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Kudu

Original content & educational platform targeting higher education

39%

Time to Invest

Security Offered

Convertible Note

Minimum Investment: $100

  • Currently used by over 2,400 students at UCLA, UC San Diego, the University of San Diego, and Pierce College

  • Experienced user growth of 1,500% from Fall 2016 to Fall 2018

  • Generated revenue of over $142,000 in 2018

  • Content partnership with EcoGeek, owner of the YouTube channel Crash Course

Terms

Security Type: Crowd Notes

Round Size: Min: $50,000 Max: $1,070,000

Valuation Cap: $8,000,000

Discount: 20%

Maturity Date: 24 months after the Offering End Date

Conversion Provisions: In connection with equity financing of at least $1,000,000, the Company has the option to convert the Crowd Note into shares of non-voting preferred stock (Conversion Shares) at a price based on the lower of (A) a 20% discount to the price paid per share for Preferred Stock by investors in the Qualified Equity Financing or (B) the price paid per share paid on a $8,000,000 valuation cap. Please refer to the Crowd Note for a complete description of the terms of the Crowd Note, including the conversion provisions.

Overview

Opportunity

Growing college enrollments, rising textbook prices, and demand for modern teaching methods create an investment opportunity for affordable digital textbook-replacement products. By 2025, college enrollments are expected to rise by 15% as compared to year 2014.i Textbook prices have risen four times the rate of inflation over the past ten years. Supplemental resources have also increased in price drastically with the use of expensive, single-use “access codes.”ii Furthermore, the cost of distance courses can be more expensive than traditional on-campus courses due to added fees.iii The market for low-cost learning materials is likely to remain strong even if the economy slows down, because, in times of recession, college enrollments increase,iv while falling incomes increase the demand for cost-cutting solutions.

Higher education, an industry that has traditionally used physical tools to enrich learning, has struggled to integrate interactive online resources in a cost-effective way. Many university instructors have not yet adopted active e-learning alternatives to traditional teaching techniques. A 2017 survey conducted by EDUCAUSE Center for Analysis and Research found that a majority of professors believe that they could improve efficacy by incorporating digital technologies into courses, but almost half of those surveyed were “unaware or unconvinced” that online learning was superior to traditional methods.v A possible explanation for this discrepancy and a lack of adoption of progressive teaching techniques may be that university professors at research universities, who gain promotion and tenure based more on research than teaching success,vi are not sufficiently incentivized to deploy e-learning tools.vii

Kudu, a California-based education technology company, has built a customizable higher education platform to help professors save time and resources by virtualizing many traditional course aspects, while utilizing existing technology, such as mobile devices and video sharing, to help engage students with various compelling modes of learning. The company is also developing a library of pre-built course content that aims to replace textbooks and other commonly used learning tools.  Kudu believes the weakness of many existing e-learning supplements is in their lack of flexibility, low effectiveness, and in the heavy investment of time that they require from an instructor.  Kudu creates its own content and integrates it in the platform that users find effective and easy to use.


Product

Education Platform

Kudu’s e-learning platform seeks to provide an intuitive, multi-faceted resource to simplify the complicated landscape that exists within the online learning tool ecosystem. Instead of offering siloed, one-dimensional products, Kudu aims to offer a complete software system that incorporates many of the features of multiple market competitors. With a suite of tools including video capabilities, online self-grading homework, e-textbooks, and in-class clicker functionality, the platform is designed to combine physical and digital learning tools into a cohesive, customizable platform. Currently, the platform runs on Google’s App Engine.

Original Content and Open Educational Resources (OERs)

The company is developing a library of pre-built course content that aims to replace textbooks and other commonly used learning tools. These courses integrate fully into Kudu’s educational platform, allowing the course content and platform features to be modified simultaneously to fit the intentions of a specific instructor. With a combination of text, images, videos, and online homework questions, the original content is meant to immerse students in engaging modes of instruction while providing instructors with a digital repository of base content to customize to fit different teaching preferences. Kudu aims to leverage high-quality, captivating lecture videos, as well as professionally produced animated videos and recorded lab experiments, to offer a specialized educational experience. Kudu engages a broad community of university professors to create content, providing financial incentives to the contributors. The company will also use contributing instructors as editors to help maintain content quality and manage future contributions.

Kudu has an agreement in place with EcoGeek, also known as Complexly and creator of Crash Course, a popular educational YouTube channel with over 8.7 million subscribers and over 950 million video views.  As part of the agreement, Kudu has licensed existing Crash Course series, with the ability to use the content as teaching tools for pre-built courses. In addition, Kudu has the ability to contract with EcoGeek to produce original videos that will be owned entirely by Kudu.

