Kahoot acquires Clever, the US-based edtech portal, for up to $500M

Kahoot, the popular Oslo-based edtech company that has built a big business out of gamifiying education and creating a platform for users to build their own learning games, is making an acquisition to double down on K-12 education and its opportunities to grow in the U.S. It is acquiring Clever, a startup that has built a single sign-on portal for educators, students and their families to build and engage in digital learning classrooms, currently used by about 65% of all U.S. K-12 schools. Kahoot said that the deal — coming in a combination of cash and shares — gives Clever an enterprise value of between $435 million and $500 million, dependent on meeting certain performance milestones.

The plan will be to continue growing Clever’s business in the U.S. — which currently employs 175 people — as well as give it a lever for expanding globally alongside Kahoot’s wider stable of edtech software and services.

“Clever and Kahoot! are two purpose-led organizations that are equally passionate about education and unleashing the potential within every learner,” said Eilert Hanoa, CEO at Kahoot, in a statement. “Through this acquisition we see considerable potential to collaborate on education innovation to better service all our users – schools, teachers, students, parents and lifelong learners – and leveraging our global scale to offer Clever’s unique platform worldwide. I’m excited to welcome Tyler and his team to the Kahoot family.”

The news came on the same day that Kahoot, which is traded in Oslo with a market cap of $4.3 billion, also announced strong Q1 results in which it also noted it has closed its acquisition of Whiteboard.fi, a provider of whiteboard tools for teachers, for an undisclosed sum.

The same tides that have been lifting Kahoot have also been playing out for Clever and other edtech companies.

The startup was originally incubated in Y Combinator and launched with a vision to be a “Twilio for education“, which in its vision was to create a unified way of being able to tap into the myriad of student sign-on systems and educational databases to make it easier for those building edtech services to scale their products, and bring on more customers (schools, teachers, students, families) to use them. As with payments, financial services in general, and telecommunications, it turns out that education is also a pretty fragmented market, and Clever wanted to figure out a way to fix the complexity and put it behind an API to make it easier for others to tap into it.

Over time it built that out also with a marketplace (application gallery in its terminology) of some 600 software providers and application developers that integrate with its SSO, which in turn becomes a way for a school or district to subsequently expand the number of edtech tools that it can use. This has been especially critical in the last year as schools have been forced to close in-person learning and go entirely virtual to help stave off the spread of the Covid-19 pandemic.

Clever has found a lot of traction for its approach both with schools, and investors. With the former, Clever says that it’s used by 89,000 schools and some 65% of K-12 school districts (13,000 overall) in the U.S., with that figure including 95 of the 100 largest school districts in the country. This works out to 20 million students logging in monthly and 5.6 billion learning sessions.

The Duolingo EC-1

Education may well be the most important activity we conduct as a society — and it may also be the hardest space to build a startup in. Selling to school districts and universities is notoriously difficult, but enticing consumers is even harder. Learning takes focus, patience, tenacity and resources, and most consumers would prefer to watch some lip-sync videos on TikTok than stare at math equations (not to mention that such entertainment is free). Engagement and education feel aggressively at odds, which limits the way that startups can scale and succeed.

Yet, the revulsion VCs have traditionally had for the space has slowly dissipated over the past 10 years. Consumer and enterprise startups in edtech are increasingly attracting funding, and there is a growing crop of edtech-focused investors who are betting big on the future here. What’s changed isn’t the market or its potential, but rather the perception that ambitious and sustainable companies can truly be built in education.

One of the companies that has led the charge in transforming those perceptions is Pittsburgh-based Duolingo. It’s a language-learning app that has caught fire. From humble origins a decade ago as a translation platform for news agencies, it’s now used by 500 million people across the world to learn Spanish, English, French and more, all while generating bookings of $190 million in 2020. It’s a smashing success, but a success that was hard earned after a years-long effort of product and revenue experimentation to find its current niche.

TechCrunch’s writer and analyst for this EC-1 is Natasha Mascarenhas. Mascarenhas has been covering edtech from the very first day she joined TechCrunch as a venture capital and startups writer, and she has built up a reputation as a fearless chronicler of this increasingly vital ecosystem. The lead editor of this package was Danny Crichton, the copy editor was Richard Dal Porto, and illustrations were created by Nigel Sussman.

Duolingo had no say in the content of this analysis and did not get advance access to it. Mascarenhas has no financial ties to Duolingo or other conflicts of interest to disclose.

