What the MasterClass effect means for edtech

MasterClass, which sells a subscription to celebrity-taught classes, sits on the cusp of entertainment and education. It offers virtual, yet aspirational learning: an online tennis class with Serena Williams, a cooking session with Gordon Ramsay. While there’s the off chance that an instructor might actually talk to you — it has happened before — the platform mostly just offers paywalled documentary-style content.

The vision has received attention. MasterClass is raising funding that would value it at $2.5 billion, as scooped by Axios and confirmed independently by a source to TechCrunch. But while MasterClass has found a sweet spot, can the success be replicated?

Investors certainly think so. Outlier, founded by MasterClass’ co-founder, closed a $30 million Series C this week, for affordable, digital college courses. The similarities between Outlier and its founder’s alma mater aren’t subtle: It’s literally trying to apply MasterClass’ high-quality videography to college classes. This comes a week after I wrote about a “MasterClass for Chess lovers” platform launched by former Chess World Champion Garry Kasparov.

Two back-to-back MasterClass copycats raising millions in venture capital makes me think about if the model can truly be verticalized and focused down into specific niches. After 2020 and the rise of Zoom University, we know edtech needs to be more engaging, but we don’t know the exact way to get there. Is it by creating micro-learning communities around shared loves? Is it about gamification? Aspirational learning has different incentives than for-credit learning. In order to be successful, Outlier needs to prove to universities it can use MasterClass magic for true outcomes that rival in-person lectures. It’s a harder, and more ambtious promise.

My riff aside, I turned to two edtech founders to understand how they see the MasterClass effect panning out, and to cross-check my gut reaction.

Taylor Nieman, the founder of language learning startup Toucan:

Although I do love how these models try to lean into this theme of “invisible learning” like we leverage with Toucan, it faces the same issues as so many other consumer products that try to steal time out of people’s very busy days. Constantly competing for time leads to terrible engagement metrics and very high churn. That leads me to question what true learning outcomes could occur from little to no usage of the product itself.

Amanda DoAmaral, the founder of Fiveable, a learning platform for high school students:

Masterclass is important for showing us why educational content should be treated more like entertainment. All of our bars for content quality is much higher now than it ever was before and I’m excited to see how that affects learning across the board.

For students, it’s about creating environments that support them holistically and giving them space to collaborate openly. It feels so obvious that these spaces should exist for young people, but we’ve lost sight of what students actually need. At my school, we built policies that assumed the worst in students. I want to flip that. Assume the best, be proactive to keep them safe, and create ways to react when we need to.

Anyways, that’s just some nuance to chew on during this fine day. In the rest of this newsletter, we will focus a lot on tactical advice for founders, from the money they raise to the peacock dance they might want to do one day. Make sure to follow me on Twitter @nmasc_ so we can talk during the week, too!

The peacock dance

You know when male peacocks fan their feathers to court a lover? That, but for startups trying to get acquired. As one of our many rabbit holes on Equity this week, we talk about Discord walking away from a Microsoft deal, and if that deal ever existed in the first place or if it was just a way to drum up investor excitement in the audio gaming platform.

Here’s what to know: Discord is reportedly pursuing an IPO after walking away from talks with multiple companies that were looking to acquire the audio gaming giant.

Discord aside, the consolidation environment continues to be hot for some sectors.

Four business people used ropes to tighten their money bags, economic austerity, reduced income, economic crisis

Image Credits: VectorInspiration / Getty Images

Even venture capital knows that the future isn’t simply venture capital

Clearbanc, a Toronto-based fintech startup that gives non-dilutive financing to businesses, has rebranded alongside a $100 million financing that valued it at $2 billion. Now rebranded as Clearco, the startup wants to be more than just a capital provider, but a services provider, too.

Here’s what to know: The startup has been on a tear of product development for the past year, launching services such as valuation calculators or runway tools. It’s a step away from what Clearbanc originally flexed: the 20-minute term sheet and rapid-fire investment. I talk about some of the levers at play in my piece:

Many of Clearco’s newest products are still in their infancy, but the potential success of the startup could nearly be tied to the general growth of startups looking for alternatives to venture capital when financing their startups. Similar to how AngelList’s growth is neatly tied to the growth of emerging fund managers, Clearco’s growth is cleanly related to the growth of founders who see financing as beyond a seed check from Y Combinator.

abstract human brain made out of dollar bills isolated on white background

Abstract human brain made out of dollar bills isolated on white background. Image Credits: Iaremenko / Getty Images

Don’t market your opportunity away

Keeping on the theme of tactical advice for founders, let’s move onto talking about marketing. Tim Parkin, president of Parkin Consulting, explained how startup founders can use marketing as a tool to stand out in the noisy environment. Differentiation has never been harder, but also more imperative.

