Welcome to the fourth in our series of ‘Anonymous Exits’.
In our Anonymous Exit series, we meet founders and executives that have exited their Edtech business.
We want to make sure it’s as useful for you as possible, with founders and executives being as honest as they feel appropriate - so it’s anonymous. We will talk with people that exited at a range of valuations in a range of Edtech verticals.
In this edition, we are delighted to talk to the founder/ CEO of an Edtech company that went public...
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Theme(s): a) You can be a great entrepreneur without being a great CEO; and b) Don’t let others determine your leadership style – there is no one size fits all
Birds are chirping.
A warm breeze wafts through the office.
We're excited because an interview we had been trying to make happen for a couple of months is about to start...
We fire up the zoom... Damn, *installing updates*...
And the founder is waiting...
Sorry about that! So good to meet you! And thank you for doing this. I know you're busy so let's make a start...!
Us: Let’s start with the end of your journey. Could you talk to us about the IPO?
You would think the IPO was a huge coming of age that we all celebrated. But for me and several of the other early team members, it felt surprisingly flat. It was not something I was strictly keen on as I was not sure the timing or circumstances were optimal for this kind of exit. I would have liked us to have stayed private for longer, perhaps raised one more round and then more closely considered our listing location options to make sure it improved the chances of the company’s continued growth and progression towards becoming a global, household name. The location of our listing is arguably a little more ‘cowboy’ than London or New York leading to less certainty and reliability of valuations and share prices. I don’t like to say that the stock’s performance has proven me right, but perhaps there was something in our initial assessment…
Us: What was the valuation when you exited?
We topped out at more than $6b. Naturally, it has fluctuated considerably since.
Us: Do you have an explanation on the market factors that have influenced its fluctuations?
The stock was listed by the time the pandemic took hold – like everything else in the market, the stock fell like a rock. It’s the only time I suggested it might make sense to buy the stock! The company was perfectly positioned to succeed in a pandemic-like environment. It revealed something I’d suspected to be true for some time: how little trading analysts knew about the company and the conditions in which it would perform well.
I already thought that the price was wrong before the pandemic and the falls in the price were further evidence to me that the markets can’t be trusted to price stocks appropriately or vaguely accurately. This is partially because only a small portion of players in the markets truly understand the different business models and monetisation routes in different businesses, particularly if they are considering stocks in a sector in which they have less experience – this is clearly the case in Edtech, given how few public exits there have been in the past 8-10 years. Stock prices are driven by the herd…sometimes the herd drives you to new highs and other times the herd turns against you. The situation is more fragile than you’d think… There are so many factors at play that determine the price of a stock.
Us: Earlier, you mentioned that you said you wished the company stayed private for longer- could you expand on that?
The company ultimately went public because the then leadership team decided it didn’t make sense to raise a new round. I think there was also an element of opportunism in the leadership with regards to cementing control of the company for the medium-long term. They were also relatively well-versed in the ‘cowboy’ elements of the stock market, so were able to take advantage of that and inflate the price of the stock in the period immediately following the IPO. When a company goes through an IPO, there is of course a clear opportunity for the leadership to gain great personal wealth, even if it potentially does strike a blow to the long-term outlook for the company.
All of this said, going to IPO at the point we did was by no means a done deal. A long process was undertaken to establish the relative merit of the options on the table – to raise, go public or sustain.
There was huge uncertainty surrounding the future of the company at this time. There was always the risk that the company tanks because the leadership is preoccupied with competing personal and organisation ambitions. By the time of the IPO, we were needing to acquire companies to maintain revenue growth which of course indicated our slowing progression and laid the ground for the argument that we were at our peak. It can make sense to IPO to make this acquisition growth model repeatable, but I think we did leave a lot of opportunities on the table by going public.
There are so many things that happened of which I’m critical, but I think this is also my nature – I look back at things and want to know how we could have done things better rather than looking back at things and think about how well we all did…
Us: Could you describe the cultural differences between the management at the time of exit and your approach?
