Washington Monthly - September/October 2012 - (Page 39)

here. Less than a year out of Amherst with nothing but a few iPhone screen captures and Parker can walk into a room full of money and get the money’s attention. You can’t ask for more than that. As we’re wrapping up the meeting, suddenly everyone starts fiddling with their white iPhones at once. “Facebook just bought Instagram for $1 billion,” Michael says. This is, in many ways, local news. Lots of people here know the Instagram guys, have run into them at parties, or have otherwise overlapped circles in the small valley world. So it’s slightly vertiginous to wake up the next morning and see the story of how the creators of an iPhone photo-sharing app struck it rich above the fold on the free copy of USA Today the hotel leaves in front of my door. Instagram comes up in nearly every meeting I attend for the next three days. ack in San Francisco, we meet Ben Nelson, founder and president of the richly funded but still entirely theoretical Minerva Project. Michael and I meet him at an Asian restaurant in the hip SoMa (South of Market Street) district of San Francisco. Nelson is wearing another black fleece zip-up jacket. He’s half a generation older than most of the start-up people I talk to—meaning late thirties— and spent more than five years as the CEO of the photosharing company Snapfish. Minerva made news in the valley the week before by getting $25 million in start-up funding from Benchmark Capital, the single biggest seed investment the firm, whose past investments include eBay, Twitter, and Instagram, had ever made. Since nobody gives away all or even most of their equity in exchange for initial seed funding, $25 million implies a substantially larger total valuation. Since these negotiations are essentially speculative and tend to involve round numbers (see: Instagram, $1 billion), $100 million is not a bad guess. Minerva sprang from Nelson’s observation that higher education was increasingly a realm of mismatched supply and demand. Recent decades have been generally peaceful and prosperous on planet Earth. There are a lot more people with the desire and ability to pay for higher education than there used to be. Elite American schools are the unchallenged market leaders, which is why applications to Harvard have increased by double digits annually for years, with growing demand from China and other fast-developing economies. In response to this surge in demand for its product, Harvard has done the following: absolutely nothing. It B hasn’t expanded the size of its freshman class by a single student in the last twenty years. With a few exceptions, this is true for all elite American schools. They don’t have to get bigger, they don’t want to get bigger, and, anchored as they are to immovable physical places, they can’t get bigger in any meaningful or not absurdly expensive way. Yale, one of the exceptions, is currently in the process of expanding its undergraduate enrollment by 15 percent, or about 800 students. This involves building two new “colleges,” the rectangular gothic buildings in which Yale undergraduates live and study, at a cost of more than $600 million—or twenty-four times what Minerva got in seed money, an amount that was repeatedly described to me as shockingly large. Minerva is designed to soak up this growing excess demand. Nelson plans to signal elite status through a combination of rigorous admissions standards and a nail-tough academic curriculum. While the courses will be conducted primarily online, students will live together in shared housing units in cities around the world. They’ll start in their home country and then rotate to different cities in later years, finishing with a capstone project in their chosen major. Nelson figures this can be done for less than half of what Ivies charge students, and that if Minerva ends up with a student body of 10,000 undergraduates it will be a financial success. In many ways the plausibility of Minerva comes down to a pure numbers game. The world is very big, and the number of students served by elite American schools is very small. They turn down nine out of ten potential customers now, and the number of global aspirants is only starting to grow. Nelson expects that 90 percent of Minerva students won’t be American. Even with the inevitable discount applied to newness and online-ness, even with a high bar to get admitted and a second high bar to graduate, at some point the sheer weight of numbers solves everything. Ten thousand is a small amount in a world of seven billion people. Indeed, scale is the oxygen feeding the combustible mix of money, ambition, and technology-driven transformation in the valley. Low margins, uncertain business models, limited marketing budgets—all of these limitations and more can be overcome by scale. And the rapid growth of mobile telecommunications technology means that the Washington Monthly 39

Washington Monthly - September/October 2012

Table of Contents for the Digital Edition of Washington Monthly - September/October 2012