Moderated by Wenbo Zong & Jaclyn Seow

At Openspace we are always attentive to what makes for a better startup. Pitch decks of early stage companies often feature founders’ educational qualifications and professional backgrounds. Formal education, which we define as post-secondary education obtained in person for the sake of this discussion, is commonly taken as a proxy for intellectual capacity and rigour and a signal for cultural fit or network strength. 

The age of the internet has seen the democratization of education across the world. Just over 10% of undergraduates in the US were learning exclusively online in 2018 [1], and the overall market for online education is projected to reach $350 billion by 2025 [2]

Given these developments, we thought it useful to question in this OpenForum if real alternatives – informal education including everything from professional certifications to online schooling – have arisen to challenge the legacy of formal education as a predictor of professional success.

Education remains a widely used heuristic, with good reason

The benefits of formal education are well known. These include the comparability of academic results for standardized tests, “starter” advantages for landing first jobs, reputation and respect (particularly for graduates of top schools) and peer influence and networking. In Singapore, the gross median starting salary for polytechnic graduates was $2,400 in 2019, over 30% less than the median for university graduates [3]. Such disparities have contributed to an increasing proportion of the Singapore population (aged 25 and above) completing a diploma or higher degree over time. Based on anecdotal experiences shared by team members, it would appear that formal education is even more important in developing countries where larger income gaps are observed between people with a university degree and those without.

Source: https://www.singstat.gov.sg/find-data/search-by-theme/population/education-language-spoken-and-literacy/visualising-data

One of our partners referred to formal education as a “warm-up for the real world” in that it develops structure and discipline of thought and encourages a strong fundamental breadth of knowledge whose benefits become more apparent particularly in the later stages of one’s career.

Our collective experience does suggest that education is a useful proxy for success. This is somewhat supported by data – researchers at Nottingham University [4], drawing on a sample of almost 5,000 startups on Crunchbase, found some positive correlations between higher education and equity fundraising to various degrees, depending on the type and level of education. The same research also pointed out that teams with mixed skill sets often show strong relative performance in reaching investment milestones.

So formal education remains a convenient and broadly used signal that most of us refer to in forming a first impression, with good reason.

But we are better than psychological shortcuts

However, that’s where our reliance on education stops. When polled, most agreed that while the institution and level of education matter to some degree, this is often outweighed by other factors including professional experience, social abilities and relevant industry networks. We find that the “starter” advantage for people with degrees from reputable universities generally diminishes over time as the relevance of professional experience supersedes educational signals. There was also consensus around how, while professional certifications and online courses etc. are an indicator of a self-starting nature that we appreciate, these are not yet seen as substitutes for formal education in the industry.

This sentiment bears out in our portfolio companies. When we did a scan of formal educational qualifications across our founders, many of whom studied at world class institutions in the US and the UK, we found no easy conclusions, adding to our belief that education is hardly a standalone predictor of success. 

So we actively adjust away from halo effects, as well as their reverse counterpart, and ask ourselves what really matters. One partner stated categorically that given comparable professional qualifications he would in fact prefer a founder with a less prestigious degree as that resume would be indicative of an ability to overcome statistical odds. At Openspace, too, hires are made based on a basket of factors including relevance of experience, cultural fit and how individuals can add value to the firm (language skills, for instance, are especially important in Southeast Asia). Firms like Google have gone a step further – its famous coding test controls to some extent for personal biases and focuses hiring decisions on actual abilities over paper qualifications.

Classrooms of the future

Formal education is famously recognized as a great equalizer. Yet it remains a challenge to provide quality education to children and youth around the world. In Southeast Asia, while Indonesia for instance has made great strides in educational reform in recent decades, it still lags behind many emerging market peers in terms of spending and learning outcomes as measured by global benchmarks such as PISA scores. We firmly believe technology will be a gamechanger on this front, especially with internet penetration in Indonesia standing at 65% and trending upwards. 

As with all business models anchored in systemic change, success will require cultural and incentive transformation on many levels. Our portfolio company Topica in Vietnam is already significantly influencing perceptions on how education is valued and accessed in the country. As entrepreneurs and investors bring their expertise to bear on local and regional education ecosystems, stakeholders including students, teachers and governments, will increasingly drive the tremendous value of edtech. The need for improvements in education delivery is furthermore so large that it offers ample room for multiple edtech providers in the market. We look forward to announcing more developments on this front as we lean into the sector. 

At the more vocational end of the spectrum, stints at companies with famously stringent interview processes like Google, Amazon and the Big 3 consulting firms can often outweigh the effect of educational qualifications. As we wrapped up our conversation we wondered if such corporate heavyweights might eventually come up with standardized alternatives that will challenge the relevance of traditional formal education as we know it.

Openspace is actively looking to shape conversations around entrepreneurship and venture capital and what this means, both in traditional classrooms as well as via informal channels. Reach out at ideas@openspace.vc if you’d like to work with us on this.

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