Outschool: The Latest Edtech Unicorn

Outschool Secures $75 Million in Series C Funding

Outschool, a platform connecting children with small-group, online extracurricular activities, has successfully closed a $75 million Series C funding round. This investment was spearheaded by Coatue and Tiger Global Management. The information regarding this deal was initially reported by TechCrunch, and subsequently confirmed by the company itself.

Valuation and Funding History

This latest funding round has resulted in a valuation of $1.3 billion for Outschool. This represents a significant increase, approximately four times its previous valuation of around $320 million established less than a year prior.

To date, Outschool has raised a total of $130 million in venture capital, encompassing this most recent round of investment.

Growth and Revenue Sustainability

The company’s rapid valuation growth is notable, particularly within the edtech sector, which experienced substantial growth during the pandemic. However, CEO and co-founder Amir Nathoo attributes this valuation not solely to the current investment climate, but also to the increasing sustainability of its revenue streams.

Shift Towards Recurring Revenue

Outschool’s primary offering consists of after-school classes designed for either ongoing learning or one-time engagement. A key trend observed is the growth of ongoing classes, which have increased from representing 10% of the business to now constituting 50%.

This shift indicates a move towards more predictable and reliable revenue generation over time.

Benefits of Ongoing Classes

The transition from sporadic classes to sustained engagements benefits both the company and its students. Consistent revenue streams are highly valued by investors. Furthermore, continuous participation fosters stronger relationships between students, the course material, and their peers.

For example, regular debate classes or weekly dance sessions create a more immersive and lasting learning experience.

Evolving Student Interests

Amir Nathoo notes that inquiries frequently focus on the most popular classes. However, Outschool’s offerings are constantly adapting to reflect the changing preferences of its young user base. Student interests can shift rapidly, from mathematics one week to Minecraft and architectural design the next.

Impressive Revenue Growth

This evolving revenue model has contributed to substantial growth in bookings. In 2020, Outschool generated over $100 million in bookings, a significant increase from $6 million in 2019 and $500,000 in 2017.

While the company anticipates continued aggressive growth in 2021, Nathoo refrained from disclosing specific projections.

Cash Flow and Future Investment

Outschool briefly achieved positive cash flow last year due to the surge in bookings. However, this situation has since changed.

Nathoo stated his commitment to maintaining proximity to profitability, but emphasized the importance of strategic investment in long-term opportunities given the dynamic market conditions.

Future Plans for Outschool

Nathoo anticipates expanding Outschool’s team from its current 110 employees to 200 before the year concludes, with a significant emphasis placed on international expansion. The platform initiated operations in Canada, New Zealand, Australia, and the U.K. in 2020, and recruitment efforts will be sustained in these regions and beyond.

Conversely, the rate of teacher recruitment within the United States has slowed compared to the peak of the pandemic. Initially, Outschool had 1,000 teachers on its platform when the pandemic began. This number rapidly increased to 10,000 teachers within a few months, necessitating a thorough screening process which the founder described as demanding, yet essential.

Revenue and Teacher Compensation

Outschool’s revenue is maximized when teachers operate on a full-time basis. Educators receive 70% of the class fees they establish, with Outschool retaining the remaining 30%. However, Nathoo positions the platform primarily as a complement to conventional education. Rather than increasing revenue by encouraging full-time teacher commitments, the CEO is prioritizing the addition of more part-time educators.

Drawing inspiration from Airbnb’s host endowment fund – designed to share profits with those integral to its success – Outschool has allocated 2% of its stock to a similar initiative. This program aims to reward teachers on the platform should a liquidity event occur.

Expanding Reach Through Partnerships

A key objective for Outschool is to integrate its services within traditional school systems. While some startups have successfully sold to schools during the pandemic, navigating lengthy district sales cycles and budgetary constraints remains a challenge for rapid growth. The company intends to reach students through contracts with schools and employers, potentially increasing access for families with limited financial resources.

Nathoo indicates that enterprise sales currently represent a small portion of the business, but this strategy was initiated last year in response to the COVID-19 pandemic. A pilot program offering its B2B services is currently underway with several schools.

Potential Acquisitions and Long-Term Vision

Outschool is also open to acquiring early-stage startups specializing in direct-to-consumer learning within international markets. Although no acquisitions have been completed to date, the broader edtech sector is experiencing increased consolidation activity.

Nathoo emphasized that Outschool’s continued growth, even with the reopening of schools, mitigates concerns about a post-pandemic decline. He believes there will be an initial surge in in-person activities, followed by a stabilization towards a more balanced approach.

“The future of education is hybrid,” he stated.

The company’s core principles regarding online learning have remained consistent since its inception. Outschool has consistently avoided the for-credit, subject-focused digital education market, instead concentrating on supplementary learning opportunities for students outside of school hours.

Addressing an Underserved Need

“This segment of the education system has historically been underserved and lacked sufficient resources,” Nathoo explained. “The benefits of online learning – convenience, affordability, and the breadth of available options – will continue to be valuable, particularly when local access is limited.”

Note: A previous iteration of this article incorrectly stated that Outschool was dedicating 2% of its funding round to teachers. This has been corrected to reflect that 2% of the company’s stock has been allocated for this purpose.