Quizlet Just Raised $30M at a $1 Billion Valuation. But Don’t Call It a Unicorn.

May 13th, 2020

Tony Wan

Rangsan Paidaen

Unicorns don’t exist, except as an analogy for private companies supposedly worth at least $1 billion. But as WeWork’s IPO debacle has shown, sometimes those valuations are imaginary, too.

To Quizlet CEO Matt Glotzbach, the mythical creature symbolizes “an ethos of a growth-at-all-cost” startup mentality, one that prioritizes user numbers and other vanity metrics over “the basic business fundamentals of profitability and unit economics.”

That’s why even though Quizlet just closed a $30 million Series C round at a $1 billion valuation, Glotzbach prefers a different animal analogy, one that better reflects the patient journey of a business that began as online flashcards—and that now aims to be something much bigger.

Something real, at least.

“I want to run the business more like a camel,” quips Glotzbach.

He didn’t specify whether he prefers the single- or double-humped variety. But Glotzbach’s point is that camels are hardy and steady—just as he hopes his company can be. “They can survive in the harshest environments. They can go for long periods without food and water,” he explains, sounding like a biology teacher or zookeeper.

Glotzbach credits the metaphor to Alex Lazarow, who authored a book about entrepreneurship that challenges prevailing Silicon Valley startup norms. It’s a reminder of basic business principles: Grow responsibly. Manage costs. Don’t rely on venture capital (but when you do raise some, don’t burn it all at once.)

“When camels do get to a watering spot, they can guzzle water faster than any other animal on the planet,” Glotzbach adds. “But they make it last.”

He says that’s the approach for the cash infusion from this latest round, which was led by General Atlantic, a private equity firm that has backed big education companies across the globe. Its recent investments include language-learning app Duolingo, along with Byju’s and Ruangguru, widely used in India and Indonesia, respectively.

“General Atlantic has strong conviction around the digitization of education, a theme we have invested behind globally for years. We view Quizlet as an emerging leader in the field and are excited by the company’s approach to personalized learning,” said Peter Munzig, managing director of General Atlantic, in an email. He is joining Quizlet’s board of directors.

Other investors in this round include previous backers Costanoa Ventures, Icon Ventures, Owl Ventures and Union Square Ventures. With this latest fundraise, the San Francisco-based company has raised $62 million in venture capital to date.

Fundraising conversations began this January, according to Glotzbach. This latest round is “primarily a people investment,” focused on shoring up talent to support “data science and machine-learning capabilities to build out our vision of an AI-powered tutor to help everyone learn,” he explains.

To get there, the company is also exploring opportunities to acquire other businesses for the first time in its history. “We are a technology-focused company, so things that are of interest will have some footprint in machine learning and artificial intelligence,” adds Glotzbach.

The company currently employs a team of nearly 200 full-time employees, and could grow to 300 by the end of the year.

While those plans are a recipe for spending money, “we’ve been capital efficient and careful about not burning cash,” he claims. When they do, they prioritize seeing results. Revenue from its subscription business has “doubled every year for the past few years,” says Glotzbach, who declined to disclose specific figures.

The company last raised investment capital in 2018 at a $200 million valuation.

To quintuple that valuation to $1 billion in two years is a small accomplishment of its own, he notes.

From Flashcards to Fundraise

Fiscal discipline is part of the company’s history. For its first 10 years, Quizlet’s business was entirely bootstrapped. It was founded in 2005, by Andrew Sutherland, who at the time was a 15-year-old student who programmed online flashcards to help him pass French class. The startup initially made money from a side business run by one of the co-founders.

That tool would become one of the most popular flashcard study apps on the market. By 2009, Quizlet was profitable, thanks to a paid subscription model. By 2015, the company claimed it had 40 million monthly active users, mostly in the U.S. That’s when it first raised outside capital, in the form of a $12 million Series A round, to accelerate its global expansion plans.

Quizlet has come a long way since its early days as a tool for making and sharing digital flashcards. Today, it boasts a feature that creates customized study plans for students, based on what subjects they need to learn, and by when (usually in time for a big test). It claims its quizzes can deliver feedback specific to students’ responses on open-ended questions. There’s also a small but growing content marketplace for tests and professional certifications.

Glotzbach credits researcher Benjamin Bloom’s “2 Sigma Problem” paper, which suggests that a personal tutor can help any student improve academically, as inspiration for what he hopes Quizlet can become. That vision has become a sort of Holy Grail among education technologists (but researchers have since questioned whether the study, done in 1984, may be outdated).

To build tools that can approximate what a personal tutor can provide, Quizlet is banking on its large swath of usage data. The company claims it is now used by more than 50 million monthly active users, who have created more than 400 million study sets. Over a billion questions are asked and answered on the platform every week. Every activity and data point is used to improve its predictive models, which informs the content recommendations that the system makes for each user.

That work is where the data scientists and machine-learning specialists come in. And this approach is becoming commonplace among education technology companies selling personalized learning tools. Among them is Course Hero, a popular destination for college course materials, which also recently earned “unicorn” status after a fundraise.

Quizlet also has its eyes set on growing outside the U.S., where about 70 percent of its users live, estimates Glotzbach. After the pandemic outbreak, he says the company has seen roughly 300 percent growth in new users from abroad. But he hesitates to draw up plans and conclusions based on that data, acknowledging the spike could be a one-time anomaly.

“There’s a lot of market volatility, and the numbers alone can mask what’s actually going on with our business,” says Glotzbach. “We have to dig deeper to really understand what’s going on.”