Indians are studious and nerdy,” an American told Krishnan Ganesh in 2005. It was meant as a compliment and reinforced the stereotype that helped Ganesh sell his idea of online tutoring to American parents. He had already spent six months researching the tutoring business in the US and had tested his idea on a couple of dozen Americans. About a third reacted positively and that gave Ganesh the confidence to start TutorVista in April 2006, offering students based in the US personalised coaching by teachers in India, using voice over internet protocol.
Funnily enough, the inspiration for TutorVista came from a cartoon in an American newpaper in 2002. “In it, a father tells his daughter, ‘No. You may not outsource your homework to India’,” Ganesh recalls. “It led to me think, ‘Why not outsource homework to India?’.” Some time later, when Ganesh and wife Meena vacationed in the US and the UK, they were struck by the high cost of face-to-face tutoring (from $30 to $150 an hour).
For a serial entrepreneur like Ganesh, this was an opportunity waiting to be tapped. In the past 15 years, he had already started three companies and sold two, all in the IT space. In 2006 he invested 50 lakh of his own money to set up TutorVista and investors soon followed: Sequoia Capital pumped in $2.15 million the same year.
In just over five years, TutorVista has become the largest online tutoring company in the world clocking revenues of $50 million. It has 2,000 tutors who teach 20,000 students, 95% from the US and the rest in 24 different countries, from the first grade to graduate school. Around 70% of the users are high school students; they are coached in English, math and science.
The deal is simple: for a flat monthly fee ($100 for school students and $200 for college), the company provides unlimited, one-on-one, on-demand coaching in any subject. “We offer a 24/7, all-you-can-eat model at a flat price,” smiles Ganesh.
Students are matched with tutors and once a tutor is assigned, the student can schedule sessions at their mutual convenience. The coach uses a proprietary online software platform, an interactive virtual whiteboard, text and audio chat. The entire session is recorded and monitored by a technical staff to ensure quality standards.
The teachers undergo week-long training on computers, accents, digital teaching process and the US educational curriculum before they are assigned students. Most teachers have masters’ and higher degrees in the subject they teach, although for some lower grade subjects, TutorVista also hires teachers with BA degrees, if they have an additional B.Ed qualification. Typically, the tutors work 20 hours a week — at least four hours every day — and earn 8,000-15,000 a month, depending on the hours.
The online tutoring business has been a hit with students. The website receives around 6 million unique visitors a month and business has been growing at 50% y-o-y since inception. TutorVista’s business model is unique for showing that physical proximity doesn’t matter, says Narayan Swamy, head of the education sector at KPMG. “It has leveraged the latent potential of teachers in India and effectively given that to students in the US,” he adds.
Investors have been impressed with TutorVista. The company raised about $33.25 million in VC funding from investors such as Sequoia Capital, Lightspeed Venture Partners, Manipal Education and Silicon Valley Bank. Westbridge Capital Fund, the earlier avatar of Sequoia Capital, was one of the earliest investors in the company, having invested $7 million in two tranches in FY08.
KP Balaraj, MD, Westbridge, says they had invested in TutorVista because of two things: the familiarity with the promoter and the idea. “We knew Ganesh well, because we were also investors in FirstSource, a company he founded,” says Balaraj. “He is one of those rare entreprenuers who has made money in every single business venture.” The investment turned out to be a goldmine for Westbridge, which made seven times its investment from the exit.
The fund fully exited after Pearson acquired 80% stake in the company (valuing it at $213 million). Balaraj says Pearson, which initially came on the board as a joint venture partner, was attracted by the management and the business. “Pearson had its own global education business and they made a preemptive offer that we were happy to take,” he adds.
Pearson’s offer appealed to all investors and Ganesh, too, made a partial exit in January 2011. Now, around 4% is held by small investors while Ganesh and his wife Meena hold the rest. Ganesh plans to exit TutorVista by January 2014, when his three-year contract ends. For the next two years, he has the responsibility to achieve scale, after which Pearson will completely take over the company.
A new home page
Now, the business model has changed. Barely a third of TutorVista’s revenue comes from the overseas market; instead, India accounts for the lion’s share of income — and not from online tutoring. “In India, only 9% of teaching is done using technology,” Ganesh says. “For scalability, India will be a better market.” That’s not the only reason.
KPMG’s Swamy says it is difficult for TutorVista to scale its US-business, since the company has never targeted students with much potential to pay. “The company targeted kids benefiting from government grants or from economically weaker backgrounds,” he says. Ganesh, though, disagrees: “The cost of the tuition is borne by the partner and not by grants. All our businesses are scalable.”
TutorVista’s Indian business is managed through Edurite (acquired in 2007), which provides digital content to over 3,000 schools, and runs 30 K-12 schools. Digital content accounts for 50% of its income. “We deliver the content, after which the school pays us in instalments of 100-150 per student per month,” says Meena Ganesh, co-founder of TutorVista and CFO and MD, Edurite.
For the schools, the company follows an asset-light model (it had initially started managing schools in partnership with Manipal Education in December 2009 but now schools are run under the Pearson brand name, since Manipal exited TutorVista). “There is huge opportunity for us to commercially exploit the shortage of schools by setting up new institutions or taking up existing schools,” says Ganesh. Last year, the company started an e-commerce venture to sell educational products such as CDs, books and even online courses. “We have addressed over 1 million students through this site,” declares Ganesh, adding that traffic at the website has been growing 50% month-on-month.
There is certainly space for TutorVista to grow in India. A survey by LoudCloud Systems, an e-learning R&D firm, estimates the online learning market size in India will grow to $40 billion by 2017 from the present $20 billion. But with lower entry barriers compared with the US it remains to be seen how the Indian gameplan pans out.