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Interview with Ira Sohn Contest Winner Sunjay Gorawara

The Ira Sohn Conference added a new wrinkle this year when it announced it would award a speaking slot to the winner of its inaugural idea contest — and that this contest would be judged by a panel of investing celebrities.

This year’s winner: Sunjay Gorawara, a modest business major and rising senior at the University of Indiana. We caught up with Sunjay to learn more about his background, the Ira Sohn experience, and the idea he pitched — Bridgepoint Education.

Tell us about your background

“I was born and raised in Chicago. I went to high school at Adlai E. Stevenson High School in the Chicago area and then chose Indiana University because I was awarded a full academic scholarship as a Wells Scholar.  I’m going to be a senior next year and will get a B.S. in business with concentrations in finance and public policy analysis. I’ll be working as a summer analyst in the investment banking group at J.P. Morgan this summer.”

How did you first get interested in investing?

“I was first exposed to investing when I was in eighth grade and my parents opened a Roth IRA in my name. They gave me the freedom to independently manage the account, which spurred my interest in finance. Since then I have been reading some financial material. I went to the library a lot in high school to learn as much as I could.  I think investment banking is a good way to get a financial background – to learn a lot about valuation and modeling.”

Tell us about applying to the Ira Sohn Contest.

“I was president of the Investment Banking Workshop at school so because of that I got an email from one of the organizers of the Ira Sohn Conference inviting me to apply.  So that’s kind of where it started. I had about two weeks off from school before the application was due so once I finished finals I started working on the investment thesis. I submitted it the day it was due which I think was a Friday and I found out on Monday that I was a finalist. So it all happened pretty quickly.”

What did being a finalist mean?

“I got an email Monday afternoon telling me I was a finalist and that I needed to be in New York on Wednesday for the conference. They had one seat for me and one for a friend also. I booked a flight on Monday, set up the slide deck on Tuesday, and flew out Wednesday morning. There were four finalists that were invited to attend the conference and only one of us was going to be chosen so I wasn’t sure I was going to present at all. But I knew if I was given the opportunity to present, I wanted to do a good job.”

When did you find out that you were the winner?

“Michael Price announced it on stage that afternoon and I went up right after that. I had to be ready before and met the other three finalists in the green room. They didn’t even announce my name, they just announced Bridgepoint Education and I walked up. ”

What was going through your mind when you heard you were the winner?

“The judges were some of my idols – they were guys I really admire like Michael Price, David Einhorn, Bill Ackman, Joel Greenblatt – these are guys I read about all the time and for them to approve my idea and give me the opportunity to share a stage with them is a really remarkable experience.”

Did you get any feedback from the judges on why they liked your idea or what they thought was most interesting?

“I spoke to them all pretty briefly. I spoke to Bill Ackman and Michael Price and Joel Greenblatt for a couple minutes after. They said it was really well researched and in-depth analysis. Bill Ackman told me he was one of the big proponents for Bridgepoint so that was pretty cool. He’s a guy I look up to a lot. ”

How much did you know about Steve Eisman’s presentation last year recommending shorting of the for profit education sector?

“I actually worked in a corporate strategy group of a for-profit education company last summer and right when I started working, the first week, Steve Eisman released his report from the conference. He compared the for profit-education sector to the subprime mortgage sector. During my internship I was looking at the competitive landscape for education companies, graduation rates, retention rates, tuition rates, and I got a really good comprehensive understanding of the industry and combining that with all the regulatory and accreditation issues. I got a good perspective and I used that perspective in my investment thesis. ”

Do you think the shorts and conventional wisdom were missing something that you picked up on because of your experience?

“A big target of the for-profit education industry is their recruiting tactics and the type of students they bring on. But Bridgepoint is a lot different than a lot of its competitors. A typical Bridgepoint student is a female, minority, and 35 years old. Sixty percent of the students are working full-time while they are enrolled and 18 percent transfer more than 70 credits out of 120 credits needed to graduate so it is a very different demographic than the average-for profit university. So that stood out to me. And it also has one of the lowest tuition rates in the sector and it’s only 6 percent above the average public U.S. in-state tuition. Combining that with a very flexible course work – classes start every week and last six weeks long. And 99 percent of the students take classes online so it’s really giving students that normally wouldn’t get to go to college a shot at an education.”

Do you have any thoughts on how the gainful employment rules will impact Bridgepoint?

“Gainful employment still hasn’t been released yet, but Bridgepoint Education would pass all the criteria. Bridgepoint is on the right track and some of the companies in the education space will be affected by gainful employment and it is a very out of favor stock.”

Were there any vocal shorts specifically targeting Bridgepoint Education?

“Senator Tom Harkin, he’s been the most vocal proponent against for profit education and in a recent hearing he told the public that 63 percent of Bridgepoint’s students drop out within one year and the graduation rates are horrendously low. However, that’s not exactly accurate. The sixty-three percent rate he quotes includes students who simply signed up for the first course. The drop-out rate he used included students who were not financially or mentally prepared to earn a degree from Bridgepoint. If you look at the one-year drop-out rate for students who completed their first course, the one year drop-out rate falls to 38 percent. Although that may seem still quite high, it’s actually reasonable considering the high-risk demographic that Bridgepoint caters to. So in assessing education quality metrics from Bridgepoint, the best comparables would be community colleges or historically black colleges in terms of education quality metrics.”

Subsequent to the conference, has anyone challenged your thesis? Did Steve Eisman say anything about it?

“I met him and we had a laugh but we didn’t really talk about the education industry. Nobody has had any contrary opinions that I have heard personally.”

Do any of the other for-profit education companies look compelling also?

“There are a couple that look compelling. American Public Education (APEI) is, but the valuation isn’t as great.”

What were you most surprised about in the whole process?

“I was pretty surprised that the stock went up as I was speaking. I heard it went up around 12 percent after I spoke that day so that was pretty cool just to have the approval of the investment community, it was an awesome experience. I also got to go on CNBC and have an article in the Wall Street Journal, it was exciting to be in the publications I watch and read everyday.”