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Edtech SaaS Breaks $4m, Looking at $10m Series B Next
SaaS Interviews with CEOs, Startups, Founders
So we launched the product in 2019.
We are thinking we have hit a million revenue in 2020.
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Hey folks, my guest today is Shonak Roy.
He's the founder and CEO of YellowDig,
a community driven active learning platform adopted by over 130 colleges and universities,
K12 schools and corporate training clients.
Their mission is to transform every classroom into an active and
experimental learning community.
Shonak, you're ready to take this up?
Happy to be here.
So who's paying for this?
Is it the universities directly or is it the students?
We have bought some cases in universities,
pay for it, but a lot of the cases, students would directly pay
either through the bookstore or they will pay through a credit card.
How do you manage them?
I mean, those are very different sales motions.
Schools are hard to sell students, you know, it's easy to sell, but they churn way more.
So we make it easy for our clients to add our product knowledge, so if you imagine,
most of our clients are higher education institutions,
and they have long sales cycles.
So we make it easy for any professor who wants to use that technology.
They can either go to the institution and say if they want to buy a license.
So we, in that case, would sell enterprise license directly to the school,
and we have many clients like that.
But otherwise, if the professor themselves just want to try it,
they can go to the bookstore, like a bunch of nobles, and look for yelling.
We are in, we are a bunch of those partners,
so we are pretty much in all over the country.
So just the way you will buy a textbook, you'll buy yelling.
And you can add it into the learning management system and use it in the classroom.
So in that case, the bookstore would kind of really
can attract the students to the system that they're only in place.
So if you look at all your revenue from last year,
what percent was direct to consumer versus through the school?
The director can consume what is a new business model for us.
We launched it in the beginning of 2020.
So that's segment that is growing for us right now.
We expect that to grow rapidly in this year.
But right now, I would say it's about 20% off the revenue.
Okay, so 20% is the teacher watching into Barnes and
of War of the student walking into Barnes and Noble, the other 80% is direct to the university.
So let's talk about that.
What does the average university pay you per month or per year to use yellow dig?
So our pricing is by the course.
So the way the product is used is a faculty or a group of faculties
would decide to use the other day as they teach it any subject area.
So the decision is at a course level.
So essentially, the pricing is also at course level.
So for one student to take use the other day in one course is $12.95.
And that's how the student or the university.
It would be either the student or the university.
It could, you know, pay even could come from anyway, but that's the price.
But don't you give, I'm engine if a university is sending up.
It's probably for 5,000 students.
You're not going to charge them the full full rate, are you?
We do it give good discounts.
So we have volume discounts in place.
Depending on how the scale with us, we give them a very good discounts.
So that if it's said it by simply going to broaden the usage.
So like if I'm going to, I mean,
what is your biggest university, how many seats they pay for?
So you know, we, I mean, biggest university, I would say Arizona State is a big client of us.
They were one of our first users of that form.
And we have an enterprise license with Arizona.
So that's a very unique model, you know, first one for initial clients.
So use it to, of course, grow over the years in the University of Arizona.
But for us, for, you know, we have a 130 universities now.
So debating on every school has, sometimes, you know, one school has three different licensing models.
Sometimes like department of arts and sizes, actually partners student license.
So the students are directly playing, but maybe for another business school,
they have an enterprise license where they are being for their entire school to us.
I see, got it.
So what, I guess, let's just talk about the 80% to revenue that comes from these 830 universities.
What is the, I guess, how many paid seats across all 830 universities?
Maybe that's the right question.
So right last year, we had about 200,000 students who used that platform in a variety of ways.
So some of them were part of enterprise license, some of them were direct student pay.
So that's how, that's a total pool.
And in terms of our pricing, of course, you know, if the university has adopted us,
they're pricing is lower than a school that is using us in a couple of courses or programs.
Well, that's why I'm asking. So ignore the total pool of 200,000.
You're saying 80% of that, it's about 100 in what 160,000 is coming directly through an
enterprise deal with the school.
The doctor is speaking.
