Outschool is the newest edtech unicorn

Outschool, a marketplace providing small-group, virtual after-school activities for children has raised a $75 million Series C led by Coatue and Tiger Global Management. TechCrunch first learned of the round from sources familiar with the transaction; the company confirmed the deal to TechCrunch later today.

The new funding values Outschool’s at $1.3 billion, around 4 times higher than its roughly $320 million valuation set less than a year ago.

To date, Outschool has raised $130 million in venture capital to date, inclusive of its new round.

The company’s valuation growth curve is steep for any startup, let alone an edtech concern that saw the majority of its growth during the pandemic. But while CEO and co-founder Amir Nathoo says his company’s new valuation is partially a reflection of today’s fundraising frenzy, he thinks revenue sustainability is a key factor in his company’s recent fundraise.

The new unicorn’s core product is after school classes for entertainment or supplemental studies, on an ongoing or one-off basis. As the company has grown, ongoing classes have grown from 10% of its business to 50% of its business, implying that the startup is generating more reliable revenue over time.

The change from one-off classes to enduring engagements could be good for the company and its students. On the former, recurring revenue is music to investor ears. On the latter, students need repetition to develop close relationships with a course and a group. Ongoing classes about debate or a weekly zombie dance class makes for a stickier experience.

Nathoo says everyone always asks what the most popular classes are, but said it continues to change since its main clientele – kids – have evolving favorites. One week it might be math, the other it might be minecraft and architecture.

Its changing revenue profile helped Outschool generate more than $100 million in bookings in 2020, compared to $6 million in 2019 and just $500,000 in 2017. Nathoo declined to share the company’s expectations for 2021 beyond “projecting to grow aggressively.”

Outschool reached brief positive cash flow last year as a result of massive growth in bookings, but Nathoo shared that that has since changed.

“My goal is to always stay within touching distance of profit,” he said. “But given the fast change in the market, it makes sense to invest aggressively into opportunities that will make sense in the long-term.”

What’s next

Nathoo expects to grow Outschool’s staff from 110 people to 200 by the end of the year, with a specific focus on international growth. In 2020, Outschool launched in Canada, New Zealand, Australia and the UK, so hiring will continue there and elsewhere.

On the flip side, Outschool isn’t  teachers at the same clip it was at the height of the pandemic in the United States. When the pandemic started, Outschool had 1,000 teachers on its platform. Within months, Outschool grew to host 10,000 teachers, a screening process that the founder explained was resource-heavy but vital. Outschool makes more money if teachers join the platform full-time: teachers pocket 70% of the price they set for classes, while Outschool gets the other 30% of income. But, Nathoo views the platform as more of a supplement to traditional education. Instead of scaling revenue by convincing teachers to come on full-time, the CEO is growing by adding more part-time teachers to the platform.

Similar to how Airbnb created a host endowment fund to share its returns with the people who made its platform work, Outschool has dedicated 2% of its fundraise to creating a similar program to reward teachers on its platform in the event of liquidity.

One of Outschool’s most ambitious goals is, ironically, to go in school. While some startups have found success selling to schools amid the pandemic, district sales cycles and tight budgets continue to be a difficult challenge for scaling purposes. Still, the startup wants to make its way into students’ lives through contracts with schools and employers, which could help low income families access the platform. Nathoo says enterprise sales is a small part of its business, but the strategy began just last year as part of COVID-19 response. It is currently piloting its B2B offering with a number of schools.

Outschool will also consider acquiring early-stage startups focused on direct-to-consumer learning in international markets. While no acquisitions have been made by the startup to date, consolidation in the edtech sector broadly is heating up.

Nathoo stressed that Outschool’s continued growth, even as schools reopen, has de-risked the company from post-pandemic worries.

“There’s going to be a big spike of in-person activities because everyone is going to want to do that at once,” he said. “But then we’re going to settle at some more even distribution because the future of education is hybrid.”

He added that Outschool’s ethos around online learning hasn’t changed since conception. The company has never seen opportunity in the for-credit, subject-matter digital education sector, and instead has focused more on supplemental ways to support students after school.

“That’s the piece of the education system that is underserved and that was missing,” he said. “The advantages of online learning will remain in the convenience, the cost, and the variety of what you can get that isn’t always available locally.”

