Sramana Mitra: When you look at those early adopters of your technology, what strikes you as the common characteristics of these kinds of players? What were they doing that made them early adopters?
Don Kassner: They had those typical early adopter feature sets. They understood that they needed to take their online education service to another level. They were looking for unique technologies that would allow them to do that. They’re no different than most early adopters because they’re on the leading edge of what they demand within the marketplace. That has changed since that time. But in the early days, it would be schools like California Southern and Troy University who were entrepreneurial. They’re risk takers. They do different things and those were the ones that were eager to try the solution.
Sramana Mitra: 2009 is when you got your first customer. Did that first customer trigger your spin-out of the Andrew Jackson University?
Don Kassner: I would say it was not just the first one. It was multiple customers. The biggest would be Troy, which was customer four. By late 2009, we realized that we had some momentum and big potential, so we spun it out of Andrew Jackson University. It was an independent corporation as of October 2009.
Sramana Mitra: Andrew Jackson University had its own shareholders and you were the President of the university, weren’t you?
Don Kassner: Yes, I was.
Sramana Mitra: We do see some spin-off stories and it’s always interesting to see the mechanics of that spin-off. Can you talk a little about shareholding? Was there financing involved? What was the spin-off structure?
Don Kassner: In the first stage, there was very little financing. We distributed the shares of the corporation to the shareholders of the university and key employees who were involved in the development. It was important because we were trying to run it on a tight bootstrapped cash basis. So, the equity piece was important for the initial employees who had to go over and above their responsibilities with the university. That was phase one. For the first year, 2009, it was human capital that was involved. Our expenses were very small. After we spun it out, we made the decision to divest the university. We sold the university off and that did result in additional capital that we were able to put into the venture in late 2010.
Sramana Mitra: Human capital and some of the revenues that were coming from your various customers?
Don Kassner: Yes. As customers started paying, we started to hire more people. We really bootstrapped it and the initial people – myself, Jarrod, and a couple other people – worked for free.
Sramana Mitra: You, Jarrod, and a couple of others went on to be the principals of the spin-off company? Did you have major shareholding in Andrew Jackson University?
Don Kassner: Neither one of us had a significant stake at Andrew Jackson University. We both had small option packages. So the spin-off didn’t result in any cash freeze in any one of us. It did for the entity because we allowed the proceeds of that to be invested in ProctorU. Jared and I didn’t receive cash from the Andrew Jackson sell.