ETCH Funding + M&A Update 11/2/23
The world's most expensive Parchment
Hello!
It’s been a while since I’ve written about the goals of ETCH.
This newsletter started off as a COVID passion/retain-my-sanity project; an email follow-up to a Clubhouse(!) group started while we were all cooped up at home. It grew into a side hustle that was strategic to my day job as a VC.
In January 2023, I jumped into the newsletter full-time. I set a 12-month revenue goal to use as a leading indicator of whether this venture might succeed on its own.
This is how, during the Year of AI, I started a human-dependent business. I have written every single word of every ETCH post, as have the other authors who have contributed to this project.
I like technology and someday may go back to investing in technology companies. But, today, we live in a world that is rife with misinformation and hallucinations. It is hard to figure out what is real and, perhaps more importantly, what matters. I believe it is helpful and meaningful to have a human in the loop, processing what is going on.
For example, last week a company called Nexa Edu raised ten million dollars. No fewer than 118 media organizations - including the Associated Press - picked up the announcement.
None of these media outlets added anything substantive to the original press release. They couldn’t! Because Nexa Edu is not a real company and did not raise $10M.
Nexa Edu is (probably) a poorly executed growth hack. Someone in Iceland (or VPNing through Iceland) came up with the idea for an EdTech company over the summer, bought the domain, “sourced” the content (I would be surprised if they developed it on their own), and figured the best way to build traffic to/legitimize the site was to make a fundraising announcement. ~$110 later - $10 for the domain, $99.95 for the press release - the “company” now has a bunch of links making it look legitimate.
Fortunately for everyone involved, the effort does not seem to have worked. Google trends data for the company is effectively 0. And the checkout cart on Nexa Edu’s website is broken, so anyone who did fall for it didn’t lose any money. (This is also what makes me think “growth hack.” A true scammer probably would have checked on that.)
I don’t bring up Nexa Edu to be a Cassandra. I don’t think anyone will lose sleep over the questionable legitimacy of one fundraising announcement, nor should they.
I bring Nexa Edu up to provide a simple example of the work I - through ETCH - am trying to do. In a world of influencers and aggregators and AI, I’m trying to figure out what is really happening in the world of education.
I don’t always get it right! But I’m trying to go about the work as earnestly as possible. It matters *to me* that last week AWS launched an EdTech accelerator, that undergraduate enrollment increased this fall, and that infant care now costs, on average, $45K/year in NYC. Those 3 things mattered to the 200+ of you who clicked each of those links on Sunday too.
So, with a preamble long enough to make a cooking blog jealous, ETCH the business is now 11 months old and 6 months out from introducing a paywall. We are close to hitting our Year 1 revenue target, but not quite there yet.
This is your chance to help!
If you are not a paid subscriber, I’d love for you to try it out (see trial offer below and/or ping me for corporate bundles). If you are a paid subscriber, or are looking for other ways to support ETCH, I’d also appreciate any referrals to hiring managers who might be interested in being members of the ETCH Jobs Community.
With that, on to today’s Funding + M&A Update, which covers Slooh’s recent funding round and acquisitions by Bibliu, Vector Solutions, and Rise In. And Instructure’s $800M(!) acquisition of Parchment.
Funding / M&A
K12
Slooh raises $5M / US, Curriculum Materials / Connecticut Innovations: Connecticut-based Slooh provides live online telescope feeds and curriculum materials that leverage them to individuals and schools around the US.
Slooh’s founder, Michael Paolucci, had significant early-career success co-founding 24/7 Media, an early online advertising company that went public in 1998 and sold to WPP Media (a well-known advertising brand) for $650M in 2007.1
Paolucci founded Slooh shortly thereafter, in 2002. However, it seems like the company didn’t really start to take off until 2022, when the company brought on a number of new employees - likely aligned to an early tranche of this funding round.
(For those with space-inclined kids, the platform looks cool and only costs $9.99/month. I’d be curious to hear feedback on it!)
Higher Ed
Instructure acquires Parchment for $800M / US, Software Infrastructure: Salt Lake City-based Instructure is one of the largest providers of learning management systems (LMSs) to universities. The Instructure team will be joined by Scottsdale-based Parchment, which built its name by providing digital transcript services to high schools and universities.
