Nerdy CEO Cohn on Going Public, Future of Online Education
By Jarrett Banks
Nerdy is a fast-growing digital learning company that will go public after merging with TPG Pace Tech Opportunities (NYSE: PACE), a special purpose acquisition company or SPAC that raised money to find a target. Investors who buy PACE shares now will see them automatically convert to Nerdy shares once the deal closes.
IPO EDGE sat down with Chuck Cohn, Founder, Chairman and Chief Executive Officer, to find out more about the SPAC, recent earnings and what’s next for the company.
IPO EDGE: Why a SPAC and why now?
We have what I consider to be a once-in-a-generation opportunity to transform how people access live instruction and expertise. We have been operating with the expectation of building a durable, public company since we first raised institutional capital from Technology Crossover Ventures (TCV) in 2015. In fact, one of the reasons we elected to work with them was their experience with helping build leading internet and software-driven businesses for public scale including Zillow, Netflix, and many others. For Nerdy, it’s all a matter of having gotten to the point where the business is ready to succeed at public scale. We’ve built something durable and special, proved to ourselves we could be self-sustaining in the back half of 2020, and have multiple large growth vectors that can drive high levels of growth for many years to come. It’s also about ensuring we take advantage of this unique moment in time where we have a product leadership head start and the whole world is aware of the importance of online learning.
Online adoption in the learning category is set to grow 5X over the next 7 years, which is more than two times faster than e-commerce adoption in the retail sector between 2014 and 2019. We’ve built a superior platform, a comprehensive online learning destination that enables the delivery of scaled, high-quality live instruction for Learners across more than 3,000 subjects. Our business is at an inflection point right now, growing rapidly in both revenue and user engagement as evidenced in our recently released Q1 and Q2 shareholder letter, and we have multiple growth vectors that will enable us to further scale our platform and reach more learners. The time is right to go public to continue to fuel that growth, and we particularly like the transparency that comes with the SPAC process. We also found the right partner in TPG (TPG Page Tech Opportunities Corp, NYSE: PACE), who believes in our long-term opportunity and will help us grow and be successful as a public company. I had gotten to know the TPG team, including their Rise Fund, over several years and had grown to respect their expertise and growth orientation.
IPO EDGE: What are your first mover advantages against some of your offline, legacy competitors?
I started Varsity Tutors in college, where I had an epiphany – that finding help and expertise was immensely challenging and there was an inherent discovery problem in the market. I thought there had to be a better way that leveraged technology to increase quality, decrease cost, improve convenience, and better personalize the experience. Thanks to our investments in technology, including AI, we now can deliver high quality live learning at scale in thousands of subjects — something that hasn’t been done before. The legacy offline mom and pop tutoring companies, learning centers, and professional training companies simply can’t offer the accessibility, affordability and efficacy that Nerdy can. Our vertically integrated, curated experience allows us to capture data that can drive high levels of personalization not seen in other online models and enables a better customer experience over time as our scale and data grows. Live historically meant offline. Nerdy has redefined that and is leveraging the power of the internet to deliver high quality live instruction at scale in any subject, anywhere, and at any time and is doing so through a software-driven and platform-oriented approach. We also do so across multiple learning formats – one-on-one, small group classes, large format group classes, and adaptive self study – in a way that allows us to create immersive, compelling experiences for learners of all ages.
IPO EDGE: Why is live instruction so important?
Because it works and it is what consumers want! Live instruction is simply more effective than other learning methods as evidenced by countless studies. In a live setting, an expert can tailor the teaching to the needs of the learner in real time and adjust based on feedback nearly instantly. It is also far more engaging as learning is deeply personal. And consumers know it — less than 10% of learners think that pre-recorded content or instruction is better than live.