Let’s talk about gaslighting and fundraising

“Most of the startups I give advice to about how to raise venture capital shouldn’t be raising venture capital,” an investor recently told me. While the idea that every startup isn’t venture-backable might run counter to the narrative to the barrage of funding news each week, I think it’s important to double click on the topic. Plus, it keeps coming up, off the record, on phone calls with investors!

As venture grows as an asset class, the access to capital has broadened from a dollar perspective, but I do think the difficulties that remain is an important dynamic to call out (and something no one talks about during an upmarket). Beyond the fact that only a small subset of startups truly can pull off scaling to the point of venture-level returns, it is still hard for even qualified founders to raise venture capital. Venture capital is still a heavily white, male-led industry, and as a result contains bias that disproportionately limits access for underrepresented founders.

Eniac founding partner Hadley Harris applied this dynamic to the current market boom in a recent tweet: A lot of people are misunderstanding this VC funding market. More money is flowing into the market but the increase is not evenly distributed. The market believes winners can be much bigger but not necessary that there will be more winners. It’s still very hard for most to raise a VC.

To say otherwise is to gaslight the early-stage or first-time founders that have spent months and months trying to raise their first institutional dollars and failed. So ask yourself: Seed rounds have indeed grown bigger, but for who? What comes at the cost of the $30 million seed round? Are the founders that can raise overnight from diverse backgrounds? Are investors backing first-time founders as much as they are backing second- or third-time entrepreneurs?

The answers might leave you debating about the boundaries, and limitations, of the upcoming hot-deal summer.

A few weeks ago, I wrote about the disconnect between due diligence and fundraising right now. Now we’ve moved onto the disconnect, and bifurcation, within first-check fundraising itself. There is so much more we can get into about the fallacy of “democratization” in venture capital, from who gets to start a rolling fund to the lack of assurance within equity crowdfunding campaigns.

We’ll get through it all together, and in the meantime make sure to follow me on Twitter @nmasc_ for more hot takes throughout the week.

In the rest of this newsletter, we will talk about fintech politics, the Affirm model with a twist, and sneakers-as-a-service.

Ex-Coinbase talks politics

The inimitable Mary Ann Azevedo has been dominating the fintech beat for us, covering everything from the latest Uruguayan unicorn to Acorn’s scoop of a debt management startup. But the story I want to focus on this week is her interview with ex-Coinbase counsel & former Treasury official, Brian Brooks.

Here’s what to know: Coinbase CEO Brian Armstrong notoriously released a memo last year denouncing political activism at work, calling it a distraction. In this exclusive interview, Brooks spoke about how blockchain is the answer to financial inclusion, and argued why politics needs to be taken out of tech.

We don’t want bank CEOs making those decisions for us as a society, in terms of who they choose to lend money to, or not. We need to take the politics out of tech. All of us do a lot of different things, and we have no idea on a given day, whether what we’re doing is popular with our neighbors or popular with our bank president or not. I don’t want the fact that I sometimes feel Republican to be a reason why my local bank president can deny me a mortgage.

Image Credits: Bryce Durbin/TechCrunch

The Affirm for X model

While Affirm may have popularized the “buy now, pay later” model, the consumer-friendly business strategy still has room to be niched down into specific subsectors. I ran into one such startup when covering Plaid’s inaugural cohort of startups in its accelerator program.

Here’s what to know: Walnut is a new seed-stage startup that is a point-of-sale loan company with a healthcare twist. Unlike Affirm, it doesn’t make money off of fees charged to consumers.

Image Credits: Bryce Durbin/TechCrunch

Everything you could ever want to know about StockX

In our latest EC-1, reporter Rae Witte has covered a startup that leads one of the most complex and culturally relevant marketplaces in the world: sneakers.

Here’s what to know: StockX, in her words, has built a stock market of hype, and her series goes into its origin story, authentication processes and a market map.

Image Credits: Nigel Sussman

Around TechCrunch

Found, a new podcast joining the TechCrunch network, has officially launched! The Equity team got a behind-the-scenes look at what triggered the new podcast, the first guests and goals of the show. Make sure to tune into the first episode.

Also, if you run into any paywalls while browsing today’s newsletter, make sure to use discount code STARTUPSWEEKLY to get 25% off an annual or two-year Extra Crunch subscription.

