deliver better returns than Uber. At Iron Edge VC, we notice such things, and we always strive to use this kind of intel to benefit our investors.
Demand for pre-IPO ownership is starting to bubble up in Udacity, but it is still early enough in the game to beat the rush. If you would like to learn more, or if you know of anybody else who would, do not hesitate to contact us by clicking “Get in Touch” below.
If you have enjoyed this article, visit the Iron Edge Blog for past updates on other pre-IPO investment opportunities.
As always, shares are available on a first come, first served basis.
Paul Maguire, Managing Partner and The Iron Edge Team