After 13 years of steady, self-funded growth, Desire2Learn has raised $80 million from two top venture funds, signalling a major expansion for the eLearning firm and a new era for Waterloo Region’s technology sector.
The investment, fittingly announced on the first day of school in Ontario, is the largest Series A round to date for a Waterloo Region tech company. It involves U.S.-based New Enterprise Associates (NEA) Inc., which recently raised a $2.6-billion fund – possibly the largest venture fund in history – and OMERS Ventures, the VC arm of one of Canada’s largest pension funds.
“Desire2Learn is the latest global success story to be written in Waterloo Region, and we couldn’t be more proud,” said Iain Klugman, CEO of Communitech, the enabling agency for tech entrepreneurship in the region. “An investment of this magnitude is proof that the world is paying attention to more than one of our companies.”
Today’s announcement marks the first outside investment Desire2Learn has sought since its 35-year-old CEO, John Baker, founded the company as a third-year University of Waterloo student in 1999.
Early revenue was a must for Baker, then a 22-year-old systems design engineering student with no track record but a bold idea: to get universities to move their courses online.
“I had to make a living right away because I was a student and I had no other job,” Baker told Communitech in an in-depth interview earlier this year. “So I started generating revenue within the first few weeks of getting started.”
Now housed in Kitchener’s Lang Tannery complex along with Google’s Canadian engineering offices and the Communitech Hub, Desire2Learn has grown steadily on its own steam, but has been on a rocket ride since 2009, soaring from 140 to more than 560 employees and adding more each day.
The rocket fuel came in the form of a U.S. federal appeals court ruling that overturned a $17-million patent infringement suit launched by Blackboard, D2L’s much larger Washington, D.C.- based rival. Since then, Baker’s company has been rapidly gaining market share, often at Blackboard’s expense.
Desire2Learn now serves more than 700 clients and more than eight million learners around the world, and has extended its offerings beyond K-12 schools, colleges and universities into the government and corporate sectors – an expansion likely to gain momentum with this new investment.
In April, the company teamed up with IBM to offer new services and software to schools around the world, from standalone institutions to some of the world’s largest education boards.
Desire2Learn has built its success in a way that’s familiar to keen observers of Waterloo Region’s tech sector: Methodically and steadily through hard R&D and bootstrapping, without drawing a lot of attention to itself.
The region’s largest tech companies developed in a similar way. Research In Motion toiled in relative obscurity for 15 years before the first BlackBerry appeared in 1999, while OpenText evolved out of a University of Waterloo project to develop a searchable Oxford English Dictionary to become one of the world’s few billion-dollar-plus companies based purely on software.
“Waterloo has not succumbed to trying to be someone else,” Klugman said of the area’s homegrown approach to commercializing its innovations. “This is our model for entrepreneurialism and for our tech cluster, which is focused on real businesses, real customers, real markets, bootstrapping, and is not glitz and flash-in-the-pan.”
Another key component is collaboration, which Communitech – a non-profit founded and governed by a board of entrepreneurs – has been fostering for 15 years. As such, it has had a front-row seat to Desire2Learn’s entire lifecycle, from Baker’s first appearance as a speaker at a TechWorking Breakfast a dozen years ago, to his appointment to Communitech’s board in 2006, to today’s announcement.
“John benefited from the advice, counsel and mentorship of people across the community, and now he’s already giving back by mentoring a bunch of companies through things like HYPERDRIVE,” Communitech’s new $30-million-plus startup incubator, Klugman said.
The fact that his company has now landed investment from one of the largest VC funds in existence “punctuates the importance, the significance of this tech cluster on the world scale,” Klugman added.
The funding announcement comes weeks after Canada was named the second most attractive country in the world for venture capital, up from third place in 2008. Canada is now second only to the U.S. and ahead of the United Kingdom, Japan and Singapore for attractiveness to VCs, according to the Global Venture Capital and Private Equity Country Attractiveness Index.
Brett Shellhammer, an expat American entrepreneur who spent 17 years in Silicon Valley before relocating to Waterloo in 2005, said this area’s highly concentrated tech sector makes it one of few tech hotbeds to be fuelled almost exclusively by access to talent rather than access to capital.
“Silicon Valley and Boston are rare in that they have access to both talent and capital, while New York and London are driven primarily by capital,” Shellhammer said. “Austin, Pittsburgh, Boulder and Waterloo are driven by the engineering talent emanating from their universities.”
As such, many tech companies here – Baker’s included – can trace their roots to research projects at the University of Waterloo, which ranks consistently among the world’s top engineering schools. Students of Waterloo's systems design engineering program have done particularly well as innovative entrepreneurs.
“This region has more access to talent than any other tech centre of its size,” Shellhammer said. “We’re just waiting for the capital to start pouring in.”
The past year has brought positive signs, as several area startups have attracted venture funding from an array of North American investors, an increasing number of whom are looking beyond Silicon Valley startups and their often-sky-high valuations.
Desire2Learn’s $80-million infusion, involving such a large global investor as NEA, looks like a major leap in that direction. Shellhammer suspects it’s only a matter of time before other big VCs follow suit.
“Waterloo passed a critical mass three or four years ago in terms of having enough people with enough varied experiences to build complete tech startups that can compete in the global market; it’s matured to a point where companies can go global, but still drive their businesses from here, where the talent is,” he said.
“If you were to pour money into this region, like they do in San Francisco or Boston, you’d start to see a lot more amazing companies getting people’s attention.”
