SoftBank has backed its biggest deal yet in Canada’s teeming technology sector, a US$270-million financing of Paper Education Co. Inc. that values the Montreal tutoring-by-text company at US$1.5-billion.
The financing establishes Paper as the latest Canadian company to achieve “unicorn status” by reaching a valuation of US$1-billion, although that rarefied, mythical descriptor has become less apt as the number of companies globally to reach that level has mushroomed in recent years.
The Japanese investment giant’s US$40-billion Vision Fund 2 co-led the deal with Silicon Valley’s Sapphire Ventures – an early backer of LinkedIn, Square and Fitbit – with backing from past investors IVP, Salesforce Ventures, Framework Venture Partners, Bullpen Capital, Reach Capital, BDC Capital and Red House Education. Paper received an undisclosed share of the investment, with the balance to early investors.
The financing comes less than eight months after Paper announced its last, US$110-million financing. “The market is bigger and more exciting than it was then, and in order for us to really capitalize on that we wanted to put more capital behind us and move quicker,” chief executive officer Philip Cutler said.
It’s the fifth sizable investment SoftBank has led or co-led in the past year in Canada and the third announced in the past week alone. SoftBank is one of several global investors, including Tiger Global Management and Hg Capital LLP, that have moved swiftly to back later-stage Canadian tech companies.
Paper has emerged as one of Canada’s fastest-growing startups with revenue growing from less than $2-million at the start of 2020 to more than $50-million now. It has signed a string of deals to provide its services to school districts in nearly 30 U.S. states, including dozens around Los Angeles. “I’ve never seen that kind of growth,” said Peter Misek, a Toronto-based founding partner with investor Framework. “This is the top-performing company we track.”
Paper has benefited from several trends including an accelerated digitization of schools during the pandemic and growing concerns about inequitable access to learning tools exacerbated by the crisis. Funds have flowed from the U.S. government to school districts to ensure more students have digital devices – and free access to tutoring.
Paper has “the right product at the right time for a huge market,” that is underserved, said Ram Trichur, a partner with SoftBank Investment Advisers. “You couldn’t have done this four years ago because not all kids had laptops and tablets. … I think it all came together very nicely for them.”
Since last June, Paper has doubled the number of students with access to its platform, to two million, after it won deals to provide 24/7 tutoring to students in Boston and across Florida. Its staff has increased to more than 400 from 130, and the number of tutors has more than tripled, to 2,200. The company has added senior talent including ex-Grubhub chief financial officer Dave Zaragoza and chief product officer Joel Hames, who came from U.S. education technology vendor PowerSchool Group LLC.
Mr. Cutler acknowledged Paper has had “growing pains” hiring so many people so quickly and scaling the organization. Paper also faces competition from new and entrenched rivals such as TPR Education LLC’s Tutor.com and TutorMe LLC. “Of course there will be copycats because of how much traction they have and how good the business is,” Mr. Trichur said.
Several new Paper clients said in interviews they’re pleased with early usage and customer support for the service, which school districts pay for and provide free of charge. Mary White, director of curriculum and instruction with the Martin County School District in Florida, said in the two weeks her district’s 18,500 students have had access to Paper they’ve signed up for 1,700 tutoring sessions. “I’m definitely liking what I’m seeing,” she said.
Diana Fedderman, assistant superintendent with the nearby School District of Palm Beach County, said that in less than two months the district’s 100,000 Grade 6 to 12 students with Paper access have taken 19,500 tutoring sessions – often at late hours that in-person tutors usually can’t service – and submitted 2,200 essays for review. “We’re incredibly pleased with it, it’s meeting our expectations,” she said. After signing a five-month contract worth US$1.1-million in December the district has the option to renew annually for four years.
Mr. Cutler grew up in privilege in Westmount, Que., the son of a real estate developer and a gallery owner. Despite his circumstances Mr. Cutler, who became a teacher, was struck by inequities in the classroom, finding wealthy students had the best access to tutoring, rather than those who needed it most.
Mr. Cutler knew from his experiences with tutoring that the process was inefficient: Some students might only need a few minutes of help, while others needed more than an hour, sometimes late at night after work. He left teaching to start Paper with chief technology officer Roberto Cipriani.
Their service uses the Socratic teaching method, meaning tutors don’t provide answers but prompt students to find them themselves, communicating entirely by text. Rather than sit with one student at a time for set sessions, tutors handle four to five simultaneously and are available on demand. Paper uses artificial intelligence to match students and the best available tutors and to predict optimal staffing levels.
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