UT System got no return from unusual investment


When the University of Texas System invested $10 million in an Internet startup that helps college students plan their paths to a degree, the company’s CEO said system officials “should like their chances of returning a profit.”

A little more than two years later, Austin-based MyEdu Corp. has been acquired by another company, and the UT System, despite having an option to acquire nearly a fourth of MyEdu, isn’t getting a penny.

System officials say they received other, continuing benefits from the investment, including websites customized for campuses to help students line up courses, showcase some of their accomplishments and connect with potential employers.

Roughly half of undergraduates at UT institutions now use MyEdu — pronounced “My E-D-U” — to manage their course loads, amounting to a significant boost in academic counseling that helps students stay on track to graduation, officials say.

“I’m very happy with the student success side, although the expectations of a return on this investment didn’t pan out,” said UT System Chancellor Francisco Cigarroa.

In 2008, software industry veteran Michael Crosno joined entrepreneurs Chris Chilek and John Cunningham, who were running Pick-A-Prof, a website that let students rate their professors. A year later, the company broadened its focus and changed its name to MyEdu.

Today, the company offers online tools that help students plan course schedules, track credits, exchange comments and see which professors have been recommended by fellow students.

Students build online profiles that highlight their coursework and list their skills and experience. Employers can use the site to build relationships with students interested in their industries, and to recruit interns and employees. About 1 million students at 800 schools have used the service, the company said.

The 20-person company was backed by about $10 million from investors including Bain Capital Ventures. It does not disclose revenue, and financial terms of the purchase by Washington, D.C.-based Blackboard Inc. were not disclosed.

The system’s $10 million outlay from the Permanent University Fund, a public endowment, was highly unusual in that it was made directly by the Board of Regents rather than by money-management firms chosen by the board’s investment arm, the University of Texas Investment Management Co.

The regents authorized the investment at an August 2011 meeting after a brief discussion and no public input. And although the regents and other systems officials say they strive for transparency in virtually every facet of the system’s operations, they did not disclose publicly — nor did some of those officials apparently know — that former Chancellor William Cunningham was an investor in MyEdu and that his son, John, was a senior vice president and one of its founders. Officials subsequently said no law, regulation or sense of ethics required disclosure of the Cunninghams’ financial interest.

The system’s announcement of MyEdu’s acquisition by Blackboard, in the form of a news release on Jan. 15, was the first public sign that MyEdu wasn’t turning into the resounding financial success predicted by Crosno, its CEO, in a November 2011 op-ed in the American-Statesman.

“While the UT System received a warrant to purchase common stock in MyEdu in connection with the original services agreement, there will be no financial return to the UT System as a result of Blackboard’s acquisition,” the news release said.

The release didn’t explain why the expenditure of $10 million in public money didn’t yield a financial return, an omission that some observers said was troubling.

“There are lots of unanswered questions and apparent inconsistencies,” said Gordon Appleman, a lawyer in Fort Worth and a former chairman of a UT System donor group.

Kirk Walden, an adjunct business professor at Texas State University and principal of Austin-based Walden Consulting, which follows the venture capital industry, said the UT System’s investment “had to be a fabulous deal for MyEdu because they get working capital to improve the product without actually giving up any equity. It’s better than a loan. Here they got the cash and they don’t have to pay it back.”

As an unproven startup, “MyEdu also got inherent credibility out of the deal,” Walden said. “What better endorsement could you have than from one of the highest-profile universities? What does that do for your sales pitch when you head out to pitch to other schools?”

In response to inquiries by the American-Statesman, UT system officials said in interviews and emails that MyEdu simply didn’t fetch a high enough sale price for the system to get a cut. That was the case even though the system, on paper at least, had an option to acquire a 22.5 percent stake in the company.

“In the event of an acquisition, common-stock holders receive a return only after all the various levels of preferred, or senior, stockholders are paid,” said Karen Adler, a spokeswoman for the system. “In this case, after senior stockholders were paid, there was not enough money left for common-stock holders.”

Therefore, it didn’t make sense for the system to exercise its option to acquire 8,488,100 shares for a penny apiece, or $84,881, Cigarroa said. Those shares would have had no value.

“It just wasn’t economically advantageous for us to purchase that stock because we weren’t going to get a return on that,” the chancellor said.

Citing a confidentiality agreement with MyEdu, system officials declined to disclose the sale price of the company.

Cigarroa said the system’s investment was worthwhile, despite no financial return, because of the customized services its campuses received and will continue to receive through 2016.

Those “deliverables,” according to the September 2011 agreement between MyEdu and the system, include degree planning, schedule planning, credit management, student-to-student and student-to-professor collaboration, college cost planning, and a platform for graduate and medical schools.

Frank Lyman, MyEdu’s chief product officer, said the additional tools allowed UT to stay ahead of the competition.

“Higher education in this country is undergoing a lot of change, and universities like UT need to stay innovative to maintain and grow their position,” Lyman said. “This type of partnership and this type of risk is how you keep innovative and developing solutions in a rapidly changing higher education marketplace.”

The investment with MyEdu was undertaken with a sense of urgency because there are 341 students for each adviser in the UT System, Cigarroa said. MyEdu’s online services have augmented counseling services to more than 116,000 students, he said.

“The regents wanted the opportunity to have a very close partnership with MyEdu to really kind of rev this up very quickly because of this poor adviser-to-student ratio,” Cigarroa said.

The idea to partner with MyEdu came from Regent Alex Cranberg, who became interested in the company through informal conversations with UT-Austin students. Cigarroa liked the concept, as did Gene Powell, then chairman of the regents, who assigned what he described at the time as an “unofficial committee” consisting of Regents Wallace Hall Jr., Steve Hicks and Cranberg to work with the system’s general counsel.

UT-Austin President Bill Powers, who said in November 2011 that his campus didn’t seek the partnership with MyEdu and would have had different priorities for the $10 million, told the American-Statesman last week that he is “very happy with MyEdu.” Concerns about security of private student information “have been or are being addressed,” he said, adding, “I’ve spent a lot of time with Michael Crosno. I consider him a friend.”


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