In addition to creating its own content, Kudu utilizes existing open educational resources (OERs) to help build its library of content. OERs are openly licensed content such as text, media, and other digital assets that are accessible to the public. With a team of editors, the company hopes to consolidate and upgrade publicly-available OER content to make it commercially attractive. For example, a chapter from an open source textbook, such as those offered by non-profit edtech initiative OpenStax, can go through Kudu’s rigorous peer review process to bring it up to commercial quality and pair it with original online homework questions to make it more suitable for use in a modern classroom.

Bring Your Own Content

Kudu offers instructors the ability to provide their own course content, while utilizing platform features like auto-graded homework and clicker capabilities. The pre-existing features of the platform can be built around the newly-added content, giving professors increased functionality. Kudu enables professors to embed personal lecture videos within the course’s chapters on the platform while offering public libraries of questions, support for live quizzes and polls, and statistical insights on course participants.

Premium Courses

Kudu offers premium courses that give instructors the ability to use previously-curated subject material to create individually tailored courses supplemented with the customizable features of the platform. Premium courses are meant to replace full textbooks and are equipped with hours of engaging, high definition lecture videos. Courses also feature a full traditional text, worked examples, and in-class discussion topics, as well as robust statistics and feedback capabilities. The product is meant to allow professors the ability to set up student-ready courses with minimal effort.

Though university students are the paying customers of Kudu’s premium courses, the ultimate decision to use Kudu is usually controlled by individual instructors. Instructors get free access to the educational platform, where they may decide whether or not to use it. If an instructor chooses to create a premium course, a unique course code is generated, which is used by students to purchase access to the content. Students who purchase access to course content receive lifetime access to the content.

Current Premium Course Offerings

 

Physics for Scientists and Engineers

Calculus based physics course best suited for engineers, physics majors, or other science majors.

Physics for Life Sciences

Physics course with a focus on connecting core physics concepts to applications in the life sciences. The course focuses on a conceptual understanding and includes detailed problem solving strategies. While the course is calculus-based, the use of mathematical tools is limited to what is relevant and appropriate for life-science students.

Astronomy

Astronomy course designed for introductory astronomy courses with light algebra. Provides clear and non-technical explanations, rich illustrations, and accessible mathematical explanations

Life in the Universe

Astronomy course that includes Biology concepts designed for introductory astronomy courses with light algebra. Provides clear and non-technical explanations, rich illustrations, and accessible mathematical explanations

General Physics

Algebra-based introductory physics course suitable for non-science majors. Focuses on conceptual understanding and real world applications. Covers mechanics, fluids, sound, oscillations, waves, electricity and magnetism, optics and modern physics.

Physics of Sustainable Energy

Physics course aimed at non-science majors that meets general education requirements. Students are introduced to scientific thinking and physics topics like energy, atomic model, heat, and waves.

Kudu also plans to make the following courses available to students in the future:

  • Chemistry: Chemical Energetics and Change
  • Molecular Biology: From Molecules to Cells
  • Science and Computers
  • Physics of Sustainable Energy
  • Principles of Microeconomics
  • Principles of Macroeconomics

Use of Proceeds

Kudu plans to use the majority of the proceeds from the raise to produce original content in order to expand its existing library. The company also plans to build its team by bringing on a full-time senior software engineer. Kudu seeks to expand on its current course offerings within Physics and Astronomy while also introducing new subject lines with both completely original content and licensed or open OER content. The company plans to focus on developing original content for course subjects such as Chemistry for Life Sciences, Calculus, and World History. Kudu also hopes to build courses like Psychology, U.S. History, Pre-Calculus, Chemistry, and Biology from pre-existing video content and open source materials.

Business Model

Kudu generates revenue through the sale of premium courses to students. Bring Your Own Content courses are free for students, while premium courses cost $50 for a single quarter or single semester course, and $75 per year for multi-quarter or multi-semester courses. The company utilizes a direct-to-consumer, all-digital sales model to optimize operating efficiencies relative to traditional textbook publishers.

Kudu seeks to foster a new process for marketing and scaling its product to differentiate itself from the salesperson techniques traditionally utilized by textbook companies. Kudu recruits professors and pays them to produce content for the platform. As active members with content on the platform, Kudu hopes that instructors will be inclined to share Kudu with other professors. The company aims to leverage the academic network of paid professors, either by word-of-mouth or through sponsored book tours, to help scale adoption by institutions or individual instructors. Once instructors choose to use Kudu for their courses, their students must enroll in the course through the platform, generating revenue from premium course offerings.

