Tiger Global Bets on Income Share Agreements in Education

Income-Share Agreements and the Rise of Blair

Income-share agreements, frequently referred to as ISAs, represent an innovative approach to addressing the substantial financial burdens associated with higher education. This financing model enables students to pursue learning opportunities without any initial tuition costs, with repayment occurring through a percentage of their future earnings over a defined period.

Challenges in Scaling the ISA Model

Despite gaining traction with numerous trade schools and bootcamps, implementing ISAs at a large scale presents significant hurdles. Underwriting the financial risk associated with a diverse student population requires substantial capital investment. Recent events, such as Lambda School’s restructuring and subsequent layoffs of 65 employees, underscore the difficulties inherent in this space.

Blair: Facilitating ISA Implementation for Universities

This is where Blair, a startup emerging from the Y Combinator program in 2019, offers a valuable solution. The company assists universities in financing and administering income-share agreements to their students.

Blair’s Dual-Service Structure

• Blair Capital: A capital arm secured with a $100 million debt facility.
• Blair Servicing: A services arm focused on managing the financial aspects of ISAs, recently bolstered with additional capital for expansion.

Recent Funding and Expansion Plans

Blair has recently secured $6.3 million in funding, led by Tiger Global. Additional investors include Rainfall and 468 Capital, alongside angel investors like Ankur Nagpal of Teachable and Sam Hodges of Vouch.

This new investment, combined with a prior $1.1 million pre-seed round, brings Blair’s total funding to $7.4 million.

CEO Mike Mahlkow stated that a significant portion of the funds will be allocated to expanding Blair’s San Francisco-based team, with a particular emphasis on engineering, product development, and key hires in finance, compliance, and service operations.

Diversity Considerations

Currently, Blair’s team of eight individuals is entirely male. This lack of gender diversity, even at an early stage, could potentially impact the company’s competitive edge, recruitment efforts, and overall performance. The company reports that 25 percent of its employees identify as LGBT, and 37.5% identify as non-white.

Evolution of Blair’s Business Model

Initially, Blair functioned as a platform to underwrite student loans that would be repaid through income-share agreements, functioning similarly to an Affirm for Education.

However, the company adapted its strategy following disruptions in the debt market in March of the previous year. Blair now concentrates on developing ISA programs for educational institutions and underwriting loans based on programs with established historical returns.

Blair’s Service Offerings

The majority of clients utilize Blair Servicing, an operating system designed for managing ISAs. However, a number of institutions also leverage Blair to finance the initial costs of offering ISAs, either by funding them directly or by selling them to Blair for upfront capital and eventual repayment.

Revenue Model

Blair Servicing receives a percentage of the income collected from an ISA once a student secures employment after graduation. Blair Capital charges a base fee in addition to a share of the ISA revenue.

Growth and Future Outlook

The company has reported a doubling of its customer base and a tripling of revenue since February. The investment from Tiger Global signifies confidence in Blair’s potential.

However, CEO Mahlkow emphasizes a commitment to sustainable and measured growth. Long-term, Blair envisions outcome-based financing extending beyond startup bootcamps to influence recruitment and workforce development across various industries. The company is currently exploring partnerships with sports organizations and large corporations focused on employee upskilling and reskilling initiatives. Recognizing the importance of incentives within the edtech sector, Blair aims to position itself as a key player as the industry gains increased attention.