Here’s what to know: Parkin outlines four ways that martech will shift in 2021, strapped with anecdotes and a nod to the importance of investing in influencers.

Red ball on curved light blue paper, blue background. Image Credits: PM Images / Getty Images

Around TechCrunch

Your humble yet favorite startup podcast, Equity, got nominated for a Webby! Me and the team need your help to win, so please vote for us here. Your support means a ton.

This newsletter will always be free, but if you do want to support me, feel free to use code STARTUPSWEEKLY for 25% off a subscription to Extra Crunch.

Across the site

Seen on TechCrunch

The rise of the next Coinbase, thanks to Coinbase

Attack of the robotic SPACs

Tiger Global backs Indian crypto startup at over $500M valuation

This is your brain on Zoom

Early Coinbase backer Garry Tan is keeping the ‘vast majority’ of his shares because of this deal

Seen on Extra Crunch

Dear Sophie: How can I get my startup off the ground and visit the US?

How to pivot your startup, save cash and maintain trust with investors and customers

How startups can ensure CCPA and GDPR compliance in 2021

As UiPath closes above its final private valuation, CFO Ashim Gupta discusses his company’s path to market

European VC soars in Q1

zoom glitch

Image Credits: TechCrunch

Thanks for reading along today and everyday. Sending love to my readers in India and everyone around the world that is facing yet another deadly surge of this horrible disease. I’m rooting for you.

N

Norwest Venture Partners’ Lisa Wu to teach founders how to think like a VC at TC Early Stage

The best venture capitalists take moonshot risks based on due diligence, support portfolio companies through ups and downs and find focus through noise.

When you look at the job description of the best founder, you’ll find nearly the exact same list of characteristics (except, of course, instead of a portfolio, the founder is supporting a team of employees). The shared ethos is almost uncanny — and includes a slew of strategic synergies both sides of the table can exploit.

That’s why we’re excited to announce that Lisa Wu, a partner at Norwest, is joining us at TechCrunch Early Stage in July to talk tactics, and how founders can think like a VC in all facets of their business.

Wu focuses on seed to late-stage companies with a specific interest in consumer internet, digital commerce and next-generation marketplaces. Her portfolio includes Calm, Ritual, Plaid and the recently public Opendoor.

With the inside scoop on these iconic companies, Wu will use her experience to illustrate how the best founders can leverage the language of venture capital in the pitch and beyond. The goal is to give the audience a list of actionable insights to implement immediately — and lean heavily on anecdotes found in Wu’s impressive work in the industry.

Tickets for TC Early Stage: Marketing & Fundraising are available at the early-bird rate, which gives you an instant $100 savings if you book before next week!

 

No one is talking about remote work from space

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

First and foremost, Equity was nominated a Webby for “Best Technology Podcast”!!! Drop everything and go Vote for Equity! We’d appreciate. A lot. And even if we lose, well, we’ll keep doing our thing and making each other laugh.

Natasha and Danny and Alex and Chris got together to chat through the week’s biggest news. And like every other week in recent memory, it was a busy one. But we did our best to hit some M&A news, some unicorn news, and some funding news from smaller startups.

Now, onto the show rundown, here’s what we discussed:

We’ll see you on Monday.

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!

The rise of the next Coinbase, thanks to Coinbase

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

For this week’s deep dive Natasha and Alex and Danny wanted to chat crypto. No, not cryptography, but cryptocurrency. The topic has been hot in recent months thanks to Coinbase, recent weeks thanks to the rapid price appreciation in the value of many coins, and in recent days because dogecoin went crazy.

Vote for Equity to win a Webby so that our parents are proud!

So with our minds tuned to the future of money, and commerce, and content, here’s the show’s rundown:

  • Recent crypto news has been more than busy, with Venmo adding crypto support, Brian Brooks joining Binance, and the Coinbase direct listing.
  • But that’s not all, there have been a host of NFT marketplaces that have raised millions in the past week. We talk about Rarible, SuperRare, OpenSea, and Dapper Labs. We talk about differentiation, UX, and if more than one marketplace can win.
  • Dogecoin’s to the moon moment had reached a new price high and come down some before our show recorded, but the cryptocurrency’s joke apparently is still funny after all these years. Here’s a tweet and an article about it.
  • And the idea that Coinbase’s successful direct listing will matter for investors betting on crypto-focused startups is true, at least according to investors. More on that here, and hit us up if you want a sweet discount code to get past that paywall.

Equity is back on Friday with our weekly news roundup. It’s going to be a treat. Chat soon!

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

Someone minted an NFT of the low-key photoshop we made to try to get people to vote for Equity in the Webbys

Our venture capital-focused podcast Equity made it to the finals of its category in the Webbys, a digital awards show for digital things. We were pretty stoked about it.

