Noodle Partners Raises $16 Million to Help Colleges Build Online Programs

June 9th, 2020

Tony Wan

Among those closely following college reopening plans: education technology providers that work with higher-ed institutions to build online degree programs.

Companies like Noodle Partners say the pandemic has significantly accelerated interest in its services, as universities prepare for a scenario where remote learning remains the only option. To assist in that effort, the New York-based company has raised $16 million in a Series B round led by ValueAct Spring Fund, and joined by Lumina Foundation and existing investors.

Noodle’s approach resembles something like a general contractor. It evaluates what a college needs to start an online program, and decides which services Noodle can provide, and which ones to outsource to a third-party provider. In some cases, says Noodle Partners CEO John Katzman, colleges already have experience in areas like online instructional design and would not need to pay for such services.

That approach is a recognition that universities are increasingly developing their own expertise in building online classes and courses, says Katzman. That was less the case in 2008, when he started 2U, one of the major OPM companies in the market today—and one that he now actively competes with. (2U, which offers more of a full-suite service approach, recently raised a big tranche of cash itself—about $380 million—in convertible debt financing.)

These days, most colleges still need help with non-instructional elements, such as marketing. Noodle contracts with nearly 100 third-party companies that offer services from student recruiting and marketing to content management and course design. The company negotiates a rate on behalf of the university for the services, then manages the work.

In a way, colleges are outsourcing the work of outsourcing to Noodle, which helps cobble together and then maintain the different pieces they need to build and operate online programs.

Noodle charges colleges $22,000 per month in management fees alone for the first program, and $12,000 per month for each additional program. It also charges a per-credit-hour fee for each student who enrolls in an online program. These costs do not include fees paid for services from other providers in Noodle’s network.

So far Noodle has helped build 50 online programs for two dozen universities, including Howard, Tufts, the University of Michigan and University of Tennessee. The company aims to double that count and have 100 programs under its management by the end of the year, according to Katzman.

Even according to Katzman’s optimistic cost estimates, it can take two years and $3 million to launch a new program from scratch—and another two years for that program to generate positive revenue. He contends his approach is still less expensive than the revenue-share arrangements schools have with other online program management providers, in which universities agree to fork over half, and sometimes as much as 80 percent, of tuition revenue.

To ease cash flow concerns for universities, Noodle also offers to borrow money on behalf of the institution from MassMutual, the life insurance and financial service company, to cover the upfront cost of launching new programs. The school then pays Noodle a share of its revenues until those funds, plus interest, are paid back. Afterward, the college pays the aforementioned management fees to keep the online programs going.

The online program management (OPM) field is crowded and contested. HolonIQ, an education market research firm, counts more than 60 providers; there are likely more. Some offer the full suite of technologies needed to build an online program, including course design, recruitment, enrollment and student support. Others focus on just one of those services, or specialize in specific trades like medicine. Tyton Partners, a strategy consulting and investment banking firm, puts the OPM market at $8 billion in 2020.

Katzman says the end goal is “not just about servicing a school,” but rather creating “a network of colleges and universities that grow together.”

For instance, he says, if colleges serviced by Noodle are developing similar tools or courses, might it make sense for them to license or share materials with one another? Or, could colleges share marketing leads for students who don’t end up attending?

That vision is predicated on the idea that colleges and universities will be open to sharing tools and information. Katzman says Noodle Partners doesn’t yet have critical mass to realize this network effect, but believes it will once the company has 100 university partners.

It may not take too long to reach that target. An April survey of more than 800 U.S. higher-ed faculty and administrators found that 90 percent of institutions transitioned to online courses to finish out the spring quarter. Many are preparing to offer digital options for the fall.

Even before the pandemic, the percentage of higher-ed students who took at least one online class course has steadily increased over the past decade—up to 35 percent in fall 2018.