Regardless of our approaches, it’s always the case that one, coherent culture is always better than two competing cultures, even if both offer significant positives. You have to give one culture up in order to let the other one live.
By the time of this cultural change, I was gradually transitioning away from being CEO. I decided that I was not the right person to lead the company during a period of becoming a ‘corporation’ rather than startup or scaleup that’s rapidly experimenting and walking a funding tightrope. As such, when the new CEO and his leadership team began introducing elements of operation that would adjust the culture, it was their prerogative and I needed to be the one to cede ground.
I do suspect the culture went too far the other way and the company’s innovation approach slowed and lost the zeal that had led to our rampant growth.
I always liked to compare our trajectory to Canva. We were from similar places- ‘global side-towns’ is how I’d describe our locations. We were exploring deep integrations with Canva that could have had significant commercial benefits for both sides. But this never materialised.
Us: How do you feel now about having taken on VC?
I am very happy that we took on VC. It was a decision that was clearly one we needed to take. VC is all about unlocking scale and enabling escalation of impact. Naturally, as your other interviewees have said, everything comes with a cost, largely around alignment of vision and objectives for the relationship.
My main regret with regards to taking on VC is that I’m not convinced we got the perfect VCs on our cap table that would have enabled us to maximise our impact. It’s only with hindsight that I have realised that we should have accepted some of the investors that we turned down. We were in the lucky position of having great interest from investors throughout the rounds we raised, so it’s possible to look back at what could have been and perhaps argue that the grass could have been greener…but that’s life. I also regret not having more Edtech specialists on our cap table.
I do believe that this may have led to a series of compounding errors that stemmed from that decision. For example, I think we should have taken on US investors earlier than we did given our growth ambitions in the market.
Look at Canva now. It’s valued at $26b. We were at a similar stage and could have been on a similar journey.
Us: Could you tell us a little the specific rounds you raised?
Our first VC round was actually a pretty small Series A. We didn’t do any serious rounds before that, having largely depended on mission-aligned angels.
I think one of the main things we got right in the process was making sure all stock was common stock. There was no preference stock. This was relatively unique at the time. If we had preference stock, it could have been horrible if things had gone wrong. But fortunately, all boats were rowing in the same direction- everyone was in the same boat if things had taken a turn for the worse, including the VCs. Typically, they would have taken steps to safeguard their holding, understandably, but of course in our situation, this could not be done.
We were relatively confident that we were building something valuable. We had strong data on what we were doing, but largely on usage. We struggled more with communicating progress to the outside world, including investors. We were advised from many angles on how to monetise- some suggested we needed to define, organise and sell our own data or else we would die. But then others would look at our user data and understand the huge momentum and growth loops we were creating for ourselves. We had the traction but had not yet prioritised monetisation.
By the time of our Series A, our momentum was strong with no signs of abating. There was lots of scope for growth. The issue we faced was that no one had raised an Edtech round based on revenue potential- deals were all based on realised revenue. In that way, we were like a social company which from our perspective, was the point! But it hadn’t been done yet in the sector so it did require investors to take a leap with us. For some time, we had considered our primary route for monetisation to be business and enterprise users.
Us: Was turning on the taps for enterprise the trigger for VC interest?
VCs became interested in us because they saw our growth and user numbers. They had noticed that we were breaking through and that our product was performing at scale.
We didn’t initially set out to explicitly be an education company, but a company focused on solving the issue of the broken learning model in society – we knew that we could address a core motivation problem for users and that existing providers with an education interest, including Google, Microsoft and Twitter, were not tackling this problem in a coherent, effective manner. We considered that if we could make the product successful in K12 and universities, we could make it successful with businesses where an element of motivation is a pre-requisite for role performance.
