No VC: Education Startup Quizlet Makes the Grade Going It Alone

This is the third in a five-part series called “No VC,” which highlights startups that have succeeded without venture capital, the lifeblood of Silicon Valley.

(This post was updated to correct the site’s pricing to $15 a year.)

One night this past summer, Andrew Sutherland was eating takeout at the office of his San Francisco-based startup, Quizlet, when a knock came at the door. He answered to find partners from a well-known venture capital firm. Based on the e-mails and phone calls he received from the firm before, Sutherland surmised they wanted to discuss a possible investment.

“I guess they thought that if they couldn’t get in through other channels, maybe we’d take an in-person meeting,” he said. “We turned them away.”

The 22-year-old Sutherland has rebuffed numerous investors since becoming one of the hottest new stars in education tech. Quizlet, the program he created as a high school sophomore to prep for a French exam, has grown into one of the most popular study tools for students. The website has more than 12 million unique visitors a month and the company’s app has been ranked as one of the top educational programs in Apple’s App Store for the past three months.

Yet unlike high-profile startups such as Inkling and Kno, which have raised tens of millions of dollars from VCs eager to cash in on the boom in smartphones and tablets in the classroom, Quizlet remains entirely bootstrapped.

“We don’t need the money right now,” said Quizlet Chief Executive Officer Dave Margulius. He said the company is cash-flow positive and predicted that revenue would surpass $10 million in two years.

Quizlet became profitable soon after it was created in 2005, according to Sutherland, who built the flash-card program for the Web and supported it by selling Google AdSense promotions that let marketers place ads on the site. As the game grew more popular and server costs rose, he raised $30,000 from friends and family and invested profits from a separate site he helped to create — an e-commerce service called Collectors Weekly — to grow the business.

He also hired Margulius — a tech veteran who founded in the early 1990s and worked as an executive at Evite — to help run Quizlet while he attended MIT. Last year, Sutherland dropped out of college to focus on Quizlet and help produce its first app for Apple’s iPhone.

Investors may like Quizlet because it’s not selling anything to school administrators or teachers, which usually involves clearing red tape and waiting out budget approvals. Instead, the simple and fun-to-use app appeals directly to students.

“A kid in California can create a Quizlet around a topic and 45 kids in South Carolina who don’t even know him can leverage that for their own studying,” said Semil Shah, an entrepreneur-in-residence at Javelin Venture Partners who has written about education for the blog TechCrunch.

Aside from selling ads, Quizlet also offers a $15-per-year version with no advertisements. 

While Sutherland sees sales continuing to grow at least 150 percent a year for the foreseeable future, he’s more focused on getting his service into the hands of more students around the world. That’s a vision that may be at odds with outside investors, he said.

“A lot of VC companies go for a subscription business and try to monetize quickly,” Sutherland said. “We can build a bigger business that can serve a lot more people if we’re more open and not trying to get money out of every single user.”

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