EIEIO…Pickle in the Middle
Entrepreneurship, Innovation, Education, Impact, and Opportunity
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“I never let my schooling get in the way of my education.” – Mark Twain
“Children must be taught how to think, not what to think.” – Margaret Mead
“You think education is expensive, try ignorance.” – Derek Bok
“Early admissions programs tend to advantage the advantaged.” – Derek Bok
For much of the past century, it’s been a given that going to college and getting a degree was a “no brainer.” The direct correlation between the level of education attainment and income was as absolute as Newton’s Law of Gravity.
The lifetime income gap between a High School grad and a College grad is over $1 million. Back in the days when college and universities cost $30K all in, that was a pretty compelling investment.
With the cost of higher education increasing 3.5X inflation over the past 50 years, the average ticket price for a degree has risen to ~$105k for a public university and ~$225k for a private college. Elite universities are pushing $400,000 for a four-year degree.
In the 1980s, there was a popular concept that turned the life insurance business on its head. Instead of forcing everyone to buy expensive “whole life” insurance policies, a new offering was introduced that allowed people to “buy term insurance and invest the difference.” The idea was that if you took the money saved from buying the dramatically cheaper term policy and invested the difference of what it would cost for the expensive whole-life policy, you’d have far more capital in your account over time with any reasonable return.
Using that same logic, if one decided to forego college and instead invested the $200k they saved in tuition into the S&P 500, a 10% annual return over the course of 50 years would turn that $200k into $23.5 million. That’s the math.
Would-be students are starting to realize that the ROI of college doesn’t look as good when you compare it to alternatives. This shifting cost-benefit analysis is reflected in public sentiment.
In 2011, 86% of people polled said that “College is Worth it.” In 2023, that number dropped to 42%. In a 2017 poll of Gen Z asking “Where does college rank in your top 50 priorities?”, it was #3. In 2023, it was #47.
Wow.
This shift in attitudes is dramatic and is a screaming signal that a very important change is taking place.
There are many, many reasons for this newfound disillusionment among young people with regard to higher education.
Historically, to get the top jobs you needed the top degrees. Effectively, the Admissions Director at Harvard was the Hiring Manager at Google. Elite professions were gatekept and elite diplomas were golden tickets. That is no longer the case.
Skills and experiences are becoming more valued than degree pedigree. CBS News covered this shift in December: “In 2023, the share of jobs on hiring platform ZipRecruiter that listed a bachelor's degree as a requirement dropped to 14.5%, from 18% in 2022. . .The opposite trend played out during The Great Recession in the late 2000s, when the share of job postings requiring a bachelor's degree rose from 12% to 20%, according to ZipRecruiter.”
In the old model, you’d learn for four years and then you’d earn for forty years. This has been upended by the pace you need to update your skills to keep up with how quickly the World’s changing. It used to be, you’d drive off campus after you received your diploma and it continued to appreciate in value like a house. Now, it’s more like a car that when you drive it off the lot – it drops in value.
The only way that changes is to adopt the Tesla model where every two weeks or so, new software is downloaded into your car so it stays current and/or gets better. With education, you no longer are going to be able to fill up your “knowledge tank” to age 25 and drive off through life...you are going to be continually needing to add gas so you don’t get left in the dust.
Legacy Admissions and Grade Inflation: The Jig is (Almost) Up
As we are looking to form a more perfect union, a clear absurdity is the legacy policy at many elite schools. As President Biden said, the Ivy League is “River to Power.” Despite the 400 years of evidence to back this up, we are skeptical that this will remain true in the future. What is clear, however, is that legacy-driven admissions are unfair, and the data shows it.
For example, if you are just a regular old alumni, your child has a 3x greater probability of being admitted. If you’re a legacy applicant from a family in the top .1% of US earners, you’re 7x more likely to get in. Your future should not be determined by how well you selected your parents.
Hats off to Virginia Governor Glenn Youngkin, who is leading the way on erasing the “Legacy” input from admissions from the state’s public universities and colleges. Colorado passed legislation akin to this in 2021, and similar bills are being considered in Massachusetts and Connecticut.