The Duolingo EC-1 comprises four main articles numbering 12,200 words and a reading time of 48 minutes. Here’s what’s in store:

And finally, note that Duolingo CEO and co-founder Luis von Ahn is coming to Disrupt, so make sure to grab your tickets because the conversation will continue there.

We’re always iterating on the EC-1 format. If you have questions, comments or ideas, please send an email to TechCrunch Managing Editor Danny Crichton at [email protected].

How a bot-fighting test turned into edtech’s most iconic brand, Duolingo

Luis von Ahn, an entrepreneur who has dedicated his career to scaling free education, has probably annoyed you more than once. In fact, you’ve likely been annoyed by his work dozens and maybe hundreds of times over the years.

A decade before he co-founded the whimsical and language-learning app Duolingo, one of the most popular education apps in the world with over 500 million downloads and 40 million active users, he was building the technology that would become CAPTCHA, those human-annoying but bot-preventing little tests that pop up when registering or logging in to popular internet services like email.

It may seem like a radical pivot, but in fact, the lessons of how to create useful security tests at scale for consumers would one day offer the core DNA for building one of the most successful edtech companies in the world. The immigrant entrepreneur would soon learn himself that crowdsourcing, language and a willingness to adapt and ignore critics could change the face of an industry forever.

CAPTCHA’ing a market

Von Ahn grew up in Guatemala City, where he saw firsthand the wretched state of public schools in impoverished countries. His mother spent most of her income sending him to “fancy private school” as he puts it, and he estimates she spent over $1 million on his education over his lifetime. The price tag weighed on him, and he knew he wanted to broaden access to education in the future.

After attending Duke as an undergrad, von Ahn was an enterprising first-year computer science Ph.D. student at top-ranked Carnegie Mellon University when he attended a talk by Yahoo’s chief scientist about 10 of Yahoo’s biggest headaches. One issue stood out: hackers were creating bots that register thousands of email addresses to send spam.

Inspired and full of immigrant grit, von Ahn and a team led by his then-adviser Manuel Blum created a nifty little test that could distinguish between bots and humans. The test, called a CAPTCHA, presented squiggly, ink-blotted words whenever a user tried to log in. Computer vision at the time couldn’t read the obscured text, but humans easily could — creating a useful signal. The deceptively simple test worked, so von Ahn, then a 20-something student, gave it to Yahoo for free, not understanding the value it would one day have.

Luis von Ahn, the inventor of CAPTCHA and reCAPTCHA, and co-founder of Duolingo. Image Credits: Duolingo

A fire was lit. With Yahoo as a distribution channel, CAPTCHA tests exploded in popularity, becoming an almost universally recognizable security checkpoint feature. At their peak, people spent 500,000 hours a day typing up to 200 million CAPTCHAs around the world. About 10% of the world’s population had recognized at least one word, von Ahn estimates.

For all the technology’s success, though, there was a downside. “During those 10 seconds while you’re typing in a CAPTCHA, your brain is doing something that computers can’t do, which is amazing,” von Ahn said. But the tests were annoying and pointless, so he wondered, “Could we get those 500,000 hours a day to do something useful for humanity?”

So in 2005, he launched reCAPTCHA. These new tests would have the same goal of CAPTCHA, but with a twist: the prompts would all be scans of books. Users would complete the security test while also helping to digitize books for the Internet Archive.

The early design of reCAPTCHA. Image Credits: Duolingo

This time, von Ahn knew his nifty idea was worth something. In 2009, he sold reCAPTCHA to Google, a transaction conducted just a year after the internet giant had purchased a license to one of his other research projects, a game focused on image labeling.

Luis von Ahn presenting about reCAPTCHA and CAPTCHA, two of his iconic inventions. Image Credits: Duolingo

The acquisition offered not just a monetary award (exact terms of the deal were not disclosed), but also suddenly garnered von Ahn serious clout in the industry just a few years after acquiring his Ph.D. Yet, instead of taking up tenure at the tech company, he stayed local in Pittsburgh and became a computer science professor at his alma mater.

Entering the world of education as a professor felt like an answer to his original dream of expanding access to education. What von Ahn didn’t know, though, was that his iconic work was simply foreshadowing. Carnegie Mellon, crowdsourced translation and even Google would all play a role in his next project as well, albeit in wildly different ways: incubation, failure and investment. For him, the success of two tools that used language as a barrier was the beginning of a long journey into discovering if, and how, language could instead be a bridge. It was an insight that would grow into a startup valued at $2.4 billion with the goal of making language learning fun: Duolingo.

