Tech bubble? Maybe not. Education bubble? Maybe.

Bubbles occur when something is overvalued and immensely believed. Investors remain cautious about tech startups, but people will mortgage themselves to the hilt for higher education.
Written by Joe McKendrick, Contributing Writer on

There is no end to speculation that we are in the midst of another tech bubble, but a new perspective out of University of Pennsylvania Wharton School seeks to calm these fears. If anything, valuations are climbing at a modest rate overall, according to experts at the school:

"One angel who works closely with an East Coast technology accelerator says he is seeing companies coming out of the accelerator pull in $3 million to $4 million in funding, compared with $2 million to $3 million for comparable companies a year ago. That is an uptick for sure, but it is small in the context of VC funding."

In addition, many of the actual values of social network and cloud companies are unknown, since most have not gone public.

Instead, the bubble may be in another sector: higher education. (The Wharton folks may disagree, understandably.)  Peter Thiel, PayPal co-founder, hedge fund manager and venture capitalist recently told TechCrunch that investors are too cautious about tech companies to blow the sector into a poppable bubble. Higher education, however, is another story:

“A true bubble is when something is overvalued and intensely believed.  Education may be the only thing people still believe in in the United States. To question education is really dangerous. It is the absolute taboo. It’s like telling the world there’s no Santa Claus.”

Higher education is seen as the way forward to sustainable economic growth and competitiveness for nations and regions. In a tough economic time, it is seen as a way to advance into more secure jobs.

However, Thiel points out that not only does the higher education system cause people to incur massive amounts of debt that is difficult to pay, but also is highly exclusionary. As he puts it: “If Harvard were really the best education, if it makes that much of a difference, why not franchise it so more people can attend? Why not create 100 Harvard affiliates?”

In recent years, there has been a strong movement toward more market-driven, affordable higher education, in the form of private, online offerings that extend higher education beyond the traditional four-wall classroom. Such new offerings may potentially disrupt the higher education business model.

In the meantime, Thiel believes students and society would benefit more if students dropped out or would forgo college education and started new businesses instead.

In fact, Thiel is putting his own money where his mouth is: he is staging a competition in which he will pay 20 college students $100,000 over two years to leave school and start a company.

This post was originally published on Smartplanet.com

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