Nerdy, a startup in the tutoring market, goes public via SPAC – Heaven32
A mainstream tech platform powered by the odd-job economy is heading to the New York Stock Exchange.
Startup Edtech Nerd, which owns popular tutoring company College Tutors, is looking to go public through a Special Purpose Acquisition Vehicle, also known as SPAC.
Nerdy will merge with TPG Pace Tech Opportunities (NYSE: PACE), a publicly traded SPAC since 2015. The transaction is expected to close in the second quarter of this year.
The deal will value Nerdy at $ 1.7 billion. Through the transaction, the company plans to raise up to $ 750 million in cash, including $ 150 million in PIPE funding added by Franklin Templeton, Healthcare of Ontario Pension Plan, Koch Industries and Learn Capital.
Nerdy’s flagship business, Varsity Tutors, is a two-sided marketplace that unites tutors and students in groups of large, small or 1: 1. The learning platform covers over 3,000 topics. Like other educational technology companies
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, Varsity Tutors uses artificial intelligence and data analytics to better connect experts to students. In addition, in August, tutors launched a homeschooling offer aimed at replacing the traditional school. It consisted of 120 full-time educators, from public schools and charter schools, with competitive salaries.
Financial performance
Heaven32 reviewed Nerdy-SPAC’s investor presentation, which can be read here.
Nerdy is among the consumer education tech companies that have seen rapid growth and opportunity due to the distance learning demands brought on by the coronavirus pandemic. In the second half of 2020, Nerdy’s annualized revenue exceeded $ 120 million. In the final quarter of 2020, the compañía vio crecer sus ingresos en línea an 87%, los estudiantes activos pagados en línea a 59% y las sesiones pagadas en línea a 169%, in comparación con el mismo período del año pasado, informed the business.
By deepening its achieved results instead of its more favorable annualized performance of its third and fourth quarters of 2020, Nerdy recorded an estimated revenue of $ 106 million for the year, 16% higher than its 2019 result. .
This growth rate is slower than what he achieved in 2019, a growth of 26%, and represents about half of what he anticipates for 2021, a growth of 31%. But Nerdy has even stronger projections for 2022, a year in which he expects to generate revenue of $ 198 million, 43% more than his expectation of $ 138 million for 2021.
It remains to be seen whether the company can achieve these goals; The PSPC-led debut allows the company to go public with the transaction to predict more than what companies following traditional IPO routes are allowed to.
The growth of the company has also failed to contain its losses. Nerdy is not yet profitable. His estimates for 2020 point to an expected net loss of $ 23 million, which is more than what he lost in 2019 but less than his 2018 deficit. Based on last year’s growth, Nerdy estimates that its net loss will drop to $ 8 million in 2021, and reach profitability by 2023.
How did Nerdy fail to cut his losses last year as his income grew? The costs of the company showed modest profits and losses, in addition to its line of sales and marketing. This particular area of spending has grown from $ 38 million in 2019 to around $ 44 million in 2020.
In contrast, while Nerdy’s net losses were largely static in 2020, his estimated net margin fell from -24% in 2019 to around -22% in 2020. He still has a long way to go to reach black. , although its finances indicate that the company believes the bottom line is only a few years away.
To achieve profitability, Nerdy predicts that in 2023 he will need revenue of $ 267 million, growth from 2022 of 35% and gross margins five points higher than the result of 67% he estimated. reach last year.
A closer look at Nerdy’s business raises a common question amid the rise of PSPC: is reverse merger being used to bring into the public market companies with poor short-term growth histories that would not have could not otherwise? So far, several tech startups have taken the SPAC route, including Skillsoft, Meten International and now Nerdy.
After edtech had a strong 2020, industry investors say they expect more exits as startups cross the $ 100 million ARR mark. Deborah Quazzo, managing partner of GSV, told Heaven32 in December that “what is happening in educational technology is that financial markets are shrinking.” The ability to move smoothly between public and private companies is a hallmark of technology sectors with deep financial markets, which is different from “the old days of educational technology, where exit options were very limited” .