In Lake Wobegon, the fictional town in my home state of Minnesota created by Garrison Keillor, all students were above average. At Harvard and Yale, all students statistically are exceptional. The median grade at these schools is 3.8.
While some would say that this is a victimless crime, inflation makes assets less valuable over time and grade inflation works the same way.
Campus Politics: From Progressive to Regressive
College campuses have been a place where students speak truth to power for as long as they’ve existed in the United States (Remember Harvard’s “Butter Rebellion” in 1766?”)…at least what they think is the truth. Protesting the ills of society is part of the college experience.
Many of us were shocked seeing polls where people aged 18-24 were essentially 50/50 split between siding with Israel or Hamas after the terrorism on October 7th.
While that’s troubling to me, I appreciate others have a different point of view and that’s their right in America. What’s most disturbing is when people get harassed, intimidated, and canceled if their opinions don’t confer with the masses. The message heard over and over is that students who don’t agree with the “right” point of view are afraid to speak out because they are scared for their safety and future.
Some kids still want to go to university to simply be students, not full-time activists.
The Trades Grow Evermore Enticing
In roughly 15 years, we have witnessed the shift from “college for all” to “college at all?”
More young people are now gravitating towards trades and vocations as opposed to pursuing traditional higher education. While there is widespread discussion about the potential for AI to replace jobs in sectors like accounting, software engineering, and copywriting, most skilled blue-collar jobs are far less vulnerable to automation.
The appeal of trade schools is heightened by their efficiency; many programs can be completed in under a year, allowing students to quickly enter the workforce. The hands-on nature of these careers also provides a sense of accomplishment and purpose to those who enjoy building and crafting with their own hands.
Moreover, the prospect of starting a career free from the burden of student debt is particularly enticing. Coupled with the current extreme worker shortages, young tradespeople often command higher starting salaries and have the potential to reach six-figure incomes by the time they turn 30.
It’s about knowledge, not college. What you know, not where you go.
Competency-based education at places like Western Governor’s University is a beloved model that more schools need to follow. WGU’s President Scott Pulsipher explained this philosophy on Ed on the Edge in January:
Employers are increasingly taking a similar stance. For example, in the U.S., LinkedIn saw a 21% increase in job postings advertising skills and responsibilities instead of qualifications from 2022-2023.
This approach expands the talent pool, increasing the chances of a successful hire (and studies have shown that bad hires can cost companies anywhere from 5x to 27x the total salary of the hire). Talent is everywhere, opportunity is not. Old-school bosses who have filtered candidate pools down to only review applications from elite schools would be wise to change their ways.
Higher Ed & Non-traditional Students: A Design Mismatch
40% of US college students have full-time jobs, and 25% have children. The “traditional” college student….18 to 22 years old, full-time student…is actually the minority with 72% being “non-traditional.”
That said, most universities and colleges are set up for traditional students…classes during the day, offered at a specific time, twice a year. Beautiful dormitories, state-of-the-art fitness centers, a football team, and a spirited marching band are all irrelevant to the majority of the student population.
Somewhere along the line, we’ve lost the plot. Long gone are the days of college students struggling to get by on crappy cafeteria food. The Arms Race of universities trying to out-country club each other has reached a level of Mutually Assured Destruction. Contemplate this: University of Kentucky spent almost a million dollars a day for new facilities over the past decade.
Old habits die hard, and many institutions have a two-pack-a-day addiction that’s enabled by doing things the way they’ve always been done. Raising money for buildings, tapping into Title IV funding, closed systems for classes and credit, and no recourse for a degree that isn’t worth what you paid for it.
The digital disruption combined with the AI Revolution is going to accelerate the structural challenges for the 4,500 colleges and universities that exist in the United States. The undeniable dissatisfaction from the core customer (the student) along with the unmet needs from a derivative customer (the employer) is putting fuel on the fire.
