Editor’s Note: This post has first been published on edcetera – straight talk on edtech.
Class notes or study notes marketplaces really are a fascinating vertical within the education technology startup space. Of course, most of these ventures are too small to be called a startup. They are more of what is called a buddy business where two or three friends come together with the right skills and create a small business that pays enough for beer and parties. Most of these ventures die as soon as the buddies find a real job or are simply too busy to keep the service up and running.
Class note marketplaces usually pop up on a campus and serve the local student base. If all goes well they might even spread throughout the state. Now, I am not saying that setting this up is an easy task as I am sure that there are a ton of small players we did not even hear of. But from time to time one among those marketplaces gets enough traction to go the next step and become a real startup.
Notehall
The first one that made it to national fame was of course Notehall. The team even pitched their idea on the TV show Shark Tank and got an offer from Barbara Corcoran over $90.000. The Notehall team declined that offer and participated in the DreamIT Ventures accelerator program. Notehall grew steadily and by June 2011 the startup serviced 54 universities with the goal to reach 750.000 students by the end of that year.
It is not clear how much money Notehall raised in its seed and angel rounds but at this point Notehall was acquired by then textbook rental company Chegg which buckled up its portfolio prior to the IPO at that time. Though terms of the acquisition have not been disclosed, VentureBeat found in the SEC filing that Notehall received $3.7 million worth of Chegg stock. Not bad for a buddy business that was founded with the bar mitzvah money of Notehall co-founder Justin Miller.
Questions why Notehall did sell to Chegg and why Chegg has not integrated the service as deeply into its platform as it did with other acquisitions like CourseRank or Cramster remain to be answered. The most obvious reason would be legal issues and the general controversy around selling class notes. Notehall and competing platform Course Hero even received a cease and desist letter from the UCSC general counsel, and it also alerted faculty members and undergraduates that the commercialization of class notes is illegal in California.
Course Hero
Talking about Course Hero. Founded by Cornell University student Andrew Grauer out of a personal need, the platform has since then evolved to be a service that helps students to learn more effectively and efficiently. Student created class notes are still part of the portfolio but Course Hero now also offers flashcards, online courses and tutoring.
Course Hero has only raised $2.88 million since its launch four years ago, yet it acquired Cardinal Scholars, an offline tutoring service, from InstaEDU in July 2012 for an undisclosed amount.
According to the site Course Hero now serves millions of students both in the United States and worldwide.
Flashnotes
The latest contender for the class notes marketplace crown is Boston-based Flashnotes. Its founder Michael Matousek has pursued a pretty straight forward method to grow the platformso far: acquiring smaller competitors.
The fuel for this expansion strategy comes from two seed and a Series A round. Up to now Flashnotes has raised $6.9 million, likely twice as much as Notehall and Course Hero combined. Within just twelve months Flashnotes acquired its California-based competitor NoteUtopia in July 2013 after Flashnotes had closed its first seed round.
Last week Flashnotes acquired Florida-based Moolaguides for an undisclosed amount, only a couple of weeks after closing its $3.6 million Series A round. Moolaguides is a perfect example of the buddy business model I wrote about at the beginning of this post. In the roughly four years it existed, Moolaguides generated revenue of around $400.000 of which around $375.000 got paid out to the creators of the class notes leaving $25.000 for the Moolaguides platform.
It is clear that this is not a huge amount of money and also nothing any investor would be interested in putting money into. But that does not mean that the business model of selling class notes itself has no potential as we saw with Notehall and Course Hero.
Made to Scale
As the complexity of such a marketplace does not grow exponentially the moment its userbase grows it is a service that is actually made for scaling. The tricky part is how to get enough users outside of the campus it was created which is the part most founders seem to struggle with or simply don’t care about.
To make a marketplace work you need of course buyers and sellers and enough quality content to make the service viable. The top seller on Flashnotes made close to $12.000 which is quite significant. Flashnotes also offers pretty good terms for both user groups. Creators earn 70% of the price they ask for and get paid weekly, buyers have a 100% refund right when the material does not fit their needs.
Customer care is certainly another part of the business that needs investment the moment the marketplace starts to grow significantly. Aside from that the service needs to be stable as no one would tolerate if the platform went down due to high demand right before an important exam.
Is this Legal?
Remains the question if this business model is legal or at least ethical. Investors argue that note sharing / selling is just the next logic step in the peer learning model and that it benefits both the strong and weaker students.
In its FAQ under the question “Is this legal?” Flashnotes argues that
“The taking of notes by a student during a lecture amounts to their own individual impression of the important concepts being presented by the teacher. Legally, a student’s original study content including flashcards, videos, study guides and notes you take in class is that student’s intellectual property and can distributed as they see fit.”
This won’t be the last time we will dive into this topic. Following the acquisition of Notehall things have gotten a bit quiet, but Flashnotes’ aggressive expansion will resurface the discussion and bring the topic back on the agenda of deans and faculty, I am sure.
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