Across the week

Seen on TechCrunch

Okta launches a new free developer plan

New Jersey announces $10M seed fund aimed at Black and Latinx founders

Education nonprofit Edraak ignored a student data leak for two months

6 VCs talk the future of Austin’s exploding startup ecosystem

Dear Sophie: Help! My H-1B wasn’t chosen!

Seen on Extra Crunch

5 machine learning essentials nontechnical leaders need to understand

How we dodged risks and raised millions for our open-source machine language startup

Giving EV batteries a second life for sustainability and profit

And that’s a wrap! Thanks for making it this far, and now I dare you to go make the most out of the rest of your day. And by make the most, I mean listen to Taylor’s Version.

Warmly,

N

Cleo Capital is targeting $20 million for Fund II

Cleo Capital, a venture capital firm founded in 2018 by Sarah Kunst, is raising up to $20 million for its second fund, according to a source familiar with the matter. A recent SEC filing shows that Cleo Capital has already raised $6.7 million of that goal, bringing total assets under management to around $10 million. Kunst was unable to comment on her fundraising efforts.

That new AUM number is close to what Cleo Capital initially set out to do. When Kunst first launched her firm, she targeted a $10 million close. She ended up closing $3.14 million of that goal, and now, she’s back to double down.

Fund II’s $20 million target, if closed, would allow Cleo Capital, which invests in primarily pre-seed companies, to start leading rounds. The firm has already been writing $1 million checks and targets about a 15-20% ownership in its rounds.

“One of the reasons why we are a pre-seed fund is because in seed, especially late-seed, you have everyone from family offices to TikTok stars and rolling funds competing for hot rounds,” she said. “No one is competing in pre-seed.”

There are firms such as Precursor and Hustle Fund that back pre-seed companies, and cut checks around $100,000 and $25,000 to start, respectively. Kunst sees the ability to write a $1 million pre-seed check as a “huge advantage.” Usually early-stage founders without family money or deep networks have to spend a big chunk of time raising their first round. It’s a lot of time to spend fundraising and not building a company. If a firm can cut a big pre-seed check, she thinks that Cleo is “buying back six months of a company‘s runway,” she said.

Like many firms, Cleo Capital has turned to creative measures to diversify deal flow in the era of Zoom investing and pandemic business. For example, Cleo Capital launched a fellowship program for laid off workers during COVID-19 to promote entrepreneurship.

Matt Pauker, a repeat founder who has sold companies to Coinbase and HP Enterprise, was one of the advisors of that program. Pauker has joined Cleo Capital as a general partner presumably to line up with the timing of Fund II.

While the firm has no racial or gender investment focus, about 92% of its current investments are companies started by underrepresented founders.

The firm’s portfolio includes Planet FWD, mmhmm, Lunch Club, and StyleSeat. As for new opportunities, Kunst says that Cleo Capital is looking at anything that helps the individual turn into a collective. With the growth of the creator economy and solo-entrepreneurs, people need to figure out the future of income, health care, and benefit, Kunst explained.

“All of these things are hard for people to do as an individual,” she said. The majority of Cleo Capital’s portfolio is based outside of Silicon Valley.

Cleo Capital’s raise comes just over a week after two venture capital firms founded by Black venture capitalists announced new funds, Harlem Capital and MaC Venture Capital.

Creator economy’s slow burn

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast, where we unpack the numbers behind the headlines.

Natasha and Danny and  and Grace were all here to chat through the week’s rigamarole of news. Alex took some well-deserved time off, but that meant we got to poke a little fun at him and create a Special Edition segment to start off the show.

Jokes aside, this week was yet another spree of creator economy, edtech, and new fund announcements, with fresh and unexpected news hailing from Natasha’s home state, New Jersey.

Here’s what we got into:

What a show! We’ll be back with the full trio next week, and until then, stay safe and thank you for listening.

Equity drops every Monday at 7:00 a.m. PST, Wednesday, and Friday at 6:00 AM PST, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts!

Setting up a management board for success with Dave Easton

Viewed from the outside, board selection and corporate governance can seem like a bit of a black box — particularly at a startup. Generation Investment Management partner Dave Easton spoke at TechCrunch Early Stage about how to build a board as a founder, and specifically how to build a board you can live with. Easton’s own ample experience serving on boards as both a full member and as an observer, as well as Generation’s focus on building sustainable, ethically managed, mission-driven businesses helped peel back the curtain on the murky topic of good governance.