In true “Innovator’s Dilemma” fashion, the most successful schools today are the ones most likely to try to protect the old model. This is partially because they have the resources to wait it out. The top 20 Elite schools are just 1% of the overall student population but have 45% of the endowment assets, a staggering $333 billion.
To be clear, this missive isn’t predicting the end of higher education…I actually think the future is bigger and brighter than ever. However, to participate in this massive opportunity, learning institutions and their constituents need to reimagine the offering and be an engine for society to thrive.
Next week, we will provide our map on how to accomplish this.
Market Performance
Market Commentary
The earthquake that shook NYC last week was minor compared to the continued problems with Tesla which reported a major miss in cars delivered in Q1 with its stock now off 34% YTD. Elon’s net worth has now fallen below his rival Zuck whose stock rose again last week.
Overall, the market fell with the Dow off 2.3%, the S&P declined 1% and NASDAQ was down .8%. Uncertainties associated with the presumed Federal Reserve rate cut in June was generally identified as the culprit. The reason the Market got nervous was the unexpectedly strong jobs report which had over 300K new jobs created in March…only Wall Street looks at good news like bad news.
Also falling was Venture Capital funding in the first quarter which was $36.6 billion invested in 2,882 companies according to Pitchbook. This was almost a 30% decline from the first quarter last year.
Oil rose last week to over $90 a barrel. Also rising last week was fast food workers' minimum wage in California to $20 an hour…stay tuned to the domino effect where already, one of the first casualties was pizza deliverers.
Earnings season kicks off this week which will be a catalyst up or down for stocks. Forecasts are for a modest 3.2% EPS growth but expectations are always higher, so to not be viewed as disappointing, the reported results will need to be at least 5% higher.
The S&P 500 has gained 25% since October and now sells at 20X twelve month forward earnings projections. NASDAQ has an even bigger rise at increasing XXX although much of that was driven by the so-called “Magnificent 7”. The pause we’ve experienced recently in stock ascension is to be expected and healthy for our longer-term outlook. We remain BULLISH.
Maggie Moe’s GSV Weekly Rap
GSV Model Portfolio
Need to Know
READ: This Message Will Self-Destruct in 33 Seconds by @ttunguz
LISTEN: Interview with Dan Davidowitz of Polen Capital
WATCH: #41: Is AI Killing Media?
READ: The AI Research Analyst
WATCH: The AI opportunity: Sequoia Capital's AI Ascent 2024 opening remarks
LISTEN: Christoper Tsai on Investing in an Age of Disruption
GSV’s Four I’s of Investor Sentiment
GSV tracks four primary indicators of investor sentiment: inflows and outflows of mutual funds and ETFs, IPO activity, interest rates, and inflation. Here’s how these four signals performed last week:
#1: Inflows and Outflows for Mutual Funds & ETFs
Source: X
#2: IPO Market
Source: Renaissance Capital
#3: Interest Rates
Source: Kalshi
#4: Inflation
Source: Charlie Bilello
Chart of the Week
Chuckles of the Week
I Survived the Quake of April 5, 2024
EIEIO…Fast Facts
Entrepreneurship: 15% - increase in New founders in Q1 2024 vs Q1 2023 (Live Data Technologies /
)Innovation: At least 3 - High-level Meta AI employees that have departed the company in the past several weeks to “strike it out on their own” (Yahoo! Finance)
Education: 47% – portion of the world’s top AI researchers that earned undergraduate degrees in China (NYT)
Impact: 25% – percent of Gen Z that said they’ll need a therapist to deal with tax filing stress (CNBC)
Opportunity: 21,300 – number of 5+ unit apartment buildings granted in Austin in 2023, more than LA and SF combined (CoStar)
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Connecting the Dots & EIEIO…
Old MacDonald had a farm, EIEIO. New MacDonald has a Startup….EIEIO: Entrepreneurship, Innovation, Education, Impact and Opportunity. Accordingly, we focus on these key areas of the future.
One of the core goals of GSV is to connect the dots around EIEIO and provide perspective on where things are going and why. If you like this, please forward to your friends. Onward!
Make Your Dash Count!
-MM
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