Newsela Raises $100M to Challenge K-12 Textbook Publishers, Eyes Acquisitions

Business news is packed with unicorns, and Newsela is the latest in education to join the herd after reaching the vaunted billion-dollar valuation.

That status comes courtesy of a $100 million investment led by Franklin Templeton and existing investor TCV. Owl Ventures, Tao Capital Partners, Chan Zuckerberg Initiative and Waycross Ventures also contributed.

Newsela, founded in 2013, is best known for its leveled reading tool that lets students read content licensed from publishing partners at different Lexile levels. Complementing these materials on the instructional content platform are lesson plans and assessments aligned to state learning standards organized by subject and grade.

The New York-based company has now raised more than $172 million in venture capital. In March 2019, when Newsela raised $50 million in Series C funding, it reported 20 million students and 1.8 million teachers using its platform. Those numbers have since ballooned to 37 million students and 2.5 million teachers.

No doubt some of that growth was spurred by the pandemic, which led many educators scrambling to find online materials to support remote instruction. But even before, school technology infrastructure had steadily improved over the past decade, aiding the adoption of digital technologies like Newsela, says CEO Matthew Gross.

The crisis also revealed that access to devices and the internet remained uneven in many places. But ready or not, it “woke districts up to the reality that digital is our future. It is a right for our students, in schools and in their homes,” he says. In the wake of the pandemic, Newsela made all of its services available for free to teachers for the remainder of the last school year.

Now used in 90 percent of all U.S. schools, Newsela’s content library includes more than 14,000 texts across over 20 genres, licensed from over 175 publishers that include major news organizations (including Bloomberg, The Economist and Washington Post), museums (like the Exploratorium in San Francisco) and nonprofits (such as The Marshall Project, Human Rights Watch and the White House Historical Association). The company has an editorial team that rewrites these materials for readers at different grade levels.

The company plans to expand this library with new media formats including audio and video, and add new features for students and teachers to engage with the content. To support these efforts, Newsela may buy another company for the first time. “M&A [mergers and acquisitions] is certainly going to be a part of our future,” Gross shares.

The company has been on a hiring spree. It’s hired about 40 people over the past six weeks, pushing its headcount to 401 and growing, says Gross.

Taking on Textbooks

Like its peers in the digital curriculum market, Newsela has its sights set on beating textbooks; in fact, the press release devotes a paragraph pointing out their shortcomings.

The market for K-12 instructional materials is typically split into two categories: “core” curriculum that strive to be as comprehensive as possible (and which historically largely consisted of textbooks) and supplemental materials used to fill in gaps. The distinction is important because districts usually allocate different budgets for each group, and “core” materials typically get bigger bucks.

Digital tools like Newsela used to be relegated to supplemental curriculum, but that’s quickly changing, according to Gross. Increasingly, “most school districts are using us as an ‘essential component’ of their curriculum,” he says, adding that about 17 percent of its largest school customers “are already using us as a rip-and-replace comprehensive solution” in place of textbooks.

That traction is paying off. Newsela said annual recurring revenue grew 81 percent in 2020 over the previous year, though it did not disclose further financial details.

And, unlike other edtech startups that have expanded their business to sell to parents in the wake of the pandemic, Newsela is firmly committed to selling to schools. “Parents shouldn’t feel like they have to make up ground that schools don’t cover. Schools should be able to deliver all the learning students need,” says Gross.

It’s becoming trendy to beat up on textbook publishers, and Newsela is hardly alone. Weld North Education has been acquiring digital curriculum companies over the past decade, and claims to be one of the biggest K-12 providers through brands like Edgenuity and Imagine Learning. Top Hat, a digital courseware provider that raised $130 million earlier this month, is also waging war on publishers, albeit in the higher education market.

Their rise comes at a time when publishers with print legacies are reeling from the pandemic, which has severely curtailed their business. Houghton Mifflin Harcourt posted a net loss of $480 million last year—more than double the 2019 figure—as year-over-year revenue declined by more than 25 percent. Much of the decline was attributed to the impact of the pandemic, though the company did report that its digital billings more than doubled.

Newsela’s funding round is the latest windfall for the U.S. K-12 edtech industry. Last week, Renaissance Learning agreed to acquire Nearpod, a digital-lesson delivery platform, for $650 million.

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