User Traction

In Fall 2016, Kudu launched its first pilot with 160 students from the University of California, Los Angeles (UCLA). By Fall 2017, the company had expanded to three additional campuses: the University of California San Diego (UCSD), Pierce College, and the University of San Diego.

As of Fall 2018, Kudu had enrolled over 2,400 students, with enrollment up 1,500% from Fall 2016. The company has also raised annual recurring revenue to $440,000 in Fall 2018, up from $32,000 in Fall 2016.

Historical Financials

In 2018, Kudu generated over $142,000 in revenue, an increase of 136% from all of 2017 in which the company generated over $60,150. The company has experienced a record month in October 2018, as revenue jumped significantly to over $75,000. The revenue was driven by course purchases from students of the University of San Diego after the school chose to switch students to Kudu’s Physics for Life Sciences course after piloting the course in the 2017-2018 school year.

In 2018, Kudu accumulated expenses of $262,903, an increase of 64.3% from nearly $160,000 in 2017. In 2018, the majority of the company’s expenses were attributed to content development costs (roughly 37% of total expenses) and general and administrative expenses, primarily salaries (roughly 46% of total expenses).

In 2018, Kudu had a net loss of $120,877. In 2017, the company’s net loss totaled $99,838, compared to $76,295 in 2016.

Industry

The global e-learning industry is expected to grow at a compounded annual growth rate (CAGR) of 7.2% over the next few years to reach $325 billion by 2025.ix The sector’s growth is expected to be attributed to an increase in the availability of e-learning programs, as well as an increase in students participating in e-learning programs. A study conducted by The Learning House and Education Dynamics found that 67% of students use mobile devices to complete coursework. In addition, student preferences have shifted in favor of online courses. The same study found that 60% of students prefer online courses to traditional, in-person courses.x

Within the e-learning market, Kudu is targeting higher education institutions and their students. In the fall of 2018, it was projected that 19.9 million students would attend colleges and universities in the U.S.xi In the 2015-2016 academic year, there were 7,021 higher education institutions in the U.S.xii According to professional services firm Deloitte, institutions are beginning to shift focus towards student-centered approaches. Utilizing modern technology, successful institutions are straying away from antiquated uniform processes in favor of customized, individually tailored processes to enhance student experience. Deloitte also notes that students expect an academic, administrative, and social experience that provides them the ability to engage with faculty and staff effectively.xiii

The U.S. education technology, or edtech, sector experienced a resurgence in venture capital investment in 2017. In 2017 alone, U.S.-based edtech startups raised $1.2 billion dollars across 126 deals, up from $1 billion across 138 deals in 2016. Of the 126 deals in 2017, 56 were classified as seed and angel rounds totaling $47. 9 million, while 38 were classified as series A rounds, totaling $243 million. Private equity firms have also shown increased interest in the education technology sector. The most interest has been in software-as-a-service products that are complementary to an existing platform. There has also been interest in roll-up strategies with companies looking for bundling opportunities and platform plays.xiv

Competitors

Pearson

Founded in the 1840s, British publishing company Pearson (NYSE: PSO) provides e-learning services and educational resources to users. Originally a physical textbook manufacturer, the company seeks to adapt, offering personalized teaching and learning e-tools at the institutional, program, and individual level. Pearson offers universities an online program management feature, that allows clients to develop a degree program or expand on existing online learning platforms. The company also offers consulting to aid in the development of tailored learning solutions, while providing a library of online learning resources. In 2017, higher education courseware and services generated roughly £908 million in revenue, or 31% of Pearson’s North America total revenue. The company’s global revenues totaled £4.53 billion in 2017.xv

McGraw-Hill Education

McGraw-Hill Education has been in operation since 1888. While the company continues to offer traditional textbooks, it has developed online learning platforms to serve as an additional product offering for customers. The company’s main platform is Connect, which allows instructors to use previously curated materials to build courses, while also allowing the addition of outside material for added flexibility. The platform allows instructors to grade assignments, while data analytics features allow for transparent reporting on results. McGraw Hill also offers clients ongoing support from its in-house implementation and training team. In 2013, McGraw Hill Education was divested from Mcgraw-Hill Companies and acquired by Apollo Global Management for $2.5 billion.xvi In 2017, the company generated revenue of over $1.7 billion; higher education accounted for $714 million of total revenue.xvii

