A fast-growing Toronto software firm aiming to disrupt the college textbook business has raised $22.5-million (U.S.) in a private financing led by New York's Union Square Ventures that values the company at $185-million.
Tophatmonocle Corp. (Top Hat) is targeting the $10-billion (U.S.) industry's struggling giants including Pearson PLC and McGraw-Hill Education Inc. with a radically different approach to selling bulky, expensive textbooks.
The seven-year-old company, an emerging education technology player that offers smartphone-based teaching and testing tools, is pushing its new online textbook publishing platform inspired by such leading "peer-to-peer" tech upstarts as Uber Technologies Inc. and Airbnb Inc.
"It's potentially another great Canadian technology story," said Matt Golden, managing partner of Golden Venture Partners, an early Top Hat backer. "They're setting their sights on something extremely large and taking a big swing."
With its offering, Top Hat is providing professors a vehicle to publish and regularly update their own online textbooks, bringing in interactive web-based features and selling them to students at a fraction of current prices. "This is a radically different way of producing content," Top Hat CEO Mike Silagadze said. "We're eliminating the need for textbooks."
Professors not only save their students money, but can also make thousands of dollars by selling their textbooks through Top Hat for use by other instructors, earning much higher royalties than through traditional publishers. Professors have already produced 300 textbooks on the platform since its official launch last year, Mr. Silagadze said.
Christopher Bone, an assistant geography professor with the University of Oregon, said he and another professor recently developed an online textbook using Top Hat when he couldn't find an existing digital textbook suited to a course he wanted to be "fun, interactive and conversational," with links to online maps and data. Top Hat was "the first and only [company] that provided that opportunity."
Mr. Bone called his co-authored textbook – which costs $69, half what students would typically pay – "a real game-changer" that has driven up engagement and has been used by lecturers at other U.S. schools. But he added, "I'm not sure yet if this model will replace the conventional textbook. I still feel there is a place for [it]."
Top Hat is targeting a market already in trouble. Last month, Pearson cut its profit forecast and dividend and predicted years of poor results from its U.S. college textbook business.
To Mr. Silagadze and his backers, the incumbents only have themselves to blame. Textbook publishers have offered digital versions of their materials with limited success. They overcharge for textbooks, which are regularly and often needlessly updated, limiting resale potential.
And prices have been climbing: the U.S. National Association of College Stores says textbook prices rose from an average of $52 in 2007 to $82 in 2014. "The high prices and lack of innovation are the result of a market structure which has become highly concentrated," Union Square partner Albert Wenger said in a blog post Wednesday.
Top Hat has doubled in size each of the past five years and says more than two million students at 75 per cent of the top 1,000 North American schools use its software.
Mr. Silagadze said Top Hat will use the financing proceeds to hire 100 people this year – it has 200 now – including 40 sales people. "We'll move as quickly as possible," he said. "Success is assured unless we screw it up."