Arizona State Will Create a For-Profit Spinoff to Court Students in the Work Force

Arizona State University is creating a for-profit venture to promote its online programs to big employers. The venture will be majority-owned by the TPG Rise Fund, a $2.1-billion private-equity fund that until recently was headed by one of the financiers arrested last week by the Department of Justice in its wide-ranging admissions-bribery dragnet.

Although the financier, Bill McGlashan, is no longer head of the fund — he said he resigned last week; TPG said he was fired “for cause” — he may still stand to profit from the new ASU venture, if it takes off.

McGlashan, a self-styled voice of ethical investing in Silicon Valley, was accused of paying $50,000 to a fixer to help gain admission to the University of Southern California for his son by falsifying his test scores, and an additional $250,000 to create the false impression that he was a potential recruit for the football team, complete with a faked picture showing him as a kicker.

Arizona State’s new venture, which the university calls a “learning-services company,” will focus on developing partnerships with employers to attract more students to the ASU’s online programs, in the vein of its partnerships with Starbucks and Uber. The university is also looking for other research universities to join the venture.

ASU has not formally announced the creation of the as-yet-unnamed company. But after a Chronicle reporter learned of the deal, the university’s president, Michael M. Crow, described elements of it in an interview on Tuesday. The university had been planning an elaborate rollout of the venture in early April in San Diego at the ASU+GSV Summit, a glitzy gathering of thousands of investors, education-company officials, policy makers, and education leaders.

In creating the venture, ASU seeks an even bigger slice of the market for students whose tuition is paid in whole or in part by their employers, and better connections to that pool of students.

Tantalizing Prospects

The potential to reach students via their employers is tantalizing to many colleges, given that some 36 million adults in the work force have some college experience but no degree, and millions more have no higher-education experience at all.

Colleges are attracted to the employer-paid market in part because it reduces their cost of recruiting students. Employers are being hotly courted on a national scale by institutions like Purdue University Global, Southern New Hampshire University, Western Governors University, and the University of Maryland University College, which just announced plans to change its name to the University of Maryland Global Campus and spend $500 million over the next six years to to build its visibility with a less-confusing brand name.

A private company, Guild Education, has also been a prominent player in the market, having signed deals with Chipotle, Disney, Walmart, and others. It provides coaching to students and helps them enroll in a select set of colleges approved by the employer, in return for a share of tuition.

Crow said Arizona State had learned lessons from teaming up with corporations. The university’s deal with Starbucks, which now includes 8,000 degree-seeking students, has taught him that it’s difficult to create and sustain partnerships that fully meet the needs of employers and employees. It “costs a lot of money, money that we don’t have,” he said. The new services company, he added, will be the vehicle for Arizona State and other partners “to couple with corporations.”

The Arizona State venture, Crow said, would be distinct from competitors like Southern New Hampshire, Western Governors, and Guild because they are, or work in partnership with, what he called “teaching-only entities.” The ASU-Rise Fund venture will work only with universities with “research-grade faculty,” he said. Crow has written to several institutions about the deal, he said, but none has signed up yet.

Many of Arizona State’s online courses have technology enhancements to enrich the learning experience, he said; for this venture, the university was seeking out “only research universities that have elaborate online capabilities.”

Crow would not disclose the exact size of the Rise Fund’s investment, but he characterized it as in the “low tens of millions.” Two of the fund’s prior education investments — in the online-learning companies Everfi and Dreambox — were $150 million and $130 million, respectively. The Rise Fund will own a majority of the entity. Arizona State will hold a minority stake, and its ownership share could be diluted further, depending on the terms under which other institutions or investors join the venture, according to Crow.

The arrest of McGlashan was an unwelcome development for the deal. “We don’t know this guy Bill,” Crow said. “We’re glad that Bill is gone.”

‘No Involvement’

McGlashan was chief executive of the Rise Fund, which was begun in 2017 with much fanfare and pledges to invest around the world in social-impact companies working in agriculture, education, energy, infrastructure, and other fields. Well-known philanthropists and Silicon Valley figures are involved with the fund, including the rock star Bono; Laurene Powell Jobs, the owner of The Atlantic magazine and president of the Emerson Collective; and Reid Hoffman, chief executive of LinkedIn. Arne Duncan, the former U.S. secretary of education, and Richard C. Levin, the former president of Yale University, are senior advisers to the fund.

When social-impact funds invest, they don’t typically expect the same big-dollar returns on their money as do typical private-equity funds. The new ASU venture will also be incorporated as a certified “public-benefit corporation.” Such corporations have more legal flexibility to pursue business avenues that aren’t necessarily routes to the highest profit. Crow said the fund expects a “fair return” on its investment and “unbelievable social-impact outcomes.”

Admission Through the ‘Side Door’

Dozens of people, including famous actors, college coaches, and a university administrator, have been charged by federal prosecutors for their alleged roles in an admissions-bribery scheme involving Yale, Stanford, and other elite institutions.

• One Year After College-Admissions Scandal, 3 Questions About What (if Anything) Has Changed
• 5 Questions to Consider in the Wake of the Admissions Scandal
• The Bribery Scandal Revealed Holes in Admissions Oversight. Now Some Professors Want to Take Back That Role.

In a written statement to The Chronicle, TPG said the partnership had been established by its education-sector lead, John Rogers; Rise’s managing partner, Steve Ellis; and TPG’s co-chief executive, Jim Coulter. “Bill McGlashan had no involvement other than in his capacity as a member of Rise’s investment-review committee,” the statement says.

Whether McGlashan benefits from the venture depends on how TPG and he resolve the nature of his departure from the firm. Partners in private-equity funds typically retain stakes in investments made during their tenure, although the terms of their contracts may ultimately govern what happens if they leave. A spokesman for the Rise Fund said in a written statement that “the details of Bill’s separation are still being worked out, and we cannot comment at this time.”

William (Rick) Singer, the “fixer” in the admissions scandal, had reportedly been paid by more than 800 people as part of his wide-ranging fraud, many of whom learned of his services by word of mouth from friends and colleagues. In a statement released last week, two days after McGlashan was arrested, TPG officials said they had hired an outside counsel “to conduct a thorough and independent review to determine whether any other person or part of the firm has been tainted in any way by the misconduct of which Bill has been accused. At the present time, we do not believe that to be the case, but it is important for all of us to be certain.”

Goldie Blumenstyk writes about the intersection of business and higher education. Check out www.goldieblumenstyk.com for information on her book about the higher-education crisis; follow her on Twitter @GoldieStandard; or email her at goldie@chronicle.com.