Flocabulary, which makes educational hip hop videos, has bootstrapped for 12 years. It’s been profitable since 2008 and earned $5.6 million in revenue in 2015. So why did CEO Alex Rappaport sign a $1.5 million convertible note from Rethink Education on June 10, 2016?
“It’s a point of pride that we were able to establish values and keep the product going so well,” Rappaport said. “After building such value, we wanted to be very intentional about where that money goes. We’ve identified areas of the business for expansion—product and sales—so the motivation for raising is there. We were never in the position of needing to raise to stay open, though.”
Flocabulary boasts some impressive numbers. According to Rappaport, the company’s revenue grew roughly 70 percent per year from 2013 to 2015. Its content library holds 725 educational rap videos, and it’s producing four more per week.
This year has two objectives for Flocabulary: deepen the product and widen sales. First, the company hopes to better its product by emphasizing predictable learning outcomes. It claims to reach 12,000 U.S. schools with paying users among 3,500 districts, and its main strategy now is to scale sales from individual classrooms to whole districts. The move will mark a shift from reactive inbound sales to proactive outbound ones.
The sales team already attempts this scaling on occasion; Rappaport said that he often sees several schools in a district paying for Flocabulary, which is a strong lead for the sales team to contact the district office and sell up. Milwaukee Public Schools is currently the company’s biggest customer, but Rappaport said that it’s “eyeing some larger urban districts, the kind we’ve always wanted to work with.”
The hiring at the company reflects these goals as well. Since January 2016, Flocabulary has hired 20 people, all on the engineering and sales teams. Unlike other startups, though, Flocabulary used its 2015 profits to hire the new staff.
“Last year was huge. Those profits have allowed us to take these steps. We’ll use the capital to bridge the doldrums of June and July,” Rappaport said, “and we’re looking hire a Chief Academic Officer and a Vice President of Engineering, which are important and expensive.”
Rappaport began investigating the possibility of a Series A round in the fall of 2015, but he declined all the offers made and instead chose convertible note financing in 2016 because it allowed for more freedom. The process was not fruitless, though. He found investors very honest about the risk factors they saw in his company: the fraught transition from 30 to 80 employees, the small size of Flocabulary’s total addressable market, and the finite amount of time in a school day.
“As a supplemental product, as we deepen our offerings, how can we be sure that we’ll get more of a teacher’s time?” Rappaport asked. “They only have so much, and every minute is under scrutiny.”
There was one VC concern, however, that Rappaport, an amateur music producer, relished answering. Potential investors would often ask, “Is rap a global phenomenon?”
“Yes, it is,” Rappaport said. “Using music to learn is as old as teaching itself, and there is an immediate, challenging voice in rap. Kids respond to and channel that. In our current time, ‘Hamilton’ has done great things for Flocabulary. It’s a bit bittersweet, though. We were rapping about the founding fathers ten years ago.”
He’s right about Hamilton. Rethink Education even cited it as evidence of Flocabulary’s effectiveness: “As both Flocabulary and Lin Manuel Miranda’s musical Hamilton have shown,” Rethink’s managing partner Rick Segal said in the press release, “hiphop music can be incredibly effective at engaging the passionate interest of students and teaching them complex topics in memorable ways.”