On the composition of boards

Easton noted that many boards end up overcrowded — in terms of both the number of people and also the background of those present. Mixing up the type of board members you have managing your corporate governance is key, he said, especially as a company grows in size and maturity.

In terms of fields, the sorts of things that we find that often go wrong is when your board is stacked full of investors. I think investors are great — I’m an investor. I think there are super useful things investors do. But five investors is not very useful, right — it’s just more people who will generally think the same. So a typical thing that we’re doing when we come in is, we’re saying we’re not taking a board seat, we’re gonna give our board seats to an operator — someone who actually knows what they’re doing. When you’re in the earliest stages it’s probably fine to avoid operators and just have one or two investors. Particularly operators who come from, like bigger company backgrounds, they’re not necessarily so helpful when you’re getting product-market fit. But as you get bigger and bigger, you know, operators start to trump investors, and we think boards need to move more heavily in that direction. (Time stamp: 09:34)


Don’t put settled topics up for debate

On the subject of what should actually take place at well-run board meetings, Easton said that one of the most common pitfalls he’s encountered is when management sort of performatively offers up subjects for debate. It’s something that’s easy to do, but it also ends up not only being wasteful of the time of those present, it also leaves a bad taste in basically everyone’s mouths.

Applications for Startup Battlefield at TC Disrupt 2021 are now open

Applications for Startup Battlefield are now open! Founders, this past year has been challenging in ways words can’t encompass. But you are persevering and now is the time to show the world what you have been working on. TechCrunch is on the hunt for game-changing and ground breaking startups from around the globe, to feature in Startup Battlefield during TechCrunch Disrupt 2021 this fall. Startups will be competing for a $100,000 equity-free prize, the eyes of investors from around the world and global media coverage on the most famous stage in tech media.

Eligibility & Application. Startup Battlefield highlights early stage companies from all geographies, in any industry. Startups should have an MVP. Founders simply need to apply here. Every application is reviewed by a member of the TechCrunch editorial team. TechCrunch takes ZERO fees – the application and participation/training program for selected companies is free. TC does not take equity any company.

Training. Startups selected to pitch will engage in an intensive training over several weeks with the Startup Battlefield team. Founders will perfect their pitches, finesse their business models and hone their presentation skills. Founders will have access to masterclasses from experts on how to build, market and scale the startups.

Pitch. About 25 startups will be selected to pitch on the main stage at TechCrunch Disrupt 2021. Each founder will present for six minutes, with a live demo, followed by a Q&A with our esteemed panel of judges. Judges like Kristin Green, Aileen Lee, Alfred Lin, Susan Lyne and more. After the first round, the top set of companies will pitch again in the final round in front of a fresh panel of judges. The judges will pick the winner who will receive the Disrupt cup and the $100,000 equity-free prize money.

Disrupt. Startup Battlefield founders are the VIPs of TC Disrupt. Founders get access to private events, complimentary event tickets, exhibition space on the virtual show floor, access to CrunchMatch, and a private Startup Battlefield Reception with members of the Startup Battlefield Alumni community. Battlefield founders will also get access to future TC events and a free subscription to Extra Crunch.

Launch your startup this September. Step into the spotlight. Apply now.

Applications for Startup Battlefield at TC Disrupt 2021 are now open

Applications for Startup Battlefield are now open! Founders, this past year has been challenging in ways words can’t encompass. But you are persevering and now is the time to show the world what you have been working on. TechCrunch is on the hunt for game-changing and ground breaking startups from around the globe, to feature in Startup Battlefield during TechCrunch Disrupt 2021 this fall. Startups will be competing for a $100,000 equity-free prize, the eyes of investors from around the world and global media coverage on the most famous stage in tech media.

Eligibility & Application. Startup Battlefield highlights early stage companies from all geographies, in any industry. Startups should have an MVP. Founders simply need to apply here. Every application is reviewed by a member of the TechCrunch editorial team. TechCrunch takes ZERO fees – the application and participation/training program for selected companies is free. TC does not take equity any company.

Training. Startups selected to pitch will engage in an intensive training over several weeks with the Startup Battlefield team. Founders will perfect their pitches, finesse their business models and hone their presentation skills. Founders will have access to masterclasses from experts on how to build, market and scale the startups.

