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Outschool is the newest edtech unicorn

Outschool is a marketplace that provides virtual after-school activities for children. In a series C led by Coatue and Tiger Global Management, the company has raised $75 million.

New value and the rapid growth with it

With the new funding, the value of Outschool is now $1.3 billion, four times higher than its roughly $320 million valuations set less than a year ago. Including the new round, Outschool has raised $130 million in venture capital to date.

For a startup, the valuation growth curve of the company is steep, let alone an edtech that saw the majority of its growth during the pandemic. CEO and co-founder Amir Nathoo says his company’s new valuation is partially a reflection of today’s fundraising frenzy. But he also thinks that revenue sustainability is a key factor in his company’s recent fundraising.

A little about the business and its growth sustainability

The core product of the new unicorn is after-school classes for entertainment or supplemental studies. These classes are either on an ongoing or one-off basis. With the growth of the company, the As 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. Since students need repetition to learn and love a subject or an activity like a daily public speaking class or a weekly dance class, the flexible on-off system works perfectly, and thus the recurring revenue with it that is music to the ears of an investor.

Nathoo says everyone always asks what the most popular classes are, but Outschool continues to change because its main clientele — kids — have evolving favorites. One week it might be math, the other it might be Minecraft and architecture.

Growth expectations for 2021

The changing revenue profile has helped Outschool generate more than $100 million in bookings in 2020, compared to $6 million in 2019 and just $500,000 in 2017. CEO Nathoo declined to share the company’s expectations for 2021 beyond “projecting to grow aggressively.”

Outschool reached a 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. But given the fast change in the market, it makes sense to invest aggressively into opportunities that will make sense in the long-term.”

Amir Nathoo

What’s next

In 2020, Outschool launched in Canada, New Zealand, Australia and the U.K., so hiring will continue there and elsewhere with plans to expand staff. Teachers are the way the platform earns its revenue and with 10,000 teachers working on the platform right now, Outsource is planning to create 2% of its stock in host endowment fund to reward the teachers working with them in the event of liquidity. The idea has been taken from Airbnb.

Their most ambitious goal is very ironic, it is to enter the schools. 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. Outschool will also consider acquiring early-stage startups focused on direct-to-consumer learning in international markets. Nathoo stressed that Outschool’s continued growth, even as schools reopen, has de-risked the company from post-pandemic worries. The platform has always focused to look for supplemental ways to support students after school.

“That’s the piece of the education system that is underserved and that was missing. 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.”

Amir Nathoo

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