Okay, got it. So if I take 100, 2,000 seats divided by what 830, that means the average number of
seats is about 200 per university.
Yeah, that's that sounds reasonable.
Okay, so if I, if a university is listening right now and they reach out to you and sign up,
what are you going to charge them per seat for 200, if a 200 seat deal?
So for us 200 seats, the first question is, are those 200 students in the same class?
So sometimes we start with an intro level class where, you know, they have about 200 to 500 students
in the same course. So in that case, it would be 1295 per student per course.
That's how they would get started. If it's across five courses,
so then, you know, let's say, you know, a student, you know, is going to use the
elderly for their dead program and they're taking less if I post this for that program.
In that case, they have to be a yellowed at five times. That's how, you know, how that's how it's
designed. So yeah, so if they're starting small, like 200 seats, you know, that would be our
out of the box, essentially, conduit rice. But then if they scale with us, you know,
depending on how big the school is, what type of a commitment they want to make, you know,
we have contrast ranging from one year to five years. So depending on the size and length of
contracts, we would probably get them some incentives to, you know, adopt us at scale.
Don't name the customer because this is a more sensitive question. But what is your largest
customer pay you per year right now? I would like this customer, I think, you know, over 300,000
dollars per year per year. Okay, and that is what 10,000 seats, 1,000 seats.
I don't have the number, but they're interesting. Give me more of the back story here.
When did you launch this? I launched a little back in 2015, but we went through a pivot in 2019.
So the first generation of the product was in the market for about three years.
I thought we did quite well, but there was some challenges we were running into. So we decided to
kind of reable the platform cycling a different direction and launched it in 2019. And that's
the product you're skating on. Okay, got it. How did you, I mean, obviously, I mean, unless you're
like rich and you just keep investing in your own money, probably had a raise to hit the
or pivot or if not, how did you do that? So we have mentioned back. So we raised money from
Magicapolis. So when was the last fundraiser? We raised about six million to let.
So some of that was in the initial launch of the platform and some of that was when we launched.
So how much did you raise in the first 2015, 2016? I think it was like two, two and a half million
that time that I mean, three and a half million was still in the pivot. And so 2019, you raised
another 3.5. Yeah, we raised actually over the last couple of years. We raised in front just.
So we didn't raise that in that capital in one more. I see, God, but generally speaking,
2.5 at start, 3.5 million during the pivot. Roughly speaking, yeah. And why, why is this
software that capital intensive? Why couldn't you bootstrap?
Yeah. Um, it's a great question. So I think, you know, one thing about, so we are in this
space called education technology, you know, think of what education technology is more like
healthcare technology. There is some initial hurdles to be able to launch a product in the market.
So if you think about it, like, it's a highly regulated space. The technology that is
being adopted has to comply by the existing regulations, like for part is a very well
of regulation and other is ADA compliance. There are a few, you know, there are a lot of data
security, compliance in place. Even if you want to sell like five pieces of licensed school,
you have to be compliant in all of them, otherwise you can't sell. So there are significant
investments that are needed to be able to comply with those regulations in terms of product
processes and how we support our clients. The other piece I would say is that there are, you know,
also significant investments needed around studying the efficacy of any ethics solution.
So if you think about healthcare, like if you're building a drug, they're giving me to, you know,
you know, patients, you need to know that what's the impact of the drug. So especially in
ethic, if it's in class of learning, it is important to know the impact of that technology
to the student. So we have done over 12 studies with our very bright departments and
that bodies to prove the value of the product before we could scale that technology.
If you look at the average across all your paid seats, what would you say the average paid
as a new seat is? It's very hard to say. I haven't, I don't have the number right to have it
with me. Okay. Yeah. The average is definitely lower than 25. Yeah. Yeah. I mean, because the
reason I'm asking you, right? So I'm trying to back into your revenue, right? If you have 200,000
paid seats at 12 bucks per month per seat, it's 2.4 million bucks a month in revenue. I'd love
for you to be there one day. I don't think you're there yet, though. Yes. So that's a good point. So
it's just a couple of other things to mention here is the 1295 is for work course. A course can
run between three and four months. So we, that's one price you pay for the entire usage in that
particular course. So it's not by month. Oh, it just got us. The course could be for six months.