Duolingo’s first words

In 2011, edtech startups such as Coursera and Codecademy were popping up — companies that today are valued as multibillion-dollar businesses. The rise of iPads and tablets in classrooms gave permission to founders who believed the future of education was on the internet. Enthusiasm was boiling, and virtual instruction felt like a nascent, but ambitious, place to bet on.

The product-led growth behind edtech’s most downloaded app

Duolingo CEO and co-founder Luis von Ahn was tired of the gray and dreary design aesthetic edtech companies used to emulate universities. Instead, he and the company’s early team sought inspiration from games like Angry Birds and Clash Royale, looking to build a class that screamed more cartoon anarchy than lecture hall. From that frenetic creativity came the company’s distinctive mascot: a childish and rebellious evergreen-colored owl named Duo.

Duolingo didn’t just throw out the old colors though — it wanted to completely rethink language learning from the bottom up for mobile. So it replaced top-down curriculums with analytics-driven growth strategies, becoming consumed by an ethos that has more recently been dubbed product-led growth.

Used by companies such as Calendly, Slack and Dropbox, product-led growth is a strategy in which a company iterates its product to create loyal fans-turned-customers who popularize the product with others, creating a viral growth loop. It’s an attractive route because it vastly lowers the cost of acquiring users while also increasing engagement and thus retention. Duolingo, for example, has taken this model and found ways to embed engagement hooks, pockets of joy and addictive education features within its core app.

With early venture capital in its pocket, Duolingo could afford to focus on product over profits.

In part one of this EC-1, we explored how von Ahn’s previous products around CAPTCHA led to Duolingo’s launch, the rise and fall of crowdsourced translation as a way to disrupt language learning, and the accidental iteration of a top education app by a pair of interns. The startups’ early signs of success gave it energy to focus on growth to accomplish two things: know what they’re doing works, and garner a lot of user data so it continued iterating the product into something that was ever more addicting to use.

Now, we’ll analyze how Duolingo used product-led growth as a lever to expand its consumer base, and how a company built on gamification tries to balance its whimsy with education outcomes.

Duo, Duolingo’s mascot, flying around. Image Credits: Duolingo

From Angry Birds to an amusing and sometimes scowling owl

Tyler Murphy, having graduated from his intern position at Duolingo launching the company’s iOS app, noticed that the gaming world was rapidly innovating around him in the mid-2010s. Angry Birds was no longer the only popular game on mobile, and video games generally were getting more engaging, with in-app currencies, progress bars and an experience that felt creatively addictive. He suddenly saw connections between the entertainment that games provided and the patient learning required for languages.

“Wouldn’t it be cool if the skill got harder and harder, kind of like how a character in a game gets more powerful and powerful?” he remembers asking. Duolingo had taken early inspiration from Angry Birds as well as Clash Royale later, following that game’s launch in 2016. “Half the people at Duolingo were playing Clash Royale, at some point,” he said. “And I think that shaped our product roadmap a lot and our design language a lot.”

Games solved a problem that was acutely personal for Murphy. The employee, who would go on to become chief designer at Duolingo, had gone to college to teach Spanish to students, but ultimately left the field after struggling to inspire kids in a classroom setting. The realization that Duolingo could borrow from gaming instead of monotonous edtech companies gave an adrenaline rush — and permission — to the team to experiment with new approaches to learning.

Every game needs some form of experience points and leveling up, and for Duolingo learners, that progress comes in the form of skill trees.

These trees, which were conceived by a design agency during the company’s early development, are Duolingo’s core experience, a visual representation of language skills that are interconnected and get progressively more difficult and refined over time. Each skill is a prerequisite for another. Sometimes it’s just logic: in order to be able to speak about restaurants, you probably should be able to introduce yourself first. Sometimes, however, it’s a necessary building block: in order to speak about your routine, you should be able to speak about basic everyday activities.

In Duolingo, each unit has its own suite of skills, each of which is broken down into five lessons. Once you complete all five lessons, you can move to the next skill. Complete all skills and you can move to the next unit. Depending on the language, a user might encounter an average of 60 skills across nine different units within a course.

