Digital Courseware Provider Top Hat Gets $130M and a New CEO

Feb 04, 2021

Another balding founder of a tech company is passing the baton off to a successor.

No, this is not the same shellshock as Jeff Bezos’ resignation letter, nor is the company anywhere as big as Amazon. But it could prove just as disruptive in the world of education publishing, where technology startups have been steadily taking market share from traditional incumbents.

Mike Silagadze, who in 2009 co-founded Top Hat, a provider of digital courseware and textbooks for higher education, will be stepping away from the role on March 15 after serving as CEO for over a decade. His successor will be Joe Rohrlich, who previously served as chief revenue officer for Bazaarvoice, an e-commerce analytics company.

It’s a decision that Silagadze says he first raised to the board about a year ago. He did not divulge future plans, but he will remain on the board of directors.

In Rorhlich, who he first met about five months ago, Silagadze believes he’s found the right person to take Top Hat to the next level. Over his 11 years at Bazaarvoice, Rohrlich helped grow the business to hundreds of millions in annual revenue, a sign that “he can take a company of our size and do the same,” says Silagadze. He declined to disclose Top Hat’s current revenues, only sharing that it is “definitely” in the eight figures (between $10 million and $100 million) and grew 40 percent in 2020 over the previous year.

“What I love doing is really helping to change an industry that has been doing one thing one way for a long time,” says Rohrlich. “At Bazaarvoice, that was in the retail industry. In Top Hat, I see a business that can provide better value to professors and outcomes for students.”

Rorhlich has not worked in an education business before, and while he may be lacking in industry experience, he is not short on capital. Concurrent with the leadership change, Top Hat also raised $130 million in a Series E round from Georgian, an existing investor that also co-led its $55 million round announced exactly a year ago. This latest deal comes at a valuation of around $500 million, according to Silagadze. To date, Top Hat has raised $235 million in venture capital.

At a time when many traditional publishers are trying to refashion themselves as tech companies, Top Hat has taken the opposite tack. The Toronto-based company got its start selling “clicker” software that allows students to respond to questions through their computers and phones. It has since added other features, including attendance trackers, gradebooks and presentation tools, to build what it calls an “active learning platform” that lets students interact with their instructors and materials.

Last year, Top Hat devoted its energies—and monies—to shoring up its content library. It acquired the higher-ed business of Nelson, one of Canada’s biggest textbook publishers, along with two smaller U.S.-based independent ones: Fountainhead Press and bluedoor. The company then converted those textbooks to work with the interactive features on its platform. Today, the company offers about 1,500 digital titles.

For classes that adopt Top Hat courseware, students pay $30 per term, or $48 per year, to use the active learning platform. They also pay an additional fee for the digital textbook, which the company says costs an average of $35. (If a student is in multiple classes that use Top Hat courseware, they only pay the platform fee once.)

The company claims its titles are currently used in 750 of the top 1,000 colleges and universities in North America. During the pandemic, which Silagadze says created a “tailwind in terms of digital content adoption,” the number of students served grew from 2.7 million to 3 million. About 80 percent of them are based in the U.S., with most of the rest in Canada.

These numbers still trail those from the likes of Pearson, which claimed 8 million subscribers in 2019 for its digital courseware platform. But Top Hat is not that far behind others. Cengage, which offers an “unlimited” subscription to its library of digital textbooks, has around 3 million subscribers, according to a spokesperson.

Top Hat says the funding will support future efforts to acquire content from other publishing houses, if not the companies themselves.

Such ambitions raise questions about whether the company ultimately wants to become a publisher itself. That can be a costly path, warns Phil Hill, an education industry analyst, consultant and writer. “There is risk in becoming too much a content company,” he says, one that could detract Top Hat from its core strengths in building technology tools.

From his conversations with higher-ed faculty, Hill believes that Top Hat has “a compelling platform in terms of usability,” and that the company’s current approach of “using content to jumpstart adoption and usage of its active learning platform makes sense.”

While Top Hat has its sights set on the big whales, it also has plenty of competition from similarly-sized peers. A 2015 report from Tyton Partners counted more than 120 courseware offerings from over 100 companies in the market, adding up to $1.6 billion in annual revenue. Those that have been expanding their footprint include Cogbooks, Lumen Learning and Soomo. One of the longest and most well-known digital-first efforts comes from OpenStax, whose small but growing library of openly licensed materials have been used by more than 9 million students.

Some big publishers have decided to acquire courseware providers rather than build it themselves. Wiley, for example, purchased Knewton and zyBooks just two months apart in 2019 to bolster its digital offerings.

Many education publishers have long seen the need for digital transformation. But turning the corner—which often entails making cuts to legacy businesses and jobs—has been painful for the likes of Pearson, Cengage, McGraw-Hill and others whose operations have been rooted in print.

“It appears to be more viable for a technology company to become a quasi-publisher, and add content to their mix of tools without running a full publishing house,” says Hill. “The reverse path seems to be more difficult, at least from what we’ve seen over the past decade.”


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