It begins with the match between Expert and Learner. We’re able to work with incredibly talented Experts (nearly 50% of Experts on our platform have a Graduate or Doctoral degree) and connect them directly with Learners who would most benefit from their knowledge. Ultimately, personalized interactive learning has the most impact. Asynchronous learning platforms that use pre-recorded videos simply can’t match the learning experience that a live tutoring platform like Varsity Tutors can offer. Whether helping with K-12 education or Learners seeking enrichment or professional development (a growing market for Nerdy, which now covers over 500 certifications and licenses), live instruction is more effective than asynchronous, pre-recorded learning and one-one-one instruction is far more effective than classroom learning. The numbers bear that out: a recent study we conducted among parents showed that tutoring resulted in a 155% increase in A grades received and a 94% decrease in Ds or below. Parents also stated that one-on-one online live video-based tutoring was far more effective in addressing learning loss during the pandemic, more than any other system like chatbots, recorded videos or additional practice exams. Simply put, live instruction makes an enormous difference in helping Learners succeed.
IPO EDGE: Nerdy recently released Q2 earnings. Can you give us a summary?
Both second quarter and year-to-date results exceeded our previous forecasts. Coming off of a stellar first quarter, we continued to outperform our expectations in Q2 with our operating and top line results. Our second quarter revenue of $32.8 million represents 52% year-over-year growth, and exceeded our forecast by over $4.5 million. That growth was driven by an 80% year-over-year increase in active Learners on our platform, and an increase of 109% in online paid sessions. This was our first full quarter comparison from a year-over-year basis since moving to a fully online model in April 2020, and it’s clear that the accelerated demand for our paid class and one-on-one learning formats has only increased since schools and the economy began to reopen and normal testing and evaluation of knowledge (like your grades counting or professional testing centers allowing you to take the exam) resumed. We launched hundreds of new class subjects in the quarter, including fun and enriching virtual summer camps, and have brought on even more Experts, giving Nerdy great momentum heading into the second half of 2021.
IPO EDGE: How has the relationship with Technology Crossover Ventures (TCV), which has invested billions in technology companies and shepherded the likes of Airbnb, Inc., Spotify, Netflix, and Peloton into public life, benefitted Nerdy?
TCV and Woody Marshall, the general partner who leads their internet and consumer practices, has been a terrific partner and advocate since their initial investment with us about six years ago. TCV’s overall mission is to find businesses that show capabilities for moving traditionally analog processes to digital ones. They had and have deep experience scaling consumer internet platforms and marketplaces and I thought we could benefit from that experience and pattern recognition. The companies they work with, like the ones you mentioned, are committed to transforming their sectors through investments in software and technology, and TCV recognized that the learning and education market had lagged well behind in adopting transformative technology. They agreed that a direct-to-consumer internet-enabled platform model would be a winning go-to-market strategy and they appreciated our relentless focus on building the best possible product and customer experience. TCV and Woody have helped us recruit world-class executives, navigate complex product and strategy decisions over the years, and even introduced us to Karl Peterson and Greg Mrva from TPG who are leading our SPAC transaction from the TPG side. TCV’s conviction around the specific individuals involved was one of the things that tipped us toward TPG PACE and away from a traditional IPO last December.
IPO EDGE: What does the future of online education look like?
For me, the future of online education is personal. Technology and the use of artificial intelligence has only begun to scratch the surface of what’s possible for live online learning and the level of personalization that is possible thanks to technology. Nerdy’s growth is evidence of the power of what a technology-driven approach can create. In an April 2021 survey of 1,000 parents of K-12 students conducted by Halsted Strategy Group, 73% said they were more likely to use online learning than they were a year ago, and 92% of those consumers report that they plan to continue to use online learning in the years ahead. And we’ve seen Nerdy’s new initiatives, like Professional Certifications and small group classes, grow more than 3 times faster than our initial launch of one-on-one instruction, another strong sign of the growing adoption and expansion of online learning. With the capital raised from the transaction with TPG, as shown in the forecast, we’ll continue to invest in building a platform capable of increasing quality, decreasing cost and improving our customer experience. We expect to make even more significant investments in engineering, product design and marketing to stay at the forefront of innovation. As I said, we’re at an inflection point, not just at Nerdy but for the entire educational system, and what learning looks like is being redefined and transformed. As a country, we’re finally grasping the unlimited potential of online learning, and I am excited for the scale of the opportunity we have in both the near, mid and long-term to help shape the industry, help a lot of learners, and take advantage of a massive commercial opportunity.
Contact:
Jarrett Banks, Editor-at-Large
Twitter: @IPOEdge
Instagram: @IPOEdge