Duolingo Skill Tree UX in 2012. Image Credits: Duolingo

Duolingo Skill Tree UX in 2021. Image Credits: Duolingo

The growth power of a cartoon owl meme

Duolingo had its “leveling up” model figured out, but now it had to integrate gamification into every nook and cranny of its app. One of its first challenges was rebuilding the sort of teacher-student emotional bond that can help students stay motivated to learn. No one likes to fail, and Duolingo stumbled upon a scalable approach through its cartoon owl mascot Duo — also thought of by the design agency behind the skill trees.

Whenever users succeed or fail at their lessons today, they are likely to be encouraged or admonished by Duo’s presence. Designers sprinkled Duo throughout the product, looking at Super Mario Brothers as an example of how to use iconic art to create a friendly gaming experience. In early iterations of the app, Duo was present but static, more of an icon than a personality. That changed as the company increasingly pushed harder on engagement.

How Duolingo became fluent in monetization

As its meandering route to monetization will demonstrate, Duolingo isn’t mission-oriented, it’s mission-obsessed.

Co-founders Luis von Ahn and Severin Hacker never wanted to charge consumers for access to Duolingo content, a purpose imbued throughout the company’s culture. For years in order to work at Duolingo, you had to be comfortable with joining a company in Pittsburgh that was in no rush to make money. The startup, filled with education enthusiasts and mission-driven employees, became “very college pizza vibes,” Gina Gotthilf, former VP of Marketing at Duolingo, described. Everyone was against making money and having structure — some employees even threatened to quit if Duolingo ever charged a cent to users.

“One thing that recruited me was this brilliance that we can kill two birds with one stone,” she said, referring to Duolingo’s original translation-service business model we talked about in part one of this EC-1. “It was obviously tied to Luis’ thinking and reCAPTCHA and it was magical and brilliant.”

Free may not have paid the bills, but it did come with a valuable upside: growth. By 2017, Duolingo would boast having 200 million users, which was double von Ahn’s goal when he first launched to the public on the TechCrunch Disrupt stage.

Duolingo launched saying it would never do advertisements, subscriptions or in-app purchases — approaches that now all exist on the platform. Today, Duolingo has a simple freemium business model that is remarkably unconventional. It has a free version with all of its learning content, and it charges a subscription of $6.99 per month for paywalled features such as unlimited hearts, no advertisements and progress tracking. It also has a number of other revenue streams it’s developing, such as language proficiency tests.

As we’ll explore, Duolingo’s route from anti-business rebel to conventional consumer subscription is complex, full of twists and turns. While Duolingo never wanted to look like other edtech companies, as we saw with its product strategy in part two, it turns out that evolving from college pizza vibes meant that it would have to take a page from its peers.

Duocon, Duolingo’s new conference to celebrate education and language. Image Credits: Duolingo

Business only speaks one language: Money

“They had users and in Silicon Valley, there was this notion that if you have users, you can turn anything into money,” said Bing Gordon, the Kleiner Perkins Caufield & Byers (KPCB) partner who led Duolingo’s $20 million Series C in 2014.

“This was not very controversial back then, at least with investors,” von Ahn said. “This became controversial for us once we raised a ton of money, and we still weren’t making more money.”

While the company’s investors were relatively lenient in the early years, patience was starting to run thin. In June 2015, Duolingo raised a $45 million Series D round led by Laela Sturdy of Google Capital (later rebranded CapitalG), valuing the company at $470 million. She invested because of Duolingo’s growth and engagement numbers, but confronted von Ahn with some direct advice.

“She said to me, ‘Look, it worked for you to continue getting bigger and bigger checks from venture capital,’” von Ahn said. “‘But this is the last time it works for you … if you’re trying to con people, you cannot con anybody bigger than us [at Google].’” Duolingo’s valuation wouldn’t just be at stake next time it went fundraising on Sand Hill Road — its very survival would be as well.

Looking back, Sturdy said that she always “had confidence that they would come up with a revenue model” because of Duolingo’s passionate and organic users.

When a startup chooses to raise venture capital, it sets itself on a heavily-prescribed course. Suddenly, success isn’t defined merely as cash-flow breakeven with a long-term sustainable business. It has to be an exit of some sorts, and a big one at that. While Duolingo used venture as a lifeline to fund its product development, venture also came with pressure to become a billion-dollar company, or more. And that meant making revenue, not just growing engagement.

