Security type: Preferred equity
Valuation: $25 million
Share price: $1.71
Stage: Series A
Minimum investment: $500
Where to invest: SeedInvest
Deadline: August 7. (But campaign may end earlier if maximum target is reached.)
CodeCombat made more than $2 million last year teaching kids how to code. Its impressive traction is hard-earned. Nick Winter founded the company back in 2013. And he’s slowly built it up since then, piece by piece. In my nearly three hours of conversation with him, not once did I hear him utter the term “hypergrowth.” In fact, when he said it took him (and his lean crew) three years of R&D to develop a video game that can teach coding and entertain its young users in equal measure, I swear I detected a note of pride.
Despite heading a venture-backed startup, Nick doesn’t live by Silicon Valley’s “fast and furious” approach to building startups. Nick is more of a “steadfast and curious” entrepreneur. And that approach is working.
The company’s future prospects are nicely coming together and fulfill Silicon Valley expectations because CodeCombat took its time. Nick is a careful decision maker. Before he acts, he likes to focus his curiosity on everything that could go wrong and adjust accordingly.
His leadership is paying off. Nick has put all the necessary pieces into place. And CodeCombat is about to begin a new phase of serious revenue generation.
Nick’s best decision was probably the one that launched CodeCombat on its present course. Nick and his team looked at how coding was being taught and found a major problem. Most coding classes fall in one of two categories. They’re either so simple that students don’t make mistakes and learn organically. Or they’re overly complex and made with professional software engineers in mind rather than younger students. So Nick created a video game that uses coding as gameplay. This was a brilliant choice.
Coding is as essential to software (and business) as plumbing is to a physical building. Only coders get paid more than plumbers.
For some reason, coding isn’t taught in the majority of K-12 schools. Only 45% of U.S. high schools teach computer science. And even fewer middle schools teach it. At the college level, 32% of students fail their introductory computer science courses. And coding is being taught to students of color and females in paltry numbers. Only 29% of students taking the AP computer science test are female. And only 22% are students of color.
From “Too early” to Impeccable Market Timing
CodeCombat recognized the scale and severity of this problem before most anyone else. That could have been a big problem. Being early to market is just as bad as being late. But the company spent its first few years completely focused on developing its code-teaching video game. That development time allowed the market to catch up.
Computer science has become the fastest growing space in education. Educators know there’s a gap in its curriculum. Across the U.S., 28 states have created K-12 computer science standards. And 19 states have announced requirements to have computer science taught in all high schools. Nick says that soon all 50 states will require teaching it.
And that makes for a ready market. CodeCombat’s products are now being used in nearly 500 schools. And hundreds of other schools will be buying their first computer science curriculum as soon as the coming fall, when (or if) the new school year begins.
The resurgence of COVID-19 is forcing school systems throughout the U.S. to adopt distance-learning flexible solutions. CodeCombat’s products are ideally suited for online distance learning. A couple of well-timed emails sent out in March to teachers and school administrators generated 125,000 trial licenses.
Many schools are still figuring out how to handle the upcoming school year. But CodeCombat doesn’t rely exclusively on them for business. The company has also turned to B2C customers, with impressive results. In the two month period — starting when COVID-19 first arrived — of March through May, the company increased B2C bookings by 75%.
Bottom-Up Marketing Gets Great Results
CodeCombat’s marketing strategy is a little unconventional but surprisingly effective. Sell to the kids. Once teachers see how much their students love it, they’ll champion it to the school’s principal and administrative staff. They in turn run it up the flagpole at the school district level. “Once the usage is introduced and teachers see how much the kids are into it,” Nick said, “most schools figure out how to pay.”
Of course, that approach only works if kids actually enjoy the game. And according to the teachers, they really do. 99% of teachers say that their students enjoy learning how to code via CodeCombat. Those are pretty incredible numbers.
Unfortunately, there will inevitably be school districts that won’t have the budget to support CodeCombat’s product (apart from COVID-19 factors). Sometimes, those are underprivileged school districts in desperate need. But Nick has planned for that.
“In those cases, we’ll consider giving it to them for free for a year and once they see how effective it is, they’ll hopefully find the money for the following school year,” Nick said. “We love making a profit, but we also want to teach as many kids as possible how to code,” he continued. “We’re confident we can do both.”
CodeCombat has been hard at work on developing its latest game, a next generation classroom product called Ozaria. Ozaria has better optics, more features, a whole new and exciting storyline and plenty of other new content. It will keep any potential competition at bay. At the moment the competition is nowhere to be found. But if CodeCombat is half as successful as I think it will be, the competition will come. It’s the price of success.
China’s Vast Student Population Is Eager to Learn Coding
Besides the U.S., CodeCombat is also active in China. China has a student population that’s 4.5 times that of the U.S. It’s a vast market opportunity for the company. China contributed more than $600,000 of the $2.2 million in revenue that CodeCombat made last year. B2B business was conducted through training centers operating in 26 of China’s 31 provinces before COVID-19 forced them to close down.
Like the U.S., most demand in China has shifted to B2C online courses now. CodeCombat charges $1,500 for a year’s worth of lessons. The company’s biggest challenge has been the high cost of attracting customers through paid ads. Instead, CodeCombat has turned to less expensive methods, such as sponsoring tournaments and word of mouth.
China is just the beginning. CodeCombat has been translated into more than 50 spoken languages (by the company’s open-source community). Global demand is surging. CodeCombat will have ready markets when it decides to extend its reach outside of the U.S. and China.
CodeCombat isn’t Nick’s first edtech or startup rodeo. He was the CTO and cofounder of Skritter. And he helped make Skritter the number one app for foreigners learning to write Chinese characters.
Nick’s previous success has helped CodeCombat enormously. Under Nick’s leadership, CodeCombat has attracted investments from the prestigious VC firm Andreesen Horowitz in two of its six raises to date.
Less experienced CEOs would have been discombobulated by the massive COVID-19 disruption to education. Nick turned it into a net positive. CodeCombat has unicorn status written all over it. That’s not to say that there isn’t still work to be done. CodeCombat needs to flush out its coding curriculum to include more coding languages. And it needs to sharpen its marketing capabilities. But I’m convinced Nick is the right person for the job. Of the company’s many strong assets, Nick tops the list as the most valuable.
How to Invest
CodeCombat is raising up to $1,335,000 on SeedInvest. If you don’t already have a SeedInvest account, you’ll need to sign up for one. Once you verify your account and are logged in to SeedInvest, visit the CodeCombat deal page. Then click the button to invest. Enter the amount you want to invest, starting as low as $500, and proceed through the required steps. Be sure your investment is confirmed, then you’re good to go.
This opportunity, like all early-stage investments, is risky. Early-stage investments often fail. The investment you’re making is NOT liquid. Expect to hold your position for five to 10 years. An earlier exit is always possible but should not be expected.
All that said, I believe CodeCombat offers an attractive risk-reward ratio.
Source: Early Investing