Pitch. About 25 startups will be selected to pitch on the main stage at TechCrunch Disrupt 2021. Each founder will present for six minutes, with a live demo, followed by a Q&A with our esteemed panel of judges. Judges like Kristin Green, Aileen Lee, Alfred Lin, Susan Lyne and more. After the first round, the top set of companies will pitch again in the final round in front of a fresh panel of judges. The judges will pick the winner who will receive the Disrupt cup and the $100,000 equity-free prize money.

Disrupt. Startup Battlefield founders are the VIPs of TC Disrupt. Founders get access to private events, complimentary event tickets, exhibition space on the virtual show floor, access to CrunchMatch, and a private Startup Battlefield Reception with members of the Startup Battlefield Alumni community. Battlefield founders will also get access to future TC events and a free subscription to Extra Crunch.

Launch your startup this September. Step into the spotlight. Apply now.

TC Early Stage will dive deep on how to fundraise for your startup

Despite the fact that capital is abundant and dozens of startups get funding every day, the process of raising institutional capital is anything but simple.

From getting an investor’s attention to nailing your virtual pitch meeting to the legal aspects of your term sheet, there is plenty to navigate.

Luckily, TechCrunch Early Stage is bringing together some of the biggest VCs to share how to manage the process proactively and successfully secure capital from the right VCs.

Just take a look at the fundraising sessions going down at TC Early Stage, which takes place later this week on April 1 – 2.

How to Get an Investor’s Attention – Marlon Nichols, MaC Venture Capital

Marlon Nichols is an expert in early-stage investments, having invested in countless successful ventures such as Gimlet Media, MongoDB, Thrive Market, PlayVS, Fair, Wonderschool and Finesse. Right now, there is more seed-stage fundraising than ever before, and Marlon will speak on how to get noticed by investors, how to grow your business and how to survive in the crowded, competitive space of tech startups. He will provide insights on how to network, craft a great pitch and target the best investors for your success.

How to Nail Your Virtual Pitch Meeting – Melissa Bradley, Ureeka

The rules of the pitch meeting have changed. Instead of traveling across the country, wasting time in planes, trains and automobiles, founders can take upwards of 30 meetings in a day from the comfort of their home. Entrepreneur and VC Melissa Bradley will outline how to make the most of that half hour on Zoom and lock in the next one.

How to Kick the 10 Worst Startup Habits – Leah Solivan, Fuel Capital

With voices across the internet giving their two-cents on how to run a great business, Fuel Capital’s Leah Solivan will share a list of things that a founder should NOT do. Avoid the pitfalls that could break your momentum, or worst case, your company, and ask Solivan your own questions.

Bootstrapping and the Power of Product-Led Growth – Tope Awotona, Calendly and Blake Bartlett, OpenView

Building a bootstrapped company forces you to be creative. For Calendly, it pointed the company toward a product-led growth model built on virality. Hear from Calendly’s Tope Awotona and OpenView’s Blake Bartlett as they cover pro tips on bootstrapping, PLG and when a profitable company should consider raising capital.

Four Things to Think About Before Raising a Series A – Bucky Moore, Kleiner Perkins

Founders looking to raise Series A capital know that it’s an entirely different ball game than seed-stage funding. Hear Kleiner Perkins partner Bucky Moore outline the most important ways to mentally prepare for heading into Series A fundraising.

Fundraising Terms That Affect Your Business – Dawn Belt, Fenwick & West

With each funding round, there is an exciting opportunity for growth, but it’s important to fully understand the implications of those terms. Fenwick partner Dawn Belt will discuss the key legal terms to focus on in your seed and Series A rounds and how they affect the control and operational freedom of your company.

TC Early Stage takes place on April 1 – 2 and is jam-packed with breakout sessions led by tech leaders, from VCs to operators. Each session will include audience Q&A so founders can get answers to their specific questions. On Day 2, we’ll be holding a pitch-off with some fantastic companies.

All in all, it’ll be a fantastic event. You should def come hang out! Get a ticket here.

Announcing the TC Early Stage Pitch-Off startups

Next week, TechCrunch is hosting Early Stage – a virtual bootcamp for founders to gain the critical insight needed to launch and scale their companies. Day 1 is all about how-to’s. What about day two? April 2nd is the inaugural TC Early Stage Pitch-Off featuring ten exceptional early stage startups.