We had a keen idea of our ideal user– one of our core customer personas was a 35-year-old woman that shops at Walmart. We needed it to be accessible, affordable, fun and positioned as simply as possible. We of course needed the product to perform well pedagogically but we used the user personas to make sure our messages were designed effectively. We tested our product messaging exhaustively, continually running out of funding in order to push ourselves to make it better and better. Because of our traction, we were confident that people would not let us die, despite our proximity to the end of runway a number of times.
We were lucky to have significant VC interest in our rounds. Part of the reason for their interest was VC and LP queries regarding why they weren’t more closely involved with Europe’s leading Edtech company, particularly in the period when we were very obviously angling for US funding rounds. We were lucky to be able to insist on maintaining our common shares approach during funding rounds rather than needing to give in to offering preferred stocks.
There was a significant dip in the wider markets, with investors having a strong preference for companies with proven revenue and not solely focused on traction. We decided to go out and raise a bridge round to help us get through to a time when the markets were a little stronger and open to risk- we had to go around our existing investors to get this done but I’m glad we did with hindsight and so are they! We were able to sign an uncapped round and despite a short struggle, managed to convince our investors that we didn’t need to relocate all of our ops to the US.
All of this to say ‘no’, I do not regret taking on VC as we learned to play the game and raised from positions of strength as opposed to weakness. This meant that we were able to raise from the funds we liked, to an extent, that had proven track records of actually being founder-friendly as opposed to the majority of VCs that do not fulfil these claims of friendliness!
Us: Do you think VC enabled you to have a greater impact?
In my current role, I spend a lot of time thinking about how specific companies should be funded.
In our case, we used the VC model to achieve our desired impact. We could have sold to a global tech provider early in our journey because there was plenty of interest. Indeed, at times, there were parallel chats regarding a possible acquisition at the same time as a raise – we even had a couple of organisations offering us investment terms as well as acquisition terms. Getting rich was never a core motivation for us – we knew that would come with successful scaling and monetisation.
One of the issues in VC that I do see persisting is that they need bubbles to exist and to achieve successful exits at the required scale. It makes me think about the fact that there need to be a range of capital and financing options available to startups in their earliest stages – as if they are operating outside of one of the bubbles, the odds on getting funded are not good… You’ve seen it with crypto and now you’re beginning to see it in elements of AI. If we want to right the world’s wrongs, we need to acknowledge that many of the problems are caused by the density of capital in the hands of a small number of selfishly-motivated people.
Us: With this in mind, how did you think about your cap table composition?
In addition to VCs, we wanted to have helpful angels on our cap table, as well as companies with which we had deep sustaining brand and tech partnerships. We benefited from their money and their networks. We defined the value-add we needed and then sought to make it happen for ourselves.
I think we could have benefited from investors with more Edtech experience because of their familiarity with the sector dynamics and how this affects your ability to grow, monetise, deliver on targets and raise.
Us: You’ve alluded to the many phases of your roles in the company. Could you expand on this and explain how your roles varied as the company progressed?
I always think it’s funny that history tends to be what is written and not necessarily what happened.
In my case, with hindsight, I have realised I was the CEO throughout my time in the business, even before we took titles. I refused to have the title so the ‘history’ would not reflect the truth. This was my preference because I had come from the school of leading from behind. As CEO, there is an implicit acknowledgement that your position/ tenure is temporary and that you will leave the business beyond a certain stage. So, I knew that my time in the company was ticking as soon as I took our first professional angel because the team insisted that I formally become CEO. Before this, my role was better described as Project Manager, making stuff happen, rather than a formal CEO. I didn’t want to run the P&L or several other roles typically ascribed to an early stage startup CEO.
One of my greatest pleasures in our early days and from a CEO-like post was forming the team. We built it together but if you asked them who was running things or if they had to define a CEO, they would have said that I had that post. We did eventually hire what was meant to be our first CEO but they could see that I was running the company from behind, and had the vision in my bones and so they decided that didn’t work for them and never took the role.
Us: Would you have stayed as a Project Manager of sorts rather than CEO had you not taken VC?