Natasha, in fact, was both excited and ready to go to battle with editing tools so that we could share an image of sorts in an attempt to garner more votes. We’d like to win, frankly.

Then Patrick Sutton who works at Avalanche, a finance-focused blockchain, minted an NFT of Natasha’s work, which she described as “too ugly to share.” 2021 is full of all sorts of surprises, it appears. So now, you can vote for Equity — please do, we will love you for eternity — or you can buy an NFT of our excellent photoshop work.

How it started:

How it’s going:

 

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!

 

Tom Brady and Salesforce Ventures pour millions into Class, a Zoom-friendly edtech startup

Class, an edtech startup that integrates exclusively with Zoom to make remote teaching more elegant, has raised $12.25 million in new financing. The round brings Salesforce Ventures, Sound Ventures and Super Bowl champion Tom Brady onto its capital table.

CEO and founder Michael Chasen said that Marc Benioff, the CEO of Salesforce, approached the company about investing in Class. Salesforce Ventures launched a $100 million Impact Fund in October 2020, a month after Class launched, to back edtech companies and cloud enterprises businesses with an impact lens.

As for Tom Brady entering the edtech world, Chasen said that the famous football player has made tech investments in the past and, “as the father of three is passionate about helping people through education.”

“Tom Brady and I are both fathers to three kids and like all parents, we get the need to add teaching and learning tools to Zoom,” Chasen added.

Class has now raised $58 million in less than a year, with a $30 million Series A in February 2021 and a $16 million seed round in September 2020. Today’s raise is less than its Series A round, which signals it was likely more done strategically to bring on investors than out of necessity.

The money will be used to help roll out Class to K-12 and higher-ed institutions across the world. The startup’s software publicly launched on the Mac a few months ago, and will exit beta for Windows, iPhone, Android and Chromebook in the next few weeks, Chasen said. The larger public launch will help scale the some 7,500 schools that have shown interest in adopting Class.

The big hurdle for Class, and any startup selling e-learning solutions to institutions, is post-pandemic utility. While institutions have traditionally been slow to adopt software due to red tape, Chasen says that both of Class’ customers, higher ed and K-12, are actively allocating budget for these tools. The price for Class ranges between $10,000 to $65,000 annually, depending on the number of students in the classes.

“We have not run into a budgeting problem in a single school,” Chasen said in February. “Higher ed has already been taking this step towards online learning, and they’re now taking the next step, whereas K-12, this is the first step they’re taking.” So far, Class has more than 125 paying clients with even-split between K-12 and higher ed, and 10% of customers using it for corporate teams.

It’s not the only startup that is trying to reinvent Zoom University. A number of companies are trying to serve the same market of students and teachers who are fatigued by current video conferencing solutions which — at best — often look like a gallery view with a chat bar. Three companies that are gaining traction include Engageli, Top Hat and InSpace.

While each startup has its own unique strategy and product, the founders behind them all need to answer the same question: Can they make digital learning a preferred mode of pedagogy and comprehension — and not merely a backup — after the pandemic is over?

As that question continues to get explored, today’s news shows that Class isn’t having any trouble recruiting people to believe the answer is yes. In just nine months, the company has gone from two to more than 150 employees and contractors.

What does it take to create a startup ecosystem?

Say it louder for the people in the back: As tech grows bigger by the minute and venture capital adds dollar signs by the day, a startup hub’s success is not an either/or situation. The next Silicon Valley is a tired narrative, when in reality startups look, innovate and create differently all over the world.

On that note, my colleagues spent the past few months digging into the market in Detroit, Michigan:

While StockX is the startup darling that may have put the region in the generalist spotlight, I soon learned that the sneaker marketplace company wasn’t at all where the city’s story started and ended. Instead, it started a little more at ground level.

Detroit techies consistently point to billionaire Dan Gilbert, the co-founder of Quicken Loans and the owner of the Cleveland Cavaliers, as the reason behind the region’s startup growth. It made me immediately wonder if all it takes to create a startup ecosystem is deep pockets.

Turns out it’s a little more complicated than that.

Gilbert has poured at least $2.5 billion into rehabilitating buildings in the core of Detroit. Then he invested in the companies that took office space in those buildings, the restaurants that would feed those new families in the area and the retailers that would fill up the side blocks. It wasn’t one check by one billionaire, but instead a measured and consistent approach to try to reestablish Detroit as a city of innovation within the United States.

I think one founder put it best: “there are a lot of people who hate him, but the reality is that, while he wasn’t the only billionaire in town, he’s the only one who heavily invested in Detroit.”

Beyond Gilbert, the vitalization is spread throughout different sectors. There’s a 12-year-old early-stage venture firm that was one of the first to ever bet on mobility as an investment thesis; there’s a thriving garden startup; and there’s a hardware company that, despite remote work, is finding space to scale:

We’ll continue exploring emerging tech hubs, so throw us suggestions as we virtually (and one day physically) road trip across the country.