The Pitch-Off is split into two segments. For the semi-finals, each company will pitch for 5 minutes followed by a Q&A with our expert panel of judges. Check them out here, you might see some names you recognize. Three startups will make it into the final round – same pitch but a new batch of judges with a deeper Q&A.

We know you are excited to see who has made it. Tune in on April 2nd to watch TC’s first Early Stage Pitch-Off event. Without further ado:

Session 1: 9:00AM – 9:50AM PT

Clocr (Austin, Texas) – Clocr provides an all-in-one digital legacy planning and disbursement platform backed by patent-pending security.”

Crispify (Tel Aviv, Israel) – Crispify provides air-quality monitoring and management solutions for Mobility-as-a-Service fleets like Uber, Avis and Zipcar.

Fitted (Philadelphia, Pennsylvania) – Fitted is the ultimate closet management service. [Fitted] combines a subscription laundry service with integrated technology that assists urban dwellers discover, clean, and donate their clothes.

hi.health (Vienna, Austria) – hi.health provides zero friction financing for out-of-pocket health expenses, currently in Germany. The offering enables direct reimbursement solutions for pharmacies, medical product and service providers – where previously the insured person had to spend their own money, and then file for reimbursement.

Pivot Market (Miami, Florida) – Pivot Market is a B2B marketplace where consumer brands gain immediate distribution in physical stores. Brand rent spaces inside B&M stores and stores earn money by managing those spaces on behalf of the brands.

Session 2: 10:00AM – 10:45AM PT

Soon (Salt Lake City, Utah) – Soon’s patent-pending cash flow algorithm automates investing from start to finish, with the best combination of simplicity and wealth generation in a personal finance solution. Soon functions across all assets from your checking account to your savings and more.

Nalagenetics (Singapore City, Singapore) – Nalagenetics designs and develops pre-emptive genetic tests for developing markets. By combining genetic, clinical, and behavioral data from patients, Nalagenetics builds localized risk prediction models for minorities, starting with Asian populations

The Last Gameboard (Boulder, Colorado) – Gameboard, is a gaming device and platform that unleashes the power of digital media with tactile movements of physical game pieces, creating a new genre of Phygital gaming for tabletop fans.

Attention Quotient  by Mindwell Labs (New York, New York) – Mindwell Labs is a precision healthcare technology startup. Its first consumer product is AQ™ – the first personalized mental fitness tracking and training app that uses our unique biomarkers to measure and improve attention.

FLX Solutions (Bethlehem, Pennsylvania) – FLX Solutions is pioneering functional applications for robotics with highly intelligent robots that are miniaturized to operate in spaces that humans and traditional robots cannot easily access. Our first product, The FLX BOT, is a patented 1” diameter snake-like robot that is able to fit into these spaces to inspect, map, and then autonomously perform any required maintenance.”

Finals11:00AM – 11:30AM PT

 

Y Combinator widens its bet in edtech in latest batch

Y Combinator is slowly growing its stake in education companies, as the sector balloons with newfound demand from remote learners. In its latest batch, the famed accelerator had its highest number of edtech startups yet: 14 companies from around the world, working on everything from teacher monetization to homework apps to ways to train software engineers in an affordable fashion.

While Y Combinator isn’t the definitive source on what success in early-stage startups looks like — it quite literally has a post-mortem dinner after Demo Day to celebrate failure — it does serve well in providing an illustrative glance of how entrepreneurs are thinking about certain sectors in a given moment in time. Managing director Michael Seibel said that the number of startups in each sector isn’t a Y Combinator choice, but is in line with the concentration of applicants in each sector. In other words, YC is backing more edtech companies because more edtech companies are applying to the accelerator.

One dynamic worth pointing out here is that, of the 14 edtech startups in this batch, only two have a woman founder, UPchieve and Degrees of Freedom. Y Combinator provided aggregate batch diversity, stating that 19% of companies in W21 include a woman founder, and 10% of founders in the entire batch are women. It’s a slight uptick from the last batch, but not an immense jump.

With this context, I will use the current edtech cohort within the batch to sketch out one version of the future of education in the eyes of this specific demographic of early-stage founders.

