Big capital helps startups grow quickly. But when funding dries up and profits remain elusive, companies have to make tough cuts.
Those were among the decisions that Salt Lake City-based MasteryConnect recently made as its management and board slashed an estimated 30 percent of the staff. In addition, Cory Reid, who joined in April 2011 and was named CEO in March 2014, has also resigned.
Back in the driver’s seat is Mick Hewitt, who co-founded the company in 2009 and served as its first CEO. When Reid took over, Hewitt stayed at MasteryConnect as its chief product officer.
“We’ve made a strategic decision at the board level to move toward profitability and re-focus on our core product,” Hewitt says in an interview with EdSurge. He adds: “As a venture-funded company, there’s been a decision to get to profitability in the next nine to 12 months.”
MasteryConnect aims to help teachers plan lessons and track how students perform against academic standards. Its core offerings include formative assessment products such as Socrative (a startup acquired in June 2014), grading tools and reporting services. The company recently launched a mobile app that allows teachers to snap photos of student’s work incorporate them into MasteryConnect’s platform.
The company has raised nearly $30 million from investors that include NewSchools Venture Fund, Learn Capital, GSV Acceleration, Catamount Ventures, the Michael and Susan Dell Foundation and, most recently, Zuckerberg Education Ventures.
Before these cuts, MasteryConnect had grown at a steady clip. Hewitt says the company currently has more than 2,600 paying schools and districts, with revenue for the past fiscal year (which ended June 30) up 75 percent over the previous period. Still, these numbers apparently fell short of goals and expectations of its investors.
Product lines had expanded as well. MasteryConnect began working on a professional development service, called Mindful. Another tool was a traditional online gradebook. These projects will now be frozen—still supported but without additional development, Hewitt says. Employees on these “non-core product teams” are among those being let go.
Also axed is the company’s regional sales staff. “We had dedicated a lot of salespeople to break into certain regional markets,” says Hewitt, “and now we’ve decided reduce how many resources we commit in certain states.”
He declined to disclose the company’s current headcount or how many positions were cut, only offering that “becoming sustainable will be the primary measure of how fast we grow.”
Plans for personnel shakeup were put in motion last January, when Hewitt says the board of directors foresaw a “change in market appetite” from investors and potential acquiring companies. Both groups, he observes, want to see evidence of profitability before investing more dollars or making an acquisition offer.
MasteryConnect was one of hundreds of edtech companies that capitalized on investors’ enthusiasm and optimism for the industry in recent years. Between 2010 to 2015, venture capitalists poured $2.3 billion in U.S. K-12 edtech companies, with $741 million coming in 2015 alone. (See our report on edtech venture capital for more details.)
Yet market uncertainty in 2016, fueled in part by global political instability and China’s slowdown—has dampened investors’ eagerness across all industries. Startup funding deals across all sectors in the first quarter of the year dipped to their lowest levels in four years, according to market research firm Pitchbook. Education companies have been hit, too. According to GSV Advisors, funding for all edtech companies (including K-12, higher-ed and corporate training) through Aug. 15 of this year totalled $945 million. That’s less than half of the $2 billion total raised in 2015.
Other companies are cutting their expenses—starting with their teams. Earlier this year, Portland, Ore.-based Treehouse, a coding education company, let go 20 percent of its team “to cross the chasm to profitability,” says CEO Ryan Carson.
Hewitt expects that other edtech startups, particularly those that raised money at the start of this decade, will feel similar pressure from their investors. Nevertheless, he’s confident that MasteryConnect can be profitable by the end of 2017. “We’ve been extremely lucky,” he says, “in that we’ve been able to monetize since day one.”
