Successful Starfish Exit Validates New Markets’ Investment Thesis
- NewMarketsVP
- Oct 29, 2015
- 2 min read
Updated: Nov 20, 2024
As we reflect upon our investment in Starfish, we are not only incredibly proud of the management team but also gratified that our overall fund investment thesis is beginning to come to fruition. We have long believed that venture investors can make money in the education space when (1) they partner with companies that provide impactful solutions that drive student achievement and provide benefit to administrators (2) they are disciplined about valuation at entry, and (3) companies grow in capital efficient ways which allows for opportunities for successful exits at a realistic enterprise value M&A market.
A great outcome for our investors all starts with finding the right company. Starfish has a terrific value proposition for the two constituencies where NMEP directs its impact focus. Students are the Company’s focal point. Starfish helps to identify those students who are likely to drop out of college, before they drop out, and connect them with the resources they need. For administrators, the Company’s solution delivers a hard ROI on the cost of its platform. Typically the tuition saved from a minimal number of students who would have dropped out provides a breakeven or positive ROI for the school during the first year of implementation. Companies with these dual value propositions for students and administrators often have shorter sales cycles and better chances of scaling quickly.
Secondly, a disciplined approach to valuation and capital efficient growth are equally as critical to creating value for our investors. With Starfish, NMEP invested in January 2011 in an extension round to the Series A that Starfish originally raised in 2008 at a high multiple of LTM revenue. While we passed on investing in Starfish at that time, we stayed close to the company, building the relationship, and partnered with their Series A lead investors in other deals. By the end of 2011, the Company significantly grew into its valuation and reduced the post money to a more reasonable LTM revenue valuation. After our investment, Starfish doubled revenue in both 2011 and 2012 and growth in 2013 and 2014 exceeded 125% YOY in each year. During this time, the Company did not raise additional money. At the end of 2014, post money to revenue had been reduced significantly and created a scenario where a reasonable acquisition offer created significant value for all shareholders.
Starfish was a great investment for NMEP, perfectly in line with our investment thesis and disciplined approach. We aim to replicate this trajectory with our existing and future portfolio companies.
New Markets Venture Partners is an early and growth stage venture capital firm that invests in and helps build disruptive education, information technology and business services companies. We are one of the leading education technology-focused venture firms in the U.S.
Elizabeth Chou joined New Markets Venture Partners in 2010 and is a Partner. She is a board director for Kickboard and Questar Assessment and a board observer for BetterLesson, PresenceLearning, Graduation Alliance, Think Through Learning, Three Ring and previously for Moodlerooms.