Must Read Blog Private Equity October 2, 2019

Sector Deal Dynamics – October 2019

Hope you have had a good transition into Fall. As we review the September deals, the lighter volume of activity is offset by both the size and strategic dynamism of those investments announced. Perhaps most notable, student-centered edtech darling Chegg continued its evolution by jumping fulling into the education delivery market via its acquisition of Thinkful; we have more detailed commentary on this deal below.

Two $50M+ investments occurred in businesses that may have been off the proverbial beaten path for many investors. Greenlight, which provides a debit card and app for kids as a financial education tool, was one, and JobTeaser, think Europe’s version of Handshake, the other. With those stakes, both bear watching more closely.

In the coming weeks, Tyton team members will be at Educause, SOCAP, and NAEYC, among other destinations. Please drop us a note if you’ll be there, and we’ll find time to visit.

As always, wishing you the best,

Adam & Chris

From Learning to Earning: Chegg Acquires Thinkful

In 2014, as Chegg was still in the relatively early stages of its transformation from a textbook rental company to a diversified student services company, its CEO Dan Rosensweig unveiled the results of a survey undertaken by the company. The survey confirmed several structural issues that many had already intuited: students, postsecondary institutions, and employers were not on the same page either in terms of what they believed college’s purpose was (the expectations gap) or how well prepared students were for the world of work upon graduation (the skills gap).

Students said they were focused on near-term employment options. Educators said they were focused on long-term employment skills. Employers said they wanted both, but felt recent grads had neither. As for whose job it was to fix the gaps? Students, institutions and employers were all in agreement that the job wasn’t theirs.

Chegg boldly declared itself the student’s ally in addressing the challenges created by these gaps and suggested this would represent the crux of its long-term value proposition in the market. For the next five years, however, the company focused primarily on the more immediate task of helping students successfully complete college by building out a suite of offerings around its core Chegg Study homework help product. Beginning with Imagine Easy (2016) and continuing with RefME (2017), Math 42 (2017), WriteLab (2018), and StudyBlue (2018), Chegg acquired a portfolio of products designed to help students successfully pass their classes and master college-level material. And the dream of closing the gaps identified in the survey remained deferred. Until this month.

In September, Chegg acquired online program provider Thinkful for $100 million ($80 million in cash and $20 million in stock and incentives). Thinkful is an online coding school that offers 13 different bootcamps in front-end and back-end development; user experience design; iOS and Android mobile app development; data science in Python; and modern Web design.

With this acquisition, Chegg steps squarely from the academic assistance market into the instruction market and now offers a solid bridge between college and employment. While the online coding bootcamp sector boasts a number of competitors – e.g., Springboard, Udacity, Flatiron, CareerFoundry – the synergy provided to the business by Chegg comes from the goodwill and relationships it has established over 14 years of helping college students initially to save money on textbooks, and more recently, to succeed at their school work.

K-12: Chase and Wells Fargo Get ‘Em While They’re Young

Greenlight, which provides a debit card and app for kids as a financial education tool, received $54 million in a Series B round led by Drive Capital with participation from JP Morgan Chase and Wells Fargo. Existing investor TTV Capital, Live Oak Bank and Relay Ventures also participated in the round. Greenlight’s $16 million Series A investors earlier investors also included SunTrust Bank, Ally Financial, nbkc bank, and Amazon’s Alexa Fund.

Greenlight’s debit card and app allow parents to transfer money to their children as well as control and monitor their spending. Parents receive an alert as the card is used. The Series B funds will be used to accelerate the product roadmap, including a suite of services around making investments and charitable giving. The money will also be used to step up the marketing of the monthly subscription-based service to the 50 million U.S. households with children.

The enthusiasm for Greenlight reflects two popular edtech trends:

Life skills education for children and young adults that is largely absent in formal school environments
The push by companies to identify and appeal to potential lifetime customers at an earlier age through the education market

The former trend is evident in the success of life skills edtech company EVERFI, which received an investment from the RISE Fund in 2017. The latter trend is illustrated by Amazon’s move into the college textbook market, as well as SoFi’s student loan refinancing business. And though similar, Greenlight’s ability to accumulate and analyze user data could ultimately make it as or more valuable than either of these other highly successful platforms.

HCM: KKR Take Majority Stake in Burning Glass

As part of KKR’s Global Impact strategy, which is focused on identifying and investing behind companies whose core business models provide commercial solutions that contribute measurable progress toward one or more of the United Nations Sustainable Development Goals (SDGs), the global private investment firm has taken a majority stake in Burning Glass. Burning Glass is an analytics software company that delivers real-time data and planning tools to education institutions and other workforce training companies that help to align educational outcomes with workforce demands.

KKR’s unexpected acquisition of Burning Glass is illustrative of a trend by large, global firms to launch social impact investing initiatives. While social impact investing has been part of the education market for some time, the size and scale of these investments has grown substantially as bigger investors – including TPG, Bain, and Carlyle – have become involved in the movement. We expect this trend to continue and potentially accelerate to the benefit of education-focused companies if traditional investing experiences a cyclical slowdown.