Online business-education company UNext laid off 135 employees last week - nearly half its workforce.
The company is in partnership with the London School of Economics and the universities of Columbia, Stanford, Chicago and Carnegie Mellon to develop online courses delivered through Cardean University, its online subsidiary.
The five-year-old firm had to cut 42 per cent of its 325 employees because of the weakened economy and the challenges of raising venture capital, a spokesman said. It had raised $118 million (£80 million) in three calls on venture capital funds.
UNext hinted that it may need to discuss agreements worth up to $20 million to each institution.
The company laid off 52 staff in March, citing the need to shift development work from technical to course construction. It said then that it would be hiring more course-content developers this year, but conditions have not favoured such a move.
In the second quarter of last year, there were 51 private-investment transactions and three merger and acquisitions deals in the online learning industry. In the second financial quarter of this year, there were 35 mergers and acquisitions and new industry investments, according to eduventures.com, an online education research company.
Pascal Paschoud, director of projects at Enterprise LSE Ltd, the firm set up by the LSE to exploit its intellectual property, said the UNext cuts are a sign of uncertainty in the online education market.
"It is important to see the long-term potential of this market. Companies were too optimistic about short-term growth, but we have all learnt a lot in this industry about what people really want to do, or not, with online learning.
"It looks like people want more short learning experiences online rather than long courses. In the past two years the overall market has changed. At the start people were very optimistic and it was much easier to raise money."
The UNext collaboration was an opportunity for LSE academics to share their work with a global audience and help to develop online courses, he said.
"We feel we are producing high-quality material for UNext and we are working with them to develop more courses. A number of LSE faculty are involved in this development. We would benefit from their success, and we are talking to them. We know the situation but there have not been any discussions about restructuring financial arrangements. UNext is sharing the pain of the whole industry."
The cuts will focus attention on the LSE and Columbia loose partnership announced in July.
Details: www.lse.ac.uk www.enterprise-lse.co.uk www.unext.com