SoftBank has backed its largest deal yet in Canada’s teeming tech sector, a $270 million financing from Paper Education Co. Inc., which values the Montreal tutor-by-text company at $1.5 billion.
The funding establishes Paper as the latest Canadian company to achieve “unicorn status” by achieving a $1 billion valuation, although that rare, mythical descriptor has become less accurate as the number of companies worldwide, reaching this level has exploded in recent years.
The Japanese investment giant’s $40 billion Vision Fund 2 co-led the deal with Silicon Valley-based Sapphire Ventures – an early backer of LinkedIn, Square and Fitbit – with support from previous investors including IVP, Salesforce Ventures, Framework Venture Partners, Bullpen Capital and Reach Capital, BDC Capital and Red House Education. Paper received an undisclosed portion of the investment, with the remainder going to early investors.
The funding comes less than eight months after Paper announced its latest $110 million funding. “The market is bigger and more exciting than it was then, and to really capitalize on it, we wanted to put more capital behind us and move faster,” said Chief Executive Officer Philip Cutler.
It’s the fifth major investment SoftBank has led or co-led in Canada in the past year and the third to be announced in the past week alone. SoftBank is one of several global investors, including Tiger Global Management and Hg Capital LLP, that have quickly moved to back later-stage Canadian tech companies.
Paper has grown into one of Canada’s fastest-growing startups, with revenue having grown from less than $2 million in early 2020 to more than $50 million now. It has signed a number of deals to offer its services to school districts in nearly 30 states, including dozens in the Los Angeles area. “I’ve never seen growth like this,” said Peter Misek, a Toronto-based founding partner of Investor Framework. “This is the highest performing company we follow.”
Paper has benefited from several trends, including accelerated digitization of schools during the pandemic and growing concerns about unequal access to learning tools, exacerbated by the crisis. Funds from the US government have been pouring into 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’s underserved, said Ram Trichur, a partner at SoftBank Investment Advisers. “You couldn’t have done that four years ago because not all the kids had laptops and tablets. … I think it all came together very well for her.”
Since last June, Paper has doubled the number of students with access to its platform to two million after it secured contracts to provide 24/7 tutoring to students in Boston and throughout Florida. The number of staff has grown from 130 to over 400 and the number of tutors has more than tripled to 2,200. The company has hired high-level talent, including former Grubhub chief financial officer Dave Zaragoza and chief product officer Joel Hames, who came from US education technology provider PowerSchool Group LLC.
Mr. Cutler acknowledged that Paper had “growing pains” from hiring so many people and scaling the organization so quickly. Paper also faces competition from new and established competitors such as Tutor.com and TPR Education LLC’s TutorMe LLC. “Obviously there will be imitators because they have so much traction and how good the business is,” said Mr. Trichur.
Several new Paper customers have said in interviews that they are pleased with the early adoption and customer support for the service, which school districts pay for and provide free of charge. Mary White, director of curriculum and instruction at the Martin County School District in Florida, said in the two weeks that her district’s 18,500 students had access to Paper, they signed up for 1,700 tutoring hours. “I definitely like what I see,” she said.
Diana Fedderman, assistant superintendent for the nearby Palm Beach County School District, said the district’s 100,000 students in grades 6 through 12 with Paper access completed 19,500 tutoring sessions in less than two months — often later than personal tutors normally can ‘t service – and submitted 2,200 essays for review. “We’re incredibly happy with it, it lives up to our expectations,” she said. After signing a five-month, $1.1 million contract in December, the district has the option to extend it annually for four years.
Mr. Cutler grew up in privileged circumstances in Westmount, Que. as the son of a real estate developer and a gallery owner. Despite his circumstances, Mr. Cutler-turned-teacher was struck by injustices in the classroom, noting that wealthy students had the best access to tutoring, rather than those who needed it most.
Mr. Cutler knew from his tutoring experience 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 found Paper with Roberto Cipriani, Chief Technology Officer.
Their service uses the Socratic teaching method, which means that the tutors don’t provide answers, but rather ask the students to find them themselves, communicating entirely via text. Rather than sitting with one student at a time for set sessions, tutors treat four to five at a time and are available on request. Paper uses artificial intelligence to match students and the best available tutors and predict optimal staffing.
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