There are a bunch of ways one could look at this acquisition. For many, this will be another sign of a boom in credentialing. This is actually Instructure’s second acquisition in the space, following their pickup of Badgr last April. That acquisition came on the heels of Pearson’s $200M acquisition of Credly last January. But, funny enough, it was actually Parchment that kicked off the boom, acquiring no fewer than 4 credentialing companies after their private equity buyout in 2020.
For others, this acquisition will be a sign that the university LMS market is now too mature to support a growth narrative. Instructure’s main rival, Blackboard (which was actually co-founded by Parchment’s CEO), is now part of a much larger university infrastructure provider in Anthology, whose resources may be breathing new life into the product. It makes sense that Instructure might look deeper into the university technology stack for customer expansion opportunities and Instructure calls this out in the acquisition press release, saying they expect Parchment to add $2B to the company’s total addressable market.
And finally, some might argue that the acquisition is just a solid financial bet. Instructure expects Parchment to contribute $115M in revenue, with historical customer retention in the “mid-to-high 90s.” Add in ~$50M in expected EBITDA pre-acquisition and this sounds like a pretty great business to own.
I am, of course, going to hedge and guess that all 3 of these reasons were contributing factors to the purchase. It is entirely possible that one was the main driver for the Instructure team, but their combined force is what makes this acquisition compelling to me, even at a price of $800M.
Note: this deal was announced on Monday, so it did not make it into last Sunday’s edition Weekend Reading. You will see it referenced again in this coming Sunday’s edition of Weekend Reading for free subscribers.
Bibliu acquires Texas Book Company / UK (US), Curriculum Materials Platform: New York-based Bibliu provides a cross-publisher catalog of learning materials to universities in the US and abroad. Texas Book Company (TBC) began its life as a wholesaler of used textbooks and evolved into a management company for college bookstores around the US.
This acquisition makes a lot of sense for Bibliu, whose value proposition to universities is in building course catalogs that balance content quality with affordability. TBC is mission-aligned with this strategy and provides Bibliu with a network of 2,000 college bookstore < > campus relationships to support the company’s continued growth.
It also makes a lot of sense for TBC, providing increased digital firepower to compete with the newly private equity-backed Follett (who bought their own digital platform late last year).
Workforce
Vector Solutions acquires PATHWAYos / US, Work-based Learning Content: Tampa-based Vector Solutions provides compliance training to 34K companies in a range of industries, including US K12 school districts. Joining Vector is Denver-based PATHWAYos, which facilitates work-based learning (WBL) opportunities for schools and workforce organizations.
Vector and PATHWAYos share a fairly similar customer profile, though their product portfolios are different from one another. It sounds like Vector will use this acquisition to drive a more substantial investment into career and technical education (CTW) resources for their school district customers.
Rise In acquires Blockbeam / US, Bootcamps (Blockchain): Boston-based Rise In helps software developers upskill for roles in the blockchain space. The Rise In team is joined by Boston-based Blockbeam, which, similarly, provides career advice and training to folks interested in the blockchain space.
One of the things I’ve always found interesting about blockchain training companies like Rise In and Buildspace (which raised $10M last year for a similar concept) is they are focused on employer-pay business models rather than student-pay. To define this more clearly, blockchain companies like the Solana Foundation pay Rise In to host courses and mentor students. The courses are, usually, free to the students.
There are trade-offs to these models. They are much more accessible to students. But they are also designed to be favorable to the company that pays for them. The course sponsored by the Solana Foundation is, of course, going to feature Solana prominently.
As an observer of the ecosystem, it is sort of depressing to watch an education funding model ossified around just-get-butts-in-seats, student-pay (and government-subsidized) strategies. I am not convinced that Rise In’s employer-pay model is *the answer,* but it is nice to see a little variety.
Paolucci’s formal time at 24/7 Media ended in 1998 and the company experienced a significant valuation downturn in the dotcom bust. Based on when Paolucci started Slooh and his sailing blog (which is featured prominently on his LinkedIn, this is not me digging hard), I suspect he cashed in enough equity to live comfortably before the downturn and use the WPP acquisition price as an indicator that the company was worth a substantial amount. Tracking down stock market caps from the 1990s is not as simple as you might expect…