Outschool: Building an Online-Learning Marketplace for the Global Stage
Highlights from ✨Hot Deal Time Machine✨⏳ -- On Clubhouse
Below are highlights from my recent Clubhouse episode featuring Nick Grandy, co-founder of Outschool, and Jennifer Carolan, Partner at Reach Capital and early lead investor in Outschool
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🔪The Edge: Education outsiders
While Grandy had been a high school teacher early in his career, the Outschool founding team as a whole were relative outsiders to ed-tech - something that Grandy points to as an advantage rather than a deficit. He shared that he and his co-founders took an un-opinionated approach, with no assumption of the “right answer.” Instead, they focused on learning and iterating with the goal of empowering teachers and learners as their north star. In this process, the team’s efforts went into setting up the right platform framework to promote positive experiences. Grandy points to his own background on the early team of Airbnb as a formative experience that gave him deep appreciation for peer-to-peer marketplaces, a model that Outschool ultimately adopted for the education market. It’s worth noting that as education outsiders, the Outschool team also focused on business model and unit economics from the beginning. While monetization within ed-tech can sometimes be tricky, the Outschool team charged a marketplace service fee from day one demonstrating strong consumer appetite and setting the company up for growth from the early days.
🚨The Red Herring: Small TAM
One of the criticisms of the education space historically has been that the TAM is too small. This mindset has in part stemmed from investors viewing the addressable market as confined to just the U.S., or even individual states, given the complexity of regulation, school districts, language, and curriculum. However, Carolan pointed out that in reality, teachers and parents around the world have been scrambling for solutions for some time. She noted that across the Reach Capital portfolio of education companies, 15-20% of users have organically come from outside the U.S., pointing to latent global demand. In the early days of Outschool, the company focused on homeschoolers, and as a result TAM was a concern some potential investors pointed to. However, the homeschooler demographic proved a fantastic test bed of early adopters to learn from - a means on the Outschool journey, but not an end. Carolan and the Reach Capital team understood this. Even in Reach’s initial investment memo for the Seed Round in 2018, they laid out the bet that Outschool would transition from homeschooling to a mainstream market to become a global consumer marketplace for live online classes - a prediction that has certainly come to fruition.
📚The Insight: Learning from MegaStudy
When asked what gave her conviction to invest so early in Outschool (when the company had modest traction amongst a niche demographic), Carolan pointed to coming to the table with a prepared mind. She recalled studying MegaStudy, a South-Korean ed-tech company founded in 2000. In 2009 she read a NYT article and post from Bill Gurley explaining the business model and effectiveness of the platform - a subscription model empowering teachers to earn 23% of the revenue from their classes. She had been searching for a similar model in the U.S. for years, and when she met the Outschool team it was clear to her that this was it. With an NPS of 81 and strong engagement, albeit on small numbers, Outschool looked poised to do what MegaStudy had done in Korea for the U.S. - and eventually for the global market.
🚀The Hyper-Growth: 15X during COVID
In early 2020 Outschool was still focused on the homeschooler market and positioning themselves to soon expand to schools and families. Then COVID hit. Grandy describes the business spiking overnight and continuing to surge through the pandemic. Outschool’s teachers were teaching completely full classes 12 hours a day and still couldn’t keep up with the demand - especially given Outschool’s focus on small-group learning. In response, the Outschool team scaled from 1000 to 6000 teachers in just 6 months. As more teachers joined the platform, Outschool’s expansion plans accelerated to work with school districts and even employers to offer Outschool as an employee benefit. While this was a transition into the mainstream that had always been planned, COVID primed the market for this expansion and adoption: increased device penetration, an acute understanding of the effectiveness of online, live learning, and a demonstrable need from parents and teachers alike. As Outschool has delivered on their mission to support learners through schools and across families, the team has expanded from 25 to 125 people with the business growing exponentially by 15X during the pandemic.
👉🏼 ✨Hot Deal Time Machine✨⏳ is a 30-minute bi-weekly Clubhouse show where we travel back in time to the early stages of some of today’s hottest deals. Hear from founders and investors on the original pitch and thesis…and how things actually played out