Open-source campus management software provider Kuali surprised users in 2014 when it announced that the former nonprofit would establish a corporate enterprise. Nearly four years later, the Utah-based company is taking another business leap, with a $10 million investment from edtech venture capital firm Owl Ventures.
The Kuali Foundation formed as a community source nonprofit around 2005 by a group of universities who wanted to create an affordable and customizable alternative to the millions of dollars campuses spend on administrative software systems that dominate the market, such as Ellucian or Oracle’s PeopleSoft.
Users gravitated to Kuali’s “for higher education, by higher education” motto that, along with its free and open-source options, appeared to separate Kuali from its competitors. But some of the foundation’s enterprise-planning products were slow to roll out, and as a result, slow to gain adoption by colleges. For instance, Kuali’s financial management platform was only used by 17 campuses in 2013, according to Inside Higher Ed.
But then things began to shake up in 2014, when the Kuali Foundation announced that it would create a for-profit company, called KualiCo, in order to focus on and speed up development of its free, cloud-based software modules.
“In 2014, there was a need for cloud services and software people could install locally, people wanted to pay a subscription and get software,” Brad Wheeler, chief information officer at Indiana University and former president of the Kuali Foundation’s board of directors, tells EdSurge. “We needed a company that was able to do that.”
While all of Kuali’s software remains free and open source, the company initially struggled to explain its decision and new structure. Essentially the Kuali Foundation would remain a nonprofit, with around 100 institution members who pay dues and are able to go in on software projects together. The Foundation also provided an initial investment for KualiCo (usually referred to as simply Kuali) to ramp up software development. Then going forward, the company would charge for services, like maintenance or software hosting, to drive revenue.
Missing from that plan, however, were any inklings that the company would pursue venture capital funding in its foreseeable future. In fact, it appeared to be the opposite.
“What we’re really doing is gathering the good things a dot com can do: stronger means of making decisions, looking broadly at the needs of higher education and maybe sharpening product offerings a bit more,” Wheeler told Inside Higher Ed in 2014. “This is going to be a very values-based organization with patient capital, not venture capital.”
That’s changed now, as a $10-million investment from Owl Ventures shows.
According to Kuali CEO Joel Dehlin, about $3 million will go towards growing the company’s sales and marketing teams, and another $3 million will be used to accelerate development of Kuali’s student-information system. According to the Kuali Foundation’s website, “Kuali Student, which already provides Curriculum and Catalog Management tools, has plans to grow into a complete, modern student system. We hope to eventually provide solutions for things like Admissions, Financial Aid, Student Accounts, Enrollment, Academic Planning, and Degree Audit.”
The remaining third of the recent funding, Dehlin says, will be dedicated to creating new modules for Kuali Reseach, the company’s research-funding management software. The CEO says Kuali is also close to launching a beta version of an app builder that would allow universities to create simple mobile applications using drag-and-drop workflows.
Edtech consultant Phil HIll has kept a steady pulse on Kuali’s winding path to start-up status. He tells EdSurge he isn’t surprised about the investment, given Kuali created a for-profit company to speed up development and revenue. But he isn’t without questions.
“While this news of VC funding is not surprising for those who took a critical view of the 2014 creation of the for-profit company out of a community-source model, it does contradict what the Kuali board stated about not pursuing venture capital,” Hill said in an email interview. “I’m not arguing that situations don't change and strategies are immutable, but I do think that KualiCo and the Kuali Foundation board owes the community a clear explanation of this change in what funding they are accepting.”
Wheeler says Kuali was “waiting to look at investment until it was time to go faster, and when the product was at a level of maturity.” But when asked if he could have predicted a venture capital raise when the foundation created KualiCo, he said, “absolutely. This is exactly what we said would happen.”
Dehlin echos Wheeler’s comment. “We always planned to do some kind of investment,” he said. “It’s a validation of the fact that we were able to sign up cloud customers and get new products to start moving on the cloud while keeping our open source ethos.”
Kuali has been relatively quiet since it announced KualiCo in 2014. But the Foundation and company have been busy. Dehlin says Kuali is profitable, and that it has been growing at a rate of 50 percent per a year, and now serves 160 paying customers across the company’s five product categories. (Kuali doesn’t track how many users download the free software but don’t pay for service fees.) The company also went from zero to 70 employees in three years.
To get there, KualiCo charges subscription and services fees, which vary depending on institution and project size. “For example, our SaaS fees could range from $5,000 to $500,000 per year. And implementation fees could range from $0 to $1M,” a spokesperson Kuali said.
But price isn’t the only selling point Kuali wants users to know about. It’s next big pitch? Risk mitigation.
“Plenty of customers face [company] shut down or predatory pricing, and you have no options. The idea [at Kuali] is you have an option,” says Dehlin. In particular, he points to Kuali’s modular format, which users can adopt piece by piece and adapt to their own needs, as opposed to paying for an entire system that could leave users hanging if a company goes belly-up.
“We want open source to be more about risk-mitigation, where the best option is to go with us in the cloud—but if we become evil or raise our prices, you can take the code and run it yourself.”