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Interview with Ramit Varma, Revolution Prep

Story by Benjamin F. Kuo

 

Last week, Santa Monica-based Revolution Prep (www.revolutionprep.com) announced its first, institutional round of funding, worth $15M, from Kennet Partners. The company provides SAT, ACT, and other similar test preparation courses and related software. The firm was bootstrapped several years ago, and is profitable, and its founders are both MBAs from UCLA Anderson, where they met. To hear about the company, we spoke with Ramit Varma, co-founder of the company.

How did Revolution Prep start?

Ramit Varma: Jake (Neuberg), my business partner, met at UCLA's Anderson business school. We started in 2000. While we were in business school, we saw that we had both done the tutor thing. I had worked as a tutor for Princeton Review, and Jake for Kaplan. We thought, we could put out a better product than Kaplan or Princeton Review, which would be more compelling, and also would tie in a strong social mission. That mission is, we basically allow any student to take our program, regardless of their ability to pay. We've stayed true to that, and have never turned away a student requesting financial aid. Using that, and a partnership model where we go into schools and partner with them to provide SAT and ACT service, we've been able to build up a private tutoring service from basically nothing. It was us, funding ourselves from credit cards, literally, to a company that is now on par with Kaplan and Princeton Review. Each of those three companies now work with around 30,000 students a year. We started that in 2002, and it's actually our eight year anniversary, on the 20th of September. We never took a dollar of outside capital, from the founding until this round a couple of months ago.

We took the recent round, because Jake and I feel very passionately about our social missions, and, about four years ago, we started developing the software to create software. We wanted to be able to invest in our software and our learning tools. We had applied for a state RFP, and were able to get our California high school exam exit software approved. Out of 41 companies who submitted their software for approval, only three were accepted--us, McGraw Hill, and Peoples Education. Our software has been a growing area, because we're highly effective, and standards driven. Some of the biggest school districts, including LA Unified, San Diego, and Oakland all use our software.

Now, despite bootstrapping, you actually have some connections to the venture capital world, don't you?

Ramit Varma: I've been sort of in and out of the venture space since we started. My brother is actually at Anthem Ventures, working with Bill Woodward, and I was an intern there in business school. So, we're pretty connected with the community. We've been toying with taking an investment for the last three or four years, and were able to meet with the guys at Kennet, and Javier Rojas. We connected with their philosophy and goals, so we took a first round which we closed in mid-July. Since then, we've been really strongly focused on building our software business, selling that software to school districts and direct to consumers.

Talk about what's different from what you offer from the many SAT/ACT/prep products and services out there already?

Ramit Varma: We talk about it in two different ways. On the SAT/ACT side, in classroom tutoring, we have used our technology to automate the back office. That has really improved our consistency, our delivery, our service offerings, and online resources for our students. That's a big part of it. We've also been at a big discount to the other firms for the first seven years we were around, we were half the price of Kaplan and Princeton Review until last year, when they both dropped their prices to match us. We're at $499, they are at $999. The reason we were able to offer our course at that price point, and why we have our scholarship policy, is because our internal systems allow us to run the business very efficiently, and consistently, with a minimum number of internal staff.

In terms of the software, our student learning software, we're able to provide a very customized, personalized learning experience for students. They can go online, and answer questions. With most online, interactive tools, if you get a question wrong, they'll say you put "B" here but it should be "D", and here's why. What our program does, is if you get a question wrong, we help determine where you need help. For example, if you get a geometry problem wrong--for example, if you miss a question about how many degrees are in a triangle--it might not be a problem with geometry--it might be an algebra problem. So, we'll set you up with an algebra lesson, rather than a lesson on triangles. It's at a more granular level. We then aggregate that information to teachers, for the entire classroom. It's a very rich learning tool for classroom instructors. If you're teaching classes of 32 maybe even 37 students, it's difficult to know where students are. This allows those teachers to identify skill gaps. It might not be problems in geometry, it might be because students can't add fractions in algebra. So, we give basic instruction and then signal teachers on where to better focus their classroom time.

How did you manage the growth you have, without outside funding?

Ramit Varma: From the entrepreneur's standpoint, we were really focused on cost, and building a business that was profitable at the margin level, from the beginning. Going through business school, all the stories you hear are about raising money, then building your company, then raising another round, and keeping on building. The conversations were always around burn rates and where you'd be hitting the end of the runway and where you'd have to raise more money. For Jake and me, the big thing we wanted to do from the beginning was build something we could get to throw off cash in a short time. We used that cash to invest as intelligently as we could, and scale the business so we could enter into other businesses. Thatís a big difference in mindset. We had revenue from day one, and that was entirely profitable revenue. That was our focus from the first day of the enterprise. Obviously, we did have a cash trough we had to fill, but we filled that through credit cards. I had worked for Deloitte Consulting, which had paid for my business school, but when I chose not to go back, I had to come up with $40,000. It was nice as they allowed me to pay that back over two years, in after tax dollars. But, what I had to do was call up credit card companies, ask them if I could get a credit card, got a bunch of them, so that in the end I had about $60,000 in credit cards. Jake got a similar amount. Over 12 months, until we were generating enough dollars of cash flow, we basically used that credit to write ourselves convenience checks, so we could pay our rent, pay for materials, and for those sort of things. But, the SAT pre business was a good business to start in, because there was no capital investment, and we were two guys who knew the business and what tools were available.

Isn't the business pretty labor intensive?

Ramit Varma: That is one of the challenges with the services business. Test prep, and private tutoring, is literally one-to-one. That does create some scaling issues. However, on the group side, a class has 15-17 students. It is, however, a labor intensive enterprise. The two things about that, is you need a strong pipeline and a good way of evaluating applicants to get the right people, which is what a lot of our internal systems do. We get the right people in, and trained very quickly, and then have them out there working. The fact is, the test prep business is a nice first business. But, that's also why we are in software.

Software is set to be transformative in the space of education. The reason our software is so compelling for teachers, is because it really provides teachers with information that was previously never made to them in real time. It provides students with a learning experience which is miles ahead of what a textbook can provide, and that's a business that can be transformative. Thinking back to when I was in high school, you'd take a math class, and do the problems for that chapter. The problem with that model of teaching, is once you send that students to struggle with that at home, the only resources they have are a book. Plus, teachers can only grade by completion, they can't grade and help the whole classroom of students. Our program, on the other hand, will adapt to you, and give you the exact instruction and time you need, and also provides teachers with useful data so that they can guide their instruction for the glass. It's a ground breaking methodology in teaching.

I take it the software then really requires lots of education experts to make work?

Ramit Varma: We have pulled in a lot of expertise, both on the content and feature side. When we came into this, we built it from the perspective of tutors. We wanted the student experience to mirror the teaching experience they get from a tutor. So, lots of our features have been developed from our internal team. We also have a director of curriculum and CTO, which as enlarged the user experience on the technical team. Our biggest focus now is on continuing to build out the content side, and keep ahead of the competition on the technology side, as we are.

Finally, that's a pretty big round of funding you've raised--what are you using that for?

Ramit Varma: There are two things. On the software side, we're really focused on building out to common course standards. There is an effort right now to set nationwide standards, and we're leveraging that opportunity, and the macro trend of using technology in the classroom. We're also looking to reach many people directly--there are many students, and parents whose children are having problem with math education that we'd like to reach. We also want to get out to the teachers, and we have ongoing development and buildout of our direct sales channels and direct to consumer channel.

Thanks!


 

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