Most startups fail. Ninety percent or so. Often they fail before they even get off the ground, quietly slipping off the radar and into the deadpool. Whenever I encounter these situations, I try to find out and share what went wrong. It’s useful to do this because it offers lessons to other entrepreneurs, and because we try to paint a full picture of the startup world beyond flashy launches and frothy fundraises.
Here’s my latest contribution to that series: If you’re thinking of launching a tutoring startup, don’t. It’s really tough.
Case in point, Tutorspree. The company was founded in 2011. Now, after a few weeks of weighing its options as to whether it should shut down or continue on, the company has announced it will close up shop. “We learned about how to make the toughest decision of all – to shut Tutorspree down, not because it was not a business, but because we could not make it the company we wanted,” the founders wrote in a blog post.
Tutorspree graduated from Y Combinator in 2011, calling itself “Airbnb for tutors” and raising $1 million from Founder Collective, Sequoia Capital, Lerer Ventures (Disclosure: PandoDaily investor), SV Angel, Thrive Capital, and many big-name angel investors.
The round valued Tutorspree at $7 million, according to industry observers familiar with the company. Tutorspree moved back to New York and began work on its platform, earning high praise from BusinessWeek, The Huffington Post, Wired, the New York Times and the Wall Street Journal. Tutorspree’s mission was to match up quality tutors with students. Simple enough. It has accumulated 7000 tutors on its platform.
The problem, observers say, is that the company’s founders, Aaron Harris, Ryan Bednar, Josh Abrams had little experience in the education category and not enough time to gain domain expertise. Beyond that, marketplaces are difficult and tutoring is competitive. It is seasonal and it has geographical limitations. Once Tutorspree matches a tutor with its tutee, there is little to stop them from paying the tutor in-person and cutting Tutorspree (and its fees) out of the picture.
Tutorspree started out taking a 50% percent cut of its tutoring services. A quick search shows the average price for a math tutor in DC is $75 an hour. In New York, it’s $88 an hour and San Francisco runs you an average of $94 an hour. That makes sense in the handful of cities Tutorspree operates in, where parents have plenty of money to throw at their children’s education. Outside of New York, LA, San Francisco Chicago and DC, Tutorspree had a larger challenge.
The company recently took a new tact, partnering with schools to offer lower-cost tutors that charge $12 an hour on average, according to this story.
Some in the ed-tech industry believe there was an investment bubble for early stage ed-tech startups and it has popped. General VC’s are not as eager to invest in early stage education as they were six to 12 months ago, several industry observers said. The category’s long sales cycles don’t bode well for VC-backed companies. And the jury is out on freemium business models, too. Buzzy NYC education startup Lore, for example, sold in an acqui-hire to Noodle last year.
By early 2013, Tutorspree was in need of more capital. The company entered the market for a new round of funding but it was a challenge. Many of Tutorspree’s initial investors didn’t re-invest. The wider VC community isn’t convinced that tutoring is a viable business model for growing a big company with VC-friendly returns, one investor who passed on the deal said. And the ed-tech community is small. When one big ed-tech player passes, word spreads and it’s hard to raise from the smaller players.
Tutorspree ended up raising a small $800,000 round from Resolute.VC in February with room to add more capital if it found interested investors.
But a lack of capital was not the reason Tutorspree shut down, a source familiar with the situation said. Tutorspree’s biggest issue was that the company was too dependent on traffic from Google, which can be unreliable as Google changes its algorithm.*
It is a matter of opportunity cost for its founders: if this company isn’t going to be a big hit, then it may be worth their time to move onto something that will be. As Naval Ravikant of AngelList has said, “Startups only die for two reasons: The founder gives up, or they run out of money.” In this case, Tutorspree was making some money, but its founders decided to call it quits.
Tutorspree shut down with some money in the bank, which it will return to investors after creditors and employees are paid.*
Pandodaily reached out to the three founders of Tutorspree several times over the course of a week and they declined to participate in this story. I’ll update if that changes.
Update: The information followed by an asterisk has been added to my initial story after talking to more people familiar with the company.
[Image courtesy Tulane Public Relations]
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