Instructure, maker of the Canvas (higher ed and K-12 markets) LMS and Bridge (corporate learning market) LMS, held their Initial Public Offering today. Prior to the IPO, Wall Street analysts focused on the company’s growth, its large losses, and the challenges of the education market. The company was priced on the lower end of its range ($16.00), and closed up 12.5% at $18.00.
This IPO and its lead up have been highly watched, particularly given the rapid growth in ed tech investments and questions on whether there are real businesses to emerge based on the investments. I had the opportunity to interview CEO Josh Coates today. What follows is an edited version of the interview, focusing mostly on how Instructure’s IPO will impact education markets and existing customers. I tried to capture as much of the Q&A verbatim as was feasible, but treat the answers below as a paraphrase.
Q. What are your impressions on how the IPO has gone so far?
A. The market in general has been a blood bath [ed. Dow down 585, or 3.3%, for the week], but we're doing well so far. Given market conditions right now, we’re pleased as punch. We priced in range [ed. $16 - $18], and the market responding well. We’re really focused as a company 6-12 months down the road, but it is nice to get this IPO feedback.
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Q. The use of funds in your S-1 filing indicates more of the same but with additional war chest. Do I read this correctly to say that you do not plan to change your limited mergers and acquisition (M&A) approach? If it’s just more of same, what is the biggest impact existing customers should expect (besides Jared Stein showing up in black Chevy Suburban with an entourage)?
A. We have a bias against M&A other than very limited cases. You are right that we plan no change of strategy with our usage of the funds [ed. they raised $70 million with the IPO]. Honestly, customers should expect no real change other than that they can now dig into our financials.
Q. Some of your competitors have been suggesting that the consistent losses listed in your S-1 means that you will have to raise prices. How do you respond? Will you be able to make additional revenue from existing clients?
A. Our prices are at market levels and we intend to keep them at market. We have fundamentally strong business that works, and it’s a healthy business, so we won’t have to do anything unnatural. [ed. I pushed back that there must be pressure to make additional revenue and upsell to existing clients]. Our upsell approach right now includes getting customers to add premium support. But we are a software company. Customers should expect us to create new independent software products every 12 - 18 months. Some existing customers will use, some won’t. That’s the strategy - create new business by building great new software.
Q. What is the relative importance of growth in K-12 vs Higher Ed vs Corporate Learning for your model over the next two years?
A. [ed. Josh did not directly answer this one but offered the following observations.] We have four markets that we serve - domestic higher ed, domestic K-12, domestic corporate learning, and international markets. Right now our fastest growth is in corporate learning, but that product, Bridge, was just released in February. Just behind that market in terms of growth is domestic K-12, which is largely a green-field market; we’ve just gotten started. It’s interesting, but by customer count, domestic K-12 is our largest market. We have to do well and grow in all four markets.
Q. Do you have any plans you can share on how long you’ll be at the company?
A. I will stick around as long as board will keep me. I love the job, have a lot more work to do, and have no active plans to leave.
Q. How will your IPO affect the broader ed tech market?
A. Everything is connected. The effect will be generally positive, providing an example of a little VC-backed company that launched in 2011 and has become a healthy independent company. This is a good proof point that education and training markets can support this type of company and investment.
Q. When will you aggressively target non-English-speaking international markets?
A. Both Canvas & Bridge are in 15 languages, and Instructure has clients in 25 countries. We provide phone support English & Spanish and soon Portuguese. We’re adding offices in multiple international cities including in Brazil. But we're doing this carefully. [ed. I pushed back that in my visit to Latin America, very few people in ed tech had any real knowledge of Instructure.] You’re right - we’re just at point of setting up legal entities in Latin America and have done no marketing. We’re in the early days.
Given the nature of an IPO and SEC rules, some of these answers are not very specific and are in good faith. We’ll keep this interview in mind here at e-Literate, however, to see if the answers are backed up by future action.