I think I probably would have done, yes. But I do understand it from the VC perspective – they want a formal reporting structure and accountability in a way that came less naturally to me.
We tried to be a little elusive with our structure. But this stopped when we had to formalise. We did look at co-CEO-ing but decided this wasn’t the right fit for us.
Us: You said that if you’re CEO, you’re there to be shot at and that the clock is ticking on your role in the company. In this metaphor, who is doing the shooting?
The markets. Company owners and shareholders. Unhappy employees. You are the buffer or shield in many situations.
At the same time, I would have found it difficult to be anything but CEO. The CEO role played to many of my strengths as well as some of my weaknesses. My favourite thing to do is to find ways to run through walls and find good solutions to things that feel insurmountable to others. As I said earlier, my being CEO was an important requirement of the VC deals we did. It was my job to present an impossible case and then explain why I could make it possible – this is your role as a founder CEO.
The other side of the role- the side I liked less – is the ‘excel’ side. I wanted to get someone else that’s better than me to run this side of our ops, including overall financial responsibility and other formalities. I had been searching for a CFO type for a while – I found it surprisingly hard to find someone suitable.
One thing I did observe that seemed surprising is that VCs tend to have defined a relatively inflexible CEO role that they look for in prospective companies – being a great entrepreneur and a great CEO are not the same thing, so there should be more flexibility on founders’ roles in my opinion.
VC is a lot more prominent and well understood now than it was even when we were having our first VC conversations. There are also more routes to capital.
We would not have necessarily fitted todays’ mold of a VC-backable company. Our business was unsexy – it was the equivalent of raising for fertiliser. We focused on user experience, product design and product-led growth, rather than revenue. Some funds got this, hence us being able to do the round, but others really didn’t. Don’t be put off if someone doesn’t get what you’re doing.
Us: Here’s a two-parter… Part A, what are your leadership lessons for others? And Part B, looking back on your route to success, what guidance would you provide to people starting out from a similar situation?
Firstly, I have so much pride in what we did and what we were able to achieve together.
We did some things very well – for example, we had a methodical way of building the company. We knew what we wanted to do and believed it would lead us to a great success. We are proud that we trusted our guts and delivered on our potential.
Looking at things I could have done better, from which others could learn, I think I should have been smarter when it came to replacing my leadership with someone that shared our ways of working, culture and vision for the business.
In my case, with hindsight, I realised that I misinterpreted facts and mistreated my board when I should have been more patient and careful in explaining the routes and decisions I felt we should be taken. I’m lucky to have since resolved this situation with the individuals involved and we have cleared the air. This situation arose because I was being naïve about the intentions of the leadership and associated investors they were looking to work with, trusting them to take the course we had been defining together, rather than looking for shorter-term reasons to gain an exit.
This is a significant leadership lesson, so I will leave it at that for emphasis!
Us: Was a big exit always part of your plan for the company and for yourself?
We were not particularly well funded when we started the company. We didn’t have money on the table that gave us options. We were focused on working methodically to solve a major systemic problem- a lack of engagement and motivation in learning. We believed that if we wanted to change the way education works, we would need to start with engagement – influencing the moments at which individuals decide to start learning and then maintaining their interest.
We had already been working with universities and incubators on a couple of other fronts.
We remain committed to working on things that matter. But we also of course acknowledge that impact companies need to be financially sustainable. I’m proud of the way we managed to build something financially successful without compromising our learning (impact) principles. This was also reflected in the way we formed open, collaborative partnerships with others working on similar issues.
So, this is to say, a big exit was nice, but not a fundamental part of our vision.
Us: And our final question, how did you land on what to do next?
As a founding team, we knew we wanted to work together again. Our team is a significant contributing factor to what made the company successful. We thought we might be able to replicate these methods across other verticals. We now work with a lot of different organisations at different stages to further their impact and also assist with the commercials for socially-minded entrepreneurs.
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