Sramana Mitra: What kind of B2C traction were you experiencing at this point?
Matt MacInnis: Some titles performed very well. I should say that at some point in 2012, we also started doing non-academic content. Inkling is not an easy story to tell because we’ve adapted a lot.
Sramana Mitra: That’s okay. That is exactly the kind of story we want to tell. Entrepreneur journeys are not linear journeys. There’s a lot of navigation that goes on. This is really a entrepreneur’s story and that’s exactly what we want to tell.
Matt MacInnis: The first major difficult decision to make was whether to branch out from academic. The problem with academic and higher education is that people only buy in August and January, it is very seasonal. You have this one window to get your customers to buy. We started doing consumer content like cookbooks and other general interest content that would be saleable all year round.
Lo and behold, it worked very well. One title did over a million dollars in one year, which was the Culinary Institute of America’s Professional Chef. You have these hits but then you have this long tail. In aggregate, we probably peaked at $15 million run rate on content.
Sramana Mitra: This is $15 million top line or revenue?
Matt MacInnis: This is top line. Net revenue was basically 15% of that. We were burning money. It was growing regularly, but it wasn’t at an inflection point where you can see the end. It got really scary because just cranking more content into the system wasn’t going to do it. We did some interesting things. We ended up getting permission to not index the content in Google, allowing people to discover commercial content in their Google searches, and having a pay wall for access to the rest of the book.
We started selling the content by chapter, which was cool. It never really got to the point where you could see the other side. In 2009, it was all textbooks. In 2011, we had a hundred plus textbooks that we realized how insanely difficult it was going to be to scale up. We started dabbling in non-fiction content. In 2012, we had a big library of non-fiction content in addition to academic content. We’re doing business that way. It was in 2012 that Starbucks called. You can imagine how fraught that was.
As an entrepreneur, I was clinging to the idea that we were going to iterate our way to a consumer business. We reluctantly took on a corporate customer. It ended up that the board, being pretty aware that the consumer side was looking pretty scary, said, “See if you can sell some more of these Starbucks.” In 2012, we went out and ended up having some early wins. We signed on KPMG to manage their filed insolvency reference content. Then we signed on ComCast. It clicked.
I still remember that stat board meeting where after we closed one of those deals, one of my board members leans in and says, “I think this is the business.” My heart hit the floor. I realized what we were going to have to do. Series A was $10 million. We did this side deal with Pearson and McGraw-Hill and allowed them to each put in $2 million, but it was a $10 million A round with Sequoia.
Sramana Mitra: $10 million A round and then you did a subsequent round with the strategics and some pro rata.
Matt MacInnis: Exactly. Never do that. Never do strategic rounds with publishers.