It could be for six months. Most courses are for three months for months. So that's why we price it.
Because if a student buys it for a course and if he charge them for months. So this
month, they have access next month for whatever reason they can't pay for it. It's not fair
to them not to have access to that platform. Yeah. For the critical course. So we pay for the entire
course or they pay for the entire course to add up the technology. The other thing to keep in mind
is that, you know, it's also, you know, when students are, when we when I say 200,000 users,
I mean, these students, they will take one course in the fall, maybe one course in the spring,
or they might take one or two courses in the year. So there's a lot of variety here. So essentially,
it's not that they're using in every month. So depending on whether they're taking courses, they're
using a technology and they're paying for it. So yeah, that's another thing to do at that point.
Got it. Well, do you remember, I guess there's a lot of complications there. It's hard to
scrub back into, but do you remember the first year you hit, maybe it was recently,
when you hit a million bucks in revenue? So we launched the product in 2019. We, I think we
have hit a million revenue in 2020. And what do you think you guys will do this year?
This year we would do, actually, you know, what I'm not going to share the numbers right now for a
few reasons, but we are going to do pretty well this year because the market is pretty hard
right now for a deck. Schools are looking for these kind of products in the market.
How do you model this, though, right? If, I mean, by nature, this is a product for their
term because you start a course, you end a course and SaaS to get a great valuation. Obviously,
you want a very low turn. In fact, you want an end dollar retention of about 140%. How do you tell
about story and, you know, your series A deck, your series B deck, and so on the venture path?
It's a great question. So for us, the way we look at the businesses,
adoption in a particular course. So let's say our university wants to just try us and they want
just into a set of courses and we get paid for that. I mean, that is something what we call
a sportswear revenue. We track that separately from ARR, which is our contractor revenue,
one to five year contracts. So typically what we find is that when a school starts with that,
you know, using our technology, let's say in a few courses, it takes them about one to two years
to be able to get it up data to buy an enterprise license. So our enterprise license is always
the goal. We want to sign up five year deals with, you know, all our clients, but we take them
through the journey of in terms of land and expand through that enterprise level. So that's the
business model for us. You know, we launch into schools and we have seen that a pool in that model
is, you know, it takes about some time for them to try to product them by. And, you know,
universities, as you know, are very conservative. They are not by technology and adopting it
overnight because they really want to make sure they're using the right tools for their students.
So this land and expand model helps us to actually get it quickly, without a long
little sales cycle, prove the product, show the data, show the efficacy, and then
kind of sign up again to you. And the last launch of the three point because you mentioned
it was rolling of a 3.5 million year raised, when did you close the last launch of that?
Six months back. So are you looking now at doing a formal series B?
Yeah, we are going to do a bigger round this year. I see, got it. How much are you targeting
to raise? Obviously, it'll change depending on the terms, but what are you targeting?
Yeah, I think maybe in the, you know, 10 plus million, 10 to 20 in that range.
And I mean, don't, if you're going to go raise like 10 million and sell the, you know, the average
10 to 20% of your business, you got to be able to validate a $100 million evaluation. I mean,
what do you think you have to go revenue to in order to get and be able to tell a story of
$100 million evaluation? Well, I think you get a 100 million evaluation down the grid, but, you know,
it's, I could say the real story here is this, which is, you know, in education,
then the, the hardest thing to do in education, just like a health care, right? If you,
if you look at a health care product, like the key thing is the product, but you have the
product that you can sell and it does it work. So we have, I mean, I would disagree with that
for health care and ed tech. I would say distributions way more important. There's a lot of
subpar products that are better distribution that are winning. In education,
in education and health care, because the sales cycles are so long. It's so difficult to
convince these buyers to buy big, big deals like you have.
