Upskilling, not ISAs


I've been thinking and exploring the Income Share space for the last year or so and wanted to take this opportunity to write out my thoughts on the space as well as ISA companies coming up in the Indian Ecosystem.

Income Share Agreements

Justin Potts (CEO, Avenify) wrote a really good guide of what Income Share Agreements are. The simplest explanation is that instead of taking on debt, a borrower would get capital from a lender. In exchange for this capital, the borrower would agree to share a certain percentage of their income with the borrower. Income Share Agreements have actually existed for a while, Yale University ran "The Tuition Postponement Option was a student loan program in the 1970s that enabled groups of undergraduates to pay off loans as a “cohort” by committing a portion of their future annual income to pay back money borrowed from the University." - Yale Daily News. The program failed because high earners paid out early, low earners defaulted and so most of the debt was left to the other graduates. And while it was terminated in 1999, the program was the first instance of an Income Share Agreement being tried out.

And in the current context, Lambda School has really popularized Income Share Agreements for coding bootcamps. Lambda School is a 9 month long online program that is free until you graduate. Students attend the program for free, and upon graduation they pay 17% of their income (if they earn over $50,000) for 2 years.

ISAs in India

With all the hype of coding bootcamps in the US, and the lack of employees in the software engineering industry worldwide, there has also been a spurt of startups in India on the ISA model. Two of the more popular ones are Masai School (backed by India Quotient) & Pesto Tech (backed by Matrix Partners). Masai School is an intensive 24 week course in Bangalore and it has tied up with a couple premier Indian startups including Flipkart, Ola, Swiggy & ShareChat. Pesto Tech, on the other hand, is a 12 week course and has partnered with remote-friendly (or even remote-first) companies in the US. InterviewBit- the online platform to help software engineers prepare for technical interviews has also launched Scaler, which is a 6 month online program to help "you your dream job at no upfront cost".

Before I talk about the mechanics of these ISA programs in India, I wonder if we really need Income Share Agreements in India. The ISA model came about in the US because college education is inaccessible for a majority of the population without loans, but in India most colleges (especially public universities) aren't expensive and most families, irrespective, save for their children's education. The real opportunity (as pointed out by Sajith & Vinod) lies in upskilling students who go to engineering school but still don't have the skills to enter the industry. Infosys (and other large Indian IT companies) do this in-house by mass hiring graduates from engineering colleges and training them to work in their respective functions (more in-depth piece on Infosys here).

The major problem with the current crop of ISA startups is that it's hard to operate this model at scale. Current on-site programs have small batch sizes (<20) and scaling those requires capital for infrastructure (classrooms, facilities), and staff (instructors, managing facilities) as well as maintaining a high quality of students who graduate from the programs. If they are only targeting startups, the amount of jobs are severely limited (TCS, Wipro & Infosys has a combined headcount of ~800k, engineering at startups would be a small drop compared to this). So if the eventual goal is to build a profitable multi-hundred million dollar company, I'm not sure if these companies could do so even if one had a complete monopoly.

ISA Mechanics

Now to the program fees:

  1. Masai School: Upon completion, students pay 15% of their income (only if income > ₹6L) for 3 years and it is capped at ₹3L.

  2. Pesto Tech: Upon completion, students pay 17% of their income (only if income is 1.5x to 2x one's current income) for 3 years and it is capped at ₹20L.

  3. InterviewBit Scaler: Upon completion, students pay 15% of their income (only if income > Minimum Guaranteed CTC) for 2 years with no cap.

Comparing these ISA programs to their American counterparts, Masai's program seems the most fair* [in my perspective]. According to AngelList, the average salary for a software engineer in India is $13,000 (₹9.3L) (Masai didn't have any stats on their site), Pesto says "The average salary for Pesto Residency graduates is ₹31 LPA. The average salary for Pesto Pro graduates is expected to be above ₹50 LPA.", and Scaler mentions a salary range of ₹18-35L on their website. The problem I see with Pesto is that their average salaries for US startups seems quite low. Engineers who go through the Residency program require 2 years of prior experience so making ₹31L (~$43k) even in non-Bay Area companies seems very low (similarly ₹50L (~$70k) for 5 years of experience seems very low as well). The program that concerns me the most (and sounds somewhat exploitive) is Scaler's. Scaler determines a "Minimum Guaranteed CTC" for students "to indicate what you could earn as a minimum once you get hired after joining Scaler". And according to their FAQ, if a student receives an offer (greater than the Minimum) but decided not to take it for some reason, they would still be liable to pay. Moreover, if students quit/get fired they are still liable to pay as long as their contract is still active. This detracts from the meaning of an Income Sharing Agreement because how can you share a percentage of your income if you don't have one. Both Masai School's & Pesto's agreements are structured such that if there is a period when one doesn't have a job, they aren't liable to pay anything during those months.

Investing in ISAs

Another interesting thing that I've seen with ISA models in Indian companies is that the percentage are higher and durations are longer (compared to their American counterparts) but it quite likely has to do with eventually generating returns for the company and institutional investors who purchased a stake in students' ISAs. As these ISA programs grow, the companies wouldn't want to use keep these investments on their own books. So what one might think they would do is let institutions purchase these agreements as investments (Buy x amount of agreements and you're expected to make y% pa on those agreements). Now, to do so the returns generated through Income Share Agreements have to be better than investing in a Fixed Deposit (FD) or other investment products. Social investing is one criteria that might attract investors but at the end, ISAs also have to generate a decent return for either the program or the investors who own stakes in those ISAs. In the US, these rates are very low so for an ISA investment to outperform them, the ISA percentage doesn't have to be very high. According to Avenify (an ISA marketplace in the US), a 3-7% ISA can generate an 7-12% Internal rate of return (IRR) [depending on the amount, duration, & percentage]. Indian FD Rates range anywhere between 4-9% so one would want a significantly higher IRR on their ISA investments because those are inherently riskier (as FDs have guaranteed returns). Therefore these ISA companies have take a much higher portion of their student's income to make the investment attractive enough for outside capital, but could also pose a risk to becoming exploitive to the student.

What India needs

I'm super keen to see the future of upskilling in India. With rising unemployment rates and colleges education not being enough for getting jobs, students need alternative sources to upskill themselves. Students should have the opportunity to work in industries and roles they would like to rather than just accepting the first offer they get. So companies that help college graduates/current college students learn these skills is where I think the bigger opportunity lies. For example, an interesting company that I recently came across is called Skill-lync. They help Mechanical Engineers learn skills that make them more employable in the Indian and Global market. They do so through an online platform teaching short specific courses related to applications in Mechanical Engineering in the workplace and have also launched a longer and more intensive course which guarantees a job placement upon completion. They also have an ISA model for this intensive course and also plan to expand into the Biotech and Chemical engineering. A couple of other companies that I'm bullish on include upGrad, MountBlue and RapL


With the growing popularity of these agreements, I do hope we see some legislation in India regarding maximum ISA percentages, contract lengths and mandatory payment caps. I think the current few ISA programs are acting in good faith but others' might not in the coming future with the popularity of this agreement. I also personally haven't read the ISA terms for all the Indian companies mentioned so I would advise potential students to go through the agreement, and talk to a lawyer if possible, to make sure they know exactly what they're signing themselves up for. I think coding bootcamps are very important to upskill future software engineers in the country, but I'm still not convinced if they need an ISA model to operate.