John Wiley & Sons

John Wiley & Sons (NYSE: JW.A), also known as Wiley, is an international publisher focusing primarily on educational content. The company offers knowledge-based services and products to consumers through its Research, Professional Development, and Education business segments. As part of its Education segment, Wiley provides digital content, as well as education solutions such as online program management services and course management tools for higher education students and instructors. In August 2016, Wiley acquired Atypon, a publishing software company, for $120 million. Atypon, headquartered in Santa Clara, California, allows content creators the ability to build and revise more robust digital content sites.xviii In the fiscal year ending April 2018, Wiley generated revenue of almost $1.8 billion.xix

Top Hat

Top Hat, founded in 2009, aims to provide easy-to-use learning tools to help instructors engage students. Based in Toronto, the education technology company offers four main platform products to clients: Classroom, Textbook, Assignment, and Test. The first, Top Hat Classroom seeks to gamify lessons and encourage discussion, while Top Hat’s Textbook feature allows instructors to customize existing textbooks to meet tailored course-specific desires. Top Hat’s additional two features, Top Hat Assignment and Top Hat Test seek to provide engaging supplementary assignments and securely administered tests, quizzes, or exams, respectively.xx Top Hat Textbook and Assignment are free for students, while Top Hat Classroom and Test costs vary depending on the service and length of time. Top Hat Classroom costs $26 for one term, $38 annually, or $75 for four years. Top Hat Test costs $10 and is only available as a four-month subscription.xxi In February of 2017, Top Hat raised $22.5 million, bringing its total funding to roughly $40 million.xxii

Cengage

Founded in 2007, Cengage is an educational technology and services company serving higher education, K-12, and professional clients. The company provides content, personalized services, and course-driven e-solutions to help improve student engagement. Cengage offers an unlimited access subscription through its Cengage Unlimited service, which gives students access to over 20,000 Cengage textbooks across 70 disciplines and 675 course areas.xxiii The service costs $119.99 for four months, $179.99 for one year, and $239.99 for two years. As a supplement to the digital resources offered as part of the subscription, students may also rent a physical version of any textbook for $7.99 plus shipping.xxiv In 2013, Cengage filed for Chapter 11 bankruptcy in order to restructure and reduce its debt.xxv In the fiscal year ending March 2018, Cengage generated revenues of roughly $1.46 billion.xxvi

MacMillan Learning

Founded in 1847, MacMillan Learning offers digital, educational resources to high school and higher education students. The company is a part of MacMillan Publishers, a subsidiary of German publishing company Holtzbrinck Publishing Group. MacMillan Learning offers various products for pre-class, in-class, and post-class engagement. Through products like SaplingPlus and LaunchPad, the company allows students to assess their knowledge before class while offering a platform for students to study and review upcoming material. Using the company’s iClicker tool, students can engage via in-class participation quizzes and response systems. Through the same pre-class tools, as well as writing revision tools like WriterKey, students are able to complete assignments and study previously learned material.xxvii In January 2017, MacMillan acquired Intellus Learning, a platform as a service company that aids faculty and administrators in evaluating and selecting available education materials.xxviii

Team

Dr. Warren Essey

Co-Founder and Chief Executive Officer

Prior to co-founding Kudu, Warren worked as a software engineer for Google. During his time at Google, Dr. Essey also maintained a position as Visiting Professor at the University of California, Los Angeles (UCLA). Since June 2016, Dr. Essey has also served as a project scientist at UCLA. Previously, Dr. Essey lectured at MiraCosta College after a postdoctoral fellowship at the University of California, Berkeley. Dr. Essey completed his bachelor’s degree in Physics from the University of Witwatersrand in Johannesburg, South Africa and holds both his master’s degree and Ph.D. in Physics from UCLA. In 2002, Dr. Essey placed 1st in the Africa/Middle East region at the IBM ACM International Collegiate Programming Contest as part of a team representing the University of Witwatersrand.xxix

Alexander Kusenko

Co-Founder

Along with co-founding Kudu, Alexander works as a professor at UCLA’s Department of Physics and Astronomy. He also serves as a Senior Scientist at the University of Tokyo’s Kavli Institute for the Physics and Mathematics of the Universe. Throughout his professorship, Alexander has received four UCLA Outstanding Teaching Awards. He is a fellow of the American Physical Society, and a recipient of the society’s Outstanding Referee Award. Alexander currently serves on the board of the Aspen Center for Physics. He completed his undergraduate education at Moscow State University and attended the Yang Institute for Theoretical Physics at Stony Brook University for his graduate degree.

Discussion

Endnotes

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