Yeah, so 100%. Some, you know, sales cycles are also very, very important. But, you know,
in ed tech, there are so many companies, there are so many technologies available,
showing the product that really works is also very important. And that is where
a lot of investments go initially. So we have a product that works really well.
Lemon beer, that studies it out with, you know, as I said, over 12 universities,
we, we drive higher retention higher engagement, you know, in a pretty high level and that
has a huge impact on the school. So, you know, I think our biggest advantage right now is
that we have that technology that works. Now, of course, in terms of sales and, you know,
building up a sales force to be able to scale it to every colleges and universities. I mean,
that's what the investment is going to go. So, you know, ed tech is quite different from
this ed tech on a side where you can, you know, set up a side and, you know, sales things all
like, which is, it's more friction to get into business. But ed tech has a slightly different
way of kind of, you know, of course. Yeah, what's your, what's your team size today? We have about 30
people in the team and any quota carrying sales reps or no. Yeah, we have a sales team about five
people now. They all carry a quota. Yep. How did you come up with that? A lot of people struggle to
scale a sales team. Um, you mean, like scaling the team, how did you come up with a quota? Yeah,
the initial, the initial targets for new sales hires. Um, we, you know, I mean, just to be
able to be realistic. So, you know, when we started the process, we started scaling the team
last year. So, the last year's goal was to get a bit of a pipeline and build a relationship. So,
you know, flexible year one. We are very flexible year two onwards. We started to put a code on
a top of my son. What we see some of the sales people. I mean, if you have five people,
if somebody is kind of going and hitting a certain number, we know that that's possible. That's
kind of in people, you have two that's kind of the bar we said for the disability. Of the 30 people,
how many are engineers? Uh, about like 12 people are engineers, a broad energy engineering team.
Okay, interesting. Okay, very cool. So, so looking at raising past called a million dollar run
right in 2020, um, you know, developed a lot and do it, go for my 3.5 series a to 10 million,
you know, you got to be at, I mean, I would say at least tripling at this stage. So, I mean,
do you guys thinking you can get above 6, 7 million bucks in ARR, this contract that ARR this year?
Uh, we'll see, you know, it's hard to say right now, but of course, we are talking to a lot of people
right now. Uh, so we'll see how quickly we can go. It was a fairly safe sense. Is it fairly safe sense
2020, though, you've grown at least 100% year over year? Since 2020, last year. 24 months ago, no 2020,
that would be 2 years ago. That's right. Um, if we look at, yeah, it was close to 100%. I wonder,
I don't know whether it's 100% exactly what it was for that company. Around, got it. So,
go, you go from a million to 2 million to around 4 million today,
hoping to continue to scale past there. Yeah, I mean, that's kind of what we're expecting.
Interesting. Interesting. Well, that's a heck of a story. I'm ruined for you guys, though,
in the meantime, let's wrap up here with the famous five. Number one, favorite business book.
Uh, good to read. Number two, is there a CEO you're following or studying?
I love it on last. Number three, what's your favorite online tool for
building the business? Slack. And number four, how many hours of sleep do you get every night?
I could potentially be. It does. Eight hours, not. Okay, very good. And what's your
situation, married single kids? Kids. Not married? Yeah, married. Okay, married with kids. How many
get us? Two. Two. Okay. And how do you? Uh, 42. 42. Take us home here last question.
Something you wish you knew when you were 20. Uh, well, I mean, take life easy. I would say.
I mean, I was probably stressing myself too much at that age.
Guys, there you have it. Yellow dig 830 universities used the platform helps students manage
both courses, a number of seats. They had over 200,000 paid seats in 2021. Broken million dollar
running back in 2020, just after their pivot, they raised a 2.5 million seed when they launched
in 2015. The 3.5 million sort of series, they closed out last year. Now, look at doing a series
be sometime this year, caught raise it between 10 and 20 million bucks. We'll see if they can get it
done. Ed Tech is hot. They have a team of 30 of which 12 engineers and a five person sales team.
They're looking at scaling. Shinox, thanks for taking us to the top. Thank you so much.
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