Whitehat Jr’s 18-month valuation sprint from $6 mn to $300 mn

Exactly two years ago, when Karan Bajaj was at the helm of American broadcaster Discovery Inc’s South Asia operations, he came up with what was at the time a somewhat offbeat idea for this market  -- teaching kids to code online. He cobbled together a pitch deck and shot off a cold email to Anup Gupta, a partner at venture capital firm Nexus Venture Partners. Gupta responded overnight. 

In November 2018, when Bajaj was serving out his notice period at Discovery, Nexus committed to leading a $1.3 million seed investment round in Whitehat Education Technology. At the time, the Mumbai-based startup, incorporated in October 2018, was valued at $6 million. 

Soon after the investment, Bajaj and a team of seven started to build Whitehat Jr, a platform that aimed to teach children aged between 6 and 14 the fundamentals of coding. 

“The idea of teaching kids to code online, while obvious now, seemed off the left field then -- there were many questions on the depth of market, how to create a platform which is not dependent on star teachers, keeping kids engaged for multiple sessions across months, etc… After a couple of discussions, we agreed to partner and Nexus led the seed round in WhiteHat Jr at the concept stage,” Gupta recalled.

Though edtech startups were beginning to make their presence felt at the time, it wasn’t yet the gold rush it has become over the past 6-9 months. Most edtech startups that were popular with investors back in 2018 focused on areas such as online tuition, test preparation and tutor-parent engagement. 

Whitehat Jr was clearly an outlier. “It was a contrarian investment and in a sector that was not considered hot at the time…” Gupta said.

Last week, the contrarian bet paid off handsomely for Nexus when Bengaluru headquartered online learning platform Byju’s acquired Whitehat Jr in a $300 million all cash deal. 

Nexus and Omidyar, which came in as part of the $1.3 million seed round, stand to score a 14X return on their original investments, according to people privy to the transaction. The two investors also participated in Whitehat Jr’s $10 million Series A round in September last year which was led by San Francisco Bay Area based venture capital firm Owl Ventures. Owl Ventures is expected to make a 10X return on its investment when the deal is completed, the people cited above said on the condition of anonymity.

What makes this deal notable, apart from Whitehat Jr’s 18-month sprint from a valuation of $6 million to $300 million, is that the founder comes out a big winner. Bajaj is expected to rake in about Rs 900 crore ($120.6 million) for his little over 40% stake in the company. There’s also something for employees. The ESOP pool of about 10-12% comes with an upfront component and will deliver liquidity to the company’s early employees.

Shared global vision

Much like Whitehat Jr’s inception, the run up to the company’s acquisition by Byju’s also started with a cold call. A WhatsApp message to be specific. 

Sometime in early June, Bajaj received a message from Byju Raveendran, founder and CEO of Byju’s, introducing himself. A chat followed the next day over phone and within the next couple of days the two entrepreneurs thrashed out the basic contours of the deal. Investment banking advisory firm DC Advisory was brought in and within a few days Bajaj took the proposal to his investors. 

In all, it took about six weeks from Raveendran’s WhatsApp message to stitch up the deal after due diligence, legal reviews and related paperwork. 

And, in a nod to prevailing times, the entire deal, start to finish, was executed online.

“The pace of the deal, I would give a lot of credit to Byju...” Bajaj told TechCircle. “...it (Whitehat Jr) was a $150 million annual revenue business that has a lot of different cost elements, different countries involved with 65,000 paying customers… he (Raveendran) was able to navigate through all of that and get the due diligence done in a short time because of extreme focus,” Bajaj added.

What also contributed to the quick and successful execution of the deal was what Bajaj likes to term the “boundary less global vision” the two entrepreneurs share. 

“We expanded to the US in a short span, which is somewhat unusual for India, as I have a complete global view for the product. He too shared the view and supported it,” he said.

Whitehat Jr launched in the US market in February 2020, about a year after the platform was formally launched in India. The US launch helped accelerate growth and in July this year, the company was at an ARR (annual recurring revenue) of Rs 95 crore (a little over $150 million at current exchange rates), Bajaj claims.

According to the company’s last regulatory filings with the Ministry of Corporate Affairs, dated for the year ended March 31, 2019, it reported losses at Rs 2.5 crore against revenues of Rs 21 lakh. At the time though, the platform was still in beta.

Whitehat Jr claims a user retention rate of more than 85% in the US market while in India, about 60% of its business is generated from outside the top 15 cities. The user retention rate in India, Bajaj said, is 70%. Out of the 65,000 paying customers or users that Bajaj claims, 65% are located in India. The US market, however, accounts for 55% of its revenues and almost one-third of the revenues each month come from renewals. Bajaj declined comment on the company’s pricing structure for each of its markets. 

The platform teaches coding fundamentals such as sequence, structure, logic, commands and algorithmic thinking. With its original coding curriculum, the platform offers four levels of courses -- beginner, intermediate, advanced and professional -- to help children build commercial-ready games, animations and apps online.

Bajaj claims the company has been cash flow positive from January this year and about $16 million, including $11 million in venture capital, was in the bank at the time of acquisition.

Three-year roadmap

The $300 million acquisition by Byju’s has made Bajaj, 41, the latest poster boy for India’s bubbling startup ecosystem overnight. But he’s far from done with Whitehat Jr.

“I’m definitely not exiting (the company). I’m very much part of Byju’s focus. Instead of venture capital funding, we have Byju’s acquiring… I want to continue this growth. It’s a huge global market. There is no category as coding for kids. We have created this category so rapidly in India and the US. I think India can become the leader in this category by using the supply here and making it available throughout the world,” he said.

Post acquisition, Byju’s has committed to invest $30 million over a period of three years to help WhiteHat Jr with new product development. As of now, according to Bajaj, Whitehat Jr will operate as an independent entity and Byju’s has committed to offer 100% support with zero interference.

The company is already working with Byju’s to build a math product. Mirroring its product philosophy, the new product will be a one-one-one platform, which will focus on learning by doing and building. The product is currently in development and is expected to make its way to the market by September-October this year.

The acquisition will also enable WhiteHat Jr  to leverage Byju’s global presence while Byju’s will piggyback on the company’s US presence to further expand its footprint in one of its largest focus markets.

Scaling Whitehat Jr on the Byju’s platform will consume Bajaj for a while -- he says he will stay with the company for at least the next three years -- as he focuses on its global expansion and creating more teaching jobs in India. After that, if he chooses to take a breather, writing a fourth novel -- he’s published three so far --  would certainly be a fine way to unwind.