Woody Marshall had seen this business strategy before. Attract users with a free product. Dazzle with quality content, an intuitive interface and whet the appetite for a paid upgrade. That approach worked for Spotify, a company in the portfolio of growth equity firm TCV, where Marshall is a general partner.
And now, it’s attracted TCV to an education technology company. On Wednesday, the firm announced it invested $50 million in a Series C round for Newsela, which offers an instructional content platform containing news and nonfiction articles at various reading levels.
This round pushes Newsela’s investment funding total to $85 million, according to its chief marketing officer, Adriel Sanchez. TCV is no stranger to the education technology industry, having chipped in on two $50 million-plus investment deals for Varsity Tutors, an online tutoring startup. Its other edtech investments include Capella Education and Watermark.
Marshall will join Newsela’s board of directors as part of the investment deal. “This is powerful,” he says of Newsela, in which he sees “tremendous amounts of opportunity.”
Boosted by Broadband
Core to the company’s offering is its leveled reading tool, which lets teachers and students find instructional materials that challenge students based on their Lexile-measured reading level. Among Newsela’s hundreds of content partners are The Washington Post, Smithsonian, Scientific American and National Geographic.
Sanchez says the platform saves teachers about five hours a week from searching for content online to use in a reading class. According to an efficacy study conducted by research nonprofit WestEd that evaluated Newsela in two large school districts, using the tool twice a week led to two times the reading gains in achievement scores and three times the gains when used daily.
Today, Newsela claims its platform is used in 90 percent of U.S. K-12 schools and has 20 million student users and 1.8 million teacher users. Sanchez declined to say how many of those users are paying customers.
Internally, it has expanded rapidly as well. In the past 12 months, the company has grown its staff size by 50 percent, to 200 employees at the end of 2018. Most of those jobs have been in research and development, engineering and sales, Sanchez shares. A team of content editors makes sure the articles on Newsela’s platform are written for the appropriate reading level based on Lexile levels.
A key to Newsela’s growth has been the growing broadband internet access now available to many K-12 schools, Sanchez adds. According to EducationSuperHighway, a nonprofit that studies this issue, 98 percent of American K-12 school districts having broadband infrastructure and internet access for digital learning. “The technology is there,” Sanchez says. “And we have made an incredible investment in technology.”
With the new infusion of capital, the New York-based company plans to add more reading content and more tools for teachers to measure student reading comprehension, Sanchez says. The company wants to grow its business of creating preconfigured collections of content to fit districts’ curricula, like creating a collection of social studies articles at a district’s request.
Newsela also wants to eventually add more than just text-based content to its platform. Sanchez suggests that multimedia variants could be a possibility. “We want to make the product even better,” he says. “We want to make the process more intelligent, more automated, all in the hands of the teacher.”
An Unforgiving Market
Newsela launched in 2013, around the same time as two other literacy tools that garnered headlines: LightSail and Curriculet. But in an illustration of how difficult life can be for literacy startups, both of those competing, venture-backed companies struggled and went through staff cuts before finding buyers for their assets.
The $50 million investment from TCV is a rarity in the K-12 space, says Adam Newman, a founder and managing partner at the Boston-based Tyton Partners, a banking and advisory firm. How Newsela survived an unforgiving industry lies in a well-designed product as much as a team that can convert users into paying customers, Newman says. Few education companies have successfully pulled off a freemium business model. “It’s sales and marketing that separate winners and losers,” he states.
Newsela has not made an acquisition to date—but it would not surprise Newman if it did so to fuel expansion into other subjects to capture more business. Adding math content would not be surprising to him, and neither would expanding the platform to serve earlier grade levels. “There are lots of places to go,” he says.
Marshall of TCV adds that he’d like to see Newsela grow beyond English and language arts and expand its business to offer collections of reading materials based on individual districts’ needs. “Engagement is critical,” he notes.