Internationalization is a factor

The current YC batch has 50% of its startups based outside of the United States, a first for the accelerator. The growing internationalization of Y Combinator might help partially explain the uptick in edtech companies. The growth of companies like India’s Byju’s, one of the most valuable edtech companies in the world, shows how consumer spending in education companies internationally is impressive, and it’s clear that early-stage edtech startups are taking note.

Only two of Y Combinator’s 14 edtech investments are from the United States, with the highest concentrations in South America and India.

  • Manara: A marketplace to connect Middle East talent to tech jobs.
  • Prendea: Peru-based startup that offers live, online after-school classes for Spanish-speaking kids.
  • Avion School: The education startup teaches Filipino students to be remote software engineers around the world.
  • Poliglota: A language school for Latin America.

The future is consumer over B2B

The vast majority of startups in the current edtech batch charge consumers, instead of institutions or enterprises, for services. In some ways, edtech startups going for consumers instead of institutions isn’t new: it’s always been easier to convince a parent instead of a public school to pay for a service simply due to red tape. Consumers are an easier way to reach a venture-demanded scale, and that’s always been a truth of edtech.

  • Kidato: Targeting the middle class of Africa, Kidato is an online school for K-12 students. The startup has a focus on quality and affordability.
  • Codingal: An afterschool program for Indian kids to learn coding.

Still, it’s noteworthy that we’re not seeing too much experimentation in business model here, despite the pandemic and that some schools have begun to invest more in edtech services.

A potential hurdle that these companies might face is access. If it costs to use your service, you can only educate so many people from specific income groups. As a result, income share agreements, or ISAs, were especially present in this batch, a set-up that allows a student to hold off on paying for an education until they are employed. Upon employment, said student has to give a percentage of their income to the company until their debt is paid. While the model is controversial, it was popularized by YC graduate Lambda School and continues to be one way to make the upfront cost of school more popular.

  • Pragmatic Leaders: The startup wants to build a more cost-effective MBA, which is free until the student is hired post-grad.
  • Awari: The São Paulo-based startup uses income share agreements to help students in Brazil afford a tech education. Courses range from data analytics to product UX and growth marketing.

Acadpal, mentioned later, is an outlier here selling to schools in India. Before I move on to our next section, I do want to shout out two startups that I think embody the most ambitious bets in business model:

Zoom University lives on

Despite the struggles of “Zoom University,” this batch of edtech founders clearly believe that the future of instruction is through online courses. This was perhaps the most overwhelming thread tying together all the companies in the sector: a bet on one of these companies is a bet that remote education will become status quo.

As previous sections show, a number of startups are offering online coding platforms for specific demographics. Now, I always have my inbox filled with different “Lambda School for X” startups, so seeing a variety of these startups pop up yet again isn’t exactly exciting. However, the pandemic did show how much community and network enhances a school experience. If these online schools can pull off strong partnerships with employers and alumni, I think there’s a huge opportunity here.

  • Turing College: The Lithuania-based online data science school uses income-share agreements to bring affordability to education.
  • Coderhouse: An Argentina-based startup that wants to build a live, online tech education for the Spanish-speaking populations of the world.

That said, where there’s big opportunity there’s always a lot of competition. These startups will have to find a way to differentiate themselves, like the one below:

  • Unschool: The startup wants to tie higher education to employment outcomes, so it’s building a platform to increase completion rates in India with a guarantee of internships.

There were bets on the infrastructure of how courses get done online, from course creation to completion.

  • Pensil: A platform that helps YouTube teachers in India monetize their courses.
  • Acadpal: A learning app for teachers in India to create and share homework, and for students to complete and discuss assignments.
  • CreatorOS – Questbook: This company wants to make it easier for teachers to teach online courses. It gives professionals the tools they need to launch a course within minutes, with a focus on a bite-sized end-product.

In conclusion

To end, the edtech startups in the current YC batch are more complementary to each other than competitive. For a homework platform like Acadpal to succeed, it would be good news for a company like Codingal, which helps bring afterschool learning online, to get funding as well. For Unschool, which ties higher-ed to employment, a company like Degrees of Freedom could be a key partner or integration for students from a low-income background.

Edtech is growing — and fast — so the fragmentation of different plays is somewhat expected. And while this batch’s hard work starts now, it’s illuminating to understand where the earliest entrepreneurs out there are seeing promise.