 

In the rest of this newsletter, we’ll talk about Tiger Global, IPOs and a few exciting upcoming events. Make sure to follow me on Twitter @nmasc_ to hang during the week.

Tiger Global has a spending problem

This week on Equity, we talked about Tiger Global’s aggressive investment approach and what it could mean for early-stage firms and founders.

Here’s what to know: One of the reasons Tiger Global is feeling spendy is that it just closed one of the biggest venture funds ever. In 2020, the firm closed $3.75 billion in capital commitments. In 2021, it nearly doubled its own record, with $6.7 billion raised for its latest fund.

And if you don’t believe me, below is a list of just some of the New York-based firms’ recent activity:

Crypto’s Coinbase moment

Cryptocurrency trading giant Coinbase went public this week. The company opened at $381 per share, valuing the exchange at nearly $100 billion. It was a massive exit for the company, which underwent scrutiny last year when it banned politics at work.

Here’s what to know: It’s fairly obvious that Coinbase’s successful IPO was a big moment for fintech and crypto startups, as well as the decentralized finance movement. My colleagues Alex Wilhelm and Anna Heim dug into how the crypto ripple effect could look from the perspective of a few venture capitalists. There are too many good bits for me to choose an excerpt, so read it for yourself here, and a take sneak peek below:

So while there is an ocean of bullish sentiment that the Coinbase listing will lead to rising venture capital investment into crypto startups, there’s also some caution to be had; how much of the growing market that Coinbase can capture and control is not yet clear, though IVP’s Loverro was very bullish during our interview about the company’s expanding feature set — things like staking Tezos, or buying Uniswap. Its backers think that Coinbase is well-positioned to absorb future market upside in its niche.

Around TechCrunch

As always, we have a ton of exciting events coming up. Here’s just a taste:

Across the week

Seen on TechCrunch

Pakistan temporarily blocks social media

Republican antitrust bill would block all Big Tech acquisitions

Can the tech trade show return in 2021?

Garry Kasparov launches a community-first chess platform

Seen on Extra Crunch

What’s fueling hydrogen tech?

Billion-dollar B2B: cloud-first enterprise tech behemoths have massive potential

For startups choosing a platform, a decision looms: build or buy?

Building customer-first relationships in a privacy-first world is critical

The IPO market is sending us mixed messages

Best,

N

Do you need a SPAC therapist?

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

Natasha and Danny and Alex and Grace were all here to chat through the week’s biggest tech happenings. It was yet another busy week, but that just means we had a great time putting the show together and recording it. Honestly, we had a lot of fun this week, and we hope you crack a smile while we dig through the latest as a team.

Ready? Here’s the rundown:

  • The Coinbase direct listing! Here are our notes on its S-1, its direct listing reference price and its results. And we even wrote about the impact that it might have on other startup verticals!
  • Grab’s impending SPAC! As it turns out, Natasha loves SPACs now, and even Danny and Alex had very little to say that was rude about this one.
  • Degreed became a unicorn, proving yet again that education for the enterprise is a booming sub-sector.
  • Outschool also became an edtech unicorn, thanks to a new round led by Coatue and everyone’s rich cousin, Tiger Global. The conversation soon devolved into how Tiger Global is impacting the broader VC ecosystem, thanks to a fantastic analysis piece that you have to read here. 
  • Papa raised $60 million, also from Tiger Global. What do you call tech aimed at old folks? Don’t call it elder tech, we have a brand new phrase in store. Let’s see if it catches on.
  • AI chips! Danny talks the team through grokking Groq, so that we can talk about TPUs without losing our minds. He’s a good egg.
  • And, finally, Slice raised more money. Not from Tiger Global. We have good things to say about it.

And that is our show! We are back on Monday morning!

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!

Why expensive workout gear is actually cheap

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

For this week’s deep dive Natasha and Alex wanted to dig into the Tonal EC-1, a huge document spread across a number of posts. Our goals were pretty simple: To better understand Tonal’s journey, and also to get into the mind of its author.

So we corralled JP Mangalindan into firing up his computer, microphone, and recording software for a chat. Here’s what we covered:

  • What is Tonal, why is it interesting, and why did JP spend so much time learning about the company?
  • What did he have to leave out of the final report?
  • His views on fitness gear, and the Peloton effect more broadly
  • What was it like to write something so gosh darn long?

The Tonal EC-1 comprises four main articles representing about 10,600 words and a reading time of about 43 minutes:

As Natasha is currently — shh, it’s a secret — working on an EC-1 of her own, we had more than a usual amount of interest in the project. Use code Equity for a super sweet discount to access this story and all of our premium content.

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

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.”