Von Ahn says his conversation with Sturdy is what really changed his mindset about money. After the Google check hit Duolingo’s bank account, he and Hacker began thinking about ways to make Duolingo as much a monetary success as it had been an educational one.

Duolingo’s Pittsburgh HQ. Image Credits: Duolingo

Dr. Ahn or: How I learned to stop worrying and love the revenue(s)

“It was clear that Luis didn’t have commercial instincts, he had cultural instincts and a deep focus on learning,” said Gordon. “[When we invested] Duolingo predicted it was on the verge of revenue growth, and it turned out it was not on the verge of revenue growth.”

What Gordon is alluding to was a litany of monetization attempts in Duolingo’s past. Translation, which helped von Ahn’s previous two startups, didn’t work when applied to language-learning services, and the company only secured two customers before ending the service. Business partnerships, such as a relationship with Uber to certify and train drivers in Brazil to speak English, didn’t catch fire.

Duolingo can’t teach you how to speak a language, but now it wants to try

Duolingo has been wildly successful. It has pulled in 500 million total registered learners, 40 million active users, 1.5 million premium subscribers and $190 million in booked revenues in 2020. It has a popular and meme-ified mascot in the form of the owl Duo, a creative and engaging product, and ambitious plans for expansion.There’s just one key question in the midst of all those milestones: Does anyone actually learn a language using Duolingo?

“Language is first and foremost a social, relational phenomenon,” said Sébastien Dubreil, a teaching professor at Carnegie Mellon University. “It is something that allows people to make meaning and talk to each other and conduct the business of living — and when you do this, you use a tone of different kinds of resources that are not packaged in the vocabulary and grammar.”

Duolingo CEO and co-founder Luis von Ahn estimates that Duolingo’s upcoming product developments will get users from zero to a knowledge job in a different language within the next two to three years. But for now, he is honest about the limits of the platform today.

“I won’t say that with Duolingo, you can start from zero and make your English as good as mine,” he said. “That’s not true. But that’s also not true with learning a language in a university, that’s not true with buying books, that’s not true with any other app.”

Luis von Ahn, the co-founder of Duolingo, visiting President Obama in 2015. Image Credits: Duolingo

While Dubreil doesn’t think Duolingo can teach someone to speak a language, he does think it has taught consistency — a hard nut to crack in edtech. “What Duolingo does is to potentially entice students to do things you cannot pay them enough time to actually do, which is to spend time in that textbook and reinforce vocabulary and the grammar,” he said.

That’s been the key focus for the company since the beginning. “I said this when we started Duolingo and I still really strongly believe it: The hardest thing about learning a language is staying motivated,” von Ahn said, comparing it to how people approach exercise: it’s hard to stay motivated, but a little motion a day goes a long way.

With an enviable lead in its category, Duolingo wants to bring the quality and effectiveness of its curriculum on par with the quality of its product and branding. With growth and monetization secured, Duolingo is no longer in survival mode. Instead, it’s in study mode.

In this final part, we will explore how Duolingo is using a variety of strategies, from rewriting its courses to what it dubs Operation Birdbrain, to become a more effective learning tool, all while balancing the need to keep the growth and monetization engines stoked while en route to an IPO.

Duolingo’s office decor. Image Credits: Duolingo

“Just a funny game that is maybe not as bad as Candy Crush.”

Duolingo’s competitors see the app’s massive gamification and solitary experience as inherently contradictory with high-quality language education. Busuu and Babbel, two subscription-based competitors in the market, both focus on users talking in real time to native speakers.

Bernhard Niesner, the co-founder and CEO of Busuu, which was founded in 2008, sees Duolingo as an entry-level tool that can help users migrate to its human-interactive service. “If you want to be fluent, Duolingo needs innovation,” Niesner said. “And that’s where we come in: We all believe that you should not be learning a language just by yourself, but [ … ] together, which is our vision.” Busuu has more than 90 million users worldwide.

Duolingo has been the subject of a number of efficacy studies over the years. One of its most positive reports, from September 2020, showed that its Spanish and French courses teach the equivalent of four U.S. university semesters in half the time.

Babbel, which has sold over 10 million subscriptions to its language-learning service, cast doubt on the power of these findings. Christian Hillemeyer, who heads PR for the startup, pointed out that Duolingo only tested for reading and writing efficacy — not for speaking proficiency, even though that is a key part of language learning. He described Duolingo as “just a funny game that is maybe not as bad as Candy Crush.”

