👋🏼 Hello! Welcome to Start-up Dives.
A lot has happened since my last update.
First, I know that this newsletter hasn’t been showing up in your inboxes as frequently as I had initially planned. I apologize. I am making some changes to my process and have updated the schedule to monthly posts. I have also expanded the scope of posts and the types of businesses that I will write about in 2021.
Second, there is a ton of action going on in the Canadian tech ecosystem including businesses that I have previously covered in Start-up Dives.
Setter got acquired by Thumbtack.
Voila by Sobeys’ trucks and hoardings have become common place in Toronto. And they are getting rave reviews.
Wealthsimple has launched Crypto and Cash.
Chef Hero got recognized as a 2021 best workplace for start-ups by Great Place to Work Canada.
In today’s edition, I will be covering Top Hat - a Canadian Education Technology business that’s been impacted by the pandemic, fortunately more positively than negatively. Top Hat’s interactive software helps professors engage students during the lecture and beyond through interactive content, quizzes, polls and much more.
Origin and the business
Founded in 2009 by Mike Silagadze and Mohsen Shahini, Top Hat has raised USD$104.4M since founding with their most recent Series D round of USD$55M raised in Feb 2020. While studying at University of Waterloo, Mike and Mohsen identified two problems. First, the learning environment in the classrooms wasn’t as engaging. Second, the tools that every student was using i.e. textbooks were prohibitively expensive. This was also around the same time when smartphones were getting adopted more widely. Mike and Mohsen started Top Hat with the goal to use these devices to solve the above problems i.e. improve engagement in the classrooms and create interactive digital content to reduce the need to buy textbooks.
So what does Top Hat do?
Assume you are a professor at the University of Timbuktu. Throughout your career, you have been teaching in a classroom environment, proctoring tests, engaging face to face with your students while building a community. But then in the year 2020, the government announced a total lock down and your University decided to move instruction online. You have to figure out how would you recreate the experience of your face-to-face class by engaging students in lectures that you will be delivering from your house using your laptop. Enters Top Hat. This is how they introduce their product to you:
Easy-to-use tools to engage your classroom, adopt and author next generation interactive textbooks, create assignments on the fly and securely administer tests
Let’s break it down. Top Hat’s software allows you to do the following:
Stream lectures online similar to a video conferencing tool like Zoom or Google Meet, AND also
Take attendance that can sync with your University’s learning management system
Engage students to participate in the lesson by asking questions, answering quizzes/polls
Build student community by allowing students to chat amongst themselves and react to questions via emojis
Administer assignments and tests
Most importantly, it offers you an assortment of textbooks that you can adopt in your course. You can even create your own customizable interactive textbook that you can then share on Top Hat’s marketplace for others to use
This is how Top Hat introduces its marketplace of interactive textbooks:
The Top Hat Marketplace offers more than 250 interactive textbooks in every discipline from bluedoor Publishing, Fountainhead Press, Nelson Education (Nelson Education is Canada’s largest educational publisher used at 80 percent of Canada’s higher ed institutions) and many more.
Eh…What’s this marketplace thing with Interactive Textbooks?
This is likely the most exciting part of Top Hat’s business. It goes back to the initial problem that Mike and Mohsen had identified i.e. expensive textbooks. College textbooks is a big business. Textbooks are expensive, every professor assigns coursework from textbooks and almost every university student spends money on buying them either new or used.
Since raising series D in Feb 2020, Top Hat has acquired multiple publishing businesses.
Acquired Nelson’s Canadian domestic higher ed textbook business in May 2020. This brought 400 higher education textbook titles published by Nelson to Top Hat.
Acquired bluedoor in August 2020. This brought 400+ labs and course materials used by more than 500 authors to Top Hat. bluedoor publishes for science disciplines, and its content is used at 400+ institutions in the United States.
Acquired Fountainhead press in January 2021. This brought 250 authors in disciplines spanning communication, composition, and science to Top Hat’s platform.
Top Hat will convert all print-only titles from these publishers into digital courseware on its platform. Professors can not only assign these books to their students but also include unique assessments, definitions, chapter summaries, study guides, quizzes etc within the textbooks.
Aside from assigning these existing textbooks, college professors can create their own interactive textbooks on the platform that they can then publish on the marketplace and share with others. This is where it gets really interesting. You can essentially customize your own book for a course that you are teaching. Other professors can share feedback with you that’ll help you keep the content up to date.
Printing a textbook is expensive. Publishers need the paper and the ink no matter they are printing the first book or the hundredth book. However, with digital content, once it is created, the marginal costs for Top Hat to maintain it are minuscule. This allows Top Hat to sell a digital textbook at a lower price as compared to a traditional textbook. The digital version is higher quality, up to date and interactive. This business is going to be a big profit puppy for Top Hat.
Okay! How do they make money?
Top Hat is different from a Learning Management System like Canvas, and sits on top of something like a Canvas to aide the classroom engagement. Because they have more to do with the classroom experience and the lesson content, their Go To Market strategy has been different. Instead of working with University Administration that is often slow and removed from the classroom experience, they sell their product to professors at $0. The professor then assigns Top Hat to students enrolled in her course, similar to how she would have assigned a textbook. Top Hat makes its money from the students. For a term of Top Hat subscription, each student pays $30. If the professor also assigned a book from the marketplace, students pay additional dollars for the digital content.
This is precisely why the marketplace business is great for Top Hat. Every book assigned is additional revenue.
University wide adoptions work better for both the University and Top Hat, so the $30/student pricing would likely get much lower for Universities that have taken the leap with Top Hat.
What is exciting about Top Hat?
I think it is a really good business with exciting growth ahead of it that has been accelerated by the pandemic.
Built for active learning - Professors want to do multiple things while teaching, they want to interact with students through video and text, take attendance, get students to interact amongst themselves, share content, take quizzes, fill surveys, create some social banter to engage students etc. There are great tools out there that do each of those tasks extremely well and Top Hat does all of those together pretty well. It is a nuanced point and an important one. Top Hat can’t beat Zoom in video but would beat Zoom all day when it comes to video with all the other features that a professor needs to effectively deliver a lesson. They aren’t stopping at that, they have built integrations with all the major LMS such as Canvas, Blackboard, Moodle to easily onboard professors and reduce friction in trying out their platform.
Interactive textbook business - I have discussed this in detail above. To reiterate, this business is great for everyone except traditional publishing houses. Students save money, professors get to customize content, Top Hat makes money. They are bound to disrupt the textbook publishing industry that still relies heavily on expensive, printed textbooks and course materials.
Huge market opportunity - There are few companies that focus on core educational experience in traditional university setting. Top Hat is in ~750 higher education institutions in North America. There are more than 4000 higher ed institutions in North America alone. Every university around the world is moving learning online or at least a combination of online and offline. This is a big playground to play in.
Concerns
I am pretty bullish on them. That said Top Hat needs to build some new muscles to reach its potential:
Future Go to Market - As I explained above, Top Hat sells its teaching platform to professors. With the onset of the pandemic, it would get increasingly hard to reach individual professors. Also, more and more University administrative offices will start taking interest in the online learning experience. As the decision makers who green light Top Hat’s adoption change, their sales and marketing teams will have to adopt accordingly.
LMS downstream integration - Some of the large learning management systems have strong relationships with Universities. For example Canvas is used across all Ivy leagues. Currently, Top Hat integrates with Canvas. Very soon, Canvas and other similar companies will start building features that would compete aggressively with Top Hat. If that happens soon enough, it would be all the more harder for Top Hat to sell to their new decision makers - the University offices.
I am excited to keep an eye on this business as they continue to grow 🤞
That’s all for now :)
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