Putting the ed back into edtech

One of the ironic legacies of Duolingo’s evolution is that for years it outsourced much of the creation of its education curriculum to volunteers. It’s a legacy the company is still trying to rectify.

The year after its founding, Duolingo launched its Language Incubator in 2013. Similar to its original translation service, the company wanted to leverage crowdsourcing to invent and refine new language courses. Volunteers — at least at first — were seen as a scrappy way to bring new material to the growing Duolingo community and more than 1,000 volunteers have helped bring new language courses to the app.

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

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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

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.

Indonesian edtech CoLearn gets $10M Series A led by Alpha Wave Incubation and GSV Ventures

A Zoom screenshot with CoLearn's founding team: Marc Irawan, Abhay Saboo and Sandeep Devaram

A Zoom screenshot with CoLearn’s founding team: Marc Irawan, Abhay Saboo and Sandeep Devaram

Indonesian startup CoLearn started as a chain of physical tutoring centers and was in the process of shifting to a hybrid offline-online model when the COVID-19 pandemic hit. The team sensed that remote learning would permanently change how students want to be tutored and decided to focus completely on its app, which launched in August 2020. CoLearn has since been downloaded more than 3.5 million times and has about one million active users, mostly students in grades 7 to 12.

The company announced today it has raised $10 million in Series A funding co-led by Alpha Wave Incubation and edtech-focused GSV Ventures. This marks the first time both have made an investment in Indonesia. The round also included participation from returning investors Sequoia Capital India’s Surge and AC Ventures.

One of the Jakarta-based company’s goals is to improve educational standards in Indonesia. The country’s PISA (Programme for International Student Assessment, a global ranking system created by the Organisation for Economic Co-operation and Development) rankings are in the bottom 10% for math, science and reading. CoLearn’s goal is to help move up Indonesia’s PISA ratings to the top 50% over the next five years.

CoLearn’s app offers more than 250,000 pre-recorded videos with homework help. The videos serve as a hook to convince students (or their parents) to sign up for CoLearn’s live online classes.

Screenshots from CoLearn, an Indonesian online learning app

CoLearn screenshots

The company’s co-founders are Abhay Saboo, Marc Irawan and BYJU product team alum Sandeep Devaram. Despite being the world’s fourth most populous country with 270 million people, Indonesia has not seen the same level of investment and innovation in its educational infrastructure as countries like China or India, Saboo told TechCrunch. “We’re trying to solve the problem of how do you change mindsets, how do you change motivation, how do you increase in confidence levels?”

CoLearn started its offline in business in 2018, before shifting to a hybrid model. Once the pandemic hit, the company decided to go fully online. Even after schools reopen, the team anticipates that most students will prefer the convenience of online afterschool learning because going to brick-and-mortar tutoring centers can eat up hours of their time each day, Saboo said.

CoLearn’s users ask about 5 million questions through the app each month. Its AI platform matches them with video tutorials, recorded by more than 400 tutors, that break down key concepts. Saboo said creating engaging videos instead of presenting solutions in a diagram is one of the ways CoLearn differentiates from competitors like SnapAsk, which raised $35 million last year to expand in Southeast Asia.

“What we realized is that kids are really craving a step-by-step explanation and this is the TikTok generation, so if a picture says a thousand words, then a video says a million,” he said. He added that students often hit pause on the video when they think they have the answer to a question, before skipping to the end to see if they got it right, indicating that they want to understand concepts instead of simply getting a solution.

CoLearn’s live online classes will be its main priority going forward and the startup hopes to replicate the success of companies like China’s Yuanfadao and Zuoyebang. As part of that goal, it runs teacher training programs and expects to train more than 200 teachers over the next two years, especially in STEM subjects. The company may eventually scale into other countries that have similar issues with their education systems, but Saboo said CoLearn’s plan is to focus on Indonesia for at last the next couple of years.

Other investors in CoLearn include Leo Capital, TNB Aura, S7V, January Capital, Alpha JWC, Taurus Ventures, Alter Global and Mahanusa Capital.

In press statement, GSV Ventures managing partner Deborah Quazzo said, “The opportunity to build efficacious learning solutions for the fourth largest country in the world is vast. The greatest businesses are created when entrepreneurs tackle large, important problems and CoLearn is doing that.”

 

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!