News & Analysis

driven by the PitchBook Platform
This Day in Unicorn History

This day in unicorn history: Udacity and its $1B edtech experiment

In the span of three years, founder Sebastian Thrun helped turn Udacity into an edtech unicorn. But the company’s journey in the world of VC hasn’t always been smooth sailing.

Request access to venture capital data

To most academics in the world, Sebastian Thrun had a dream job. The AI expert was a tenured professor at Stanford, where he’d worked for nearly a decade, helping lead student efforts to build self-driving cars and serving as director of the university’s Artificial Intelligence Lab. In his spare time, Thrun also founded Google[x], the tech giant’s famous R&D arm focused on autonomous vehicles, balloon-powered internet networks and other so-called moonshots.

But the thinker and entrepreneur had even grander plans. In 2012, Thrun announced he was leaving Stanford to launch Udacity, an online education startup focused on bringing high quality tech teachings to the masses.

The past seven years have brought a series of highs and lows for the company, including at least one home-run hire, multiple rounds of layoffs and more than $150 million in total funding. The highest of those highs came four years ago today, on November 11, 2015, when Udacity joined the unicorn club with a $105 million Series D that valued the business at an even $1 billion.

But first, let’s rewind a little bit.

Udacity was founded during a moment in time when many experts believed higher education was on the brink of a transformation—a transformation that would be driven by the rise of massive open online courses, or MOOCs, a kind of online class (usually free or at a greatly reduced price) where thousands of students could tune in from anywhere in the world. MOOCs, the thinking went, would give anyone with an internet connection access to an Ivy League-quality education.

Thrun was turned on to the concept of MOOCs by Salman Khan and his Khan Academy, one of the earliest entrants to the space. As an experiment, in 2011, Thrun and co-professor Peter Norvig opened up their next computer science course at Stanford to a global audience. Soon, fellow roboticists David Stavens and Mike Sokolsky got involved, and by the time the first course began, it had more than 100,000 students enrolled. Before long, Udacity was up and running, with Stavens serving as its first CEO and Sokolsky assuming CTO duties.

Udacity raised $6.1 million in Series A funding at a $32 million valuation in early 2012, not long after its official launch. Later that same year, it hauled in a $15 million Series B at a $60 million valuation, with well-known VCs Andreessen Horowitz and CRV both supporting the round. In January 2013, Udacity announced a partnership with San Jose State University to offer a series of lower-level classes for a cost that was much less than traditional tuition.

It didn’t take long for the experiment to go off the rails. A mere six months later, in July 2013, SJSU suspended its relationship with Udacity, citing unacceptably low pass rates for the company’s online offerings. In an interview years later with TechCrunch, Thrun described the brief partnership as “a little bit of a fiasco.”

The fiasco prompted a minor pivot, as Udacity shifted its focus away from college-level MOOCs and toward adult and continuing education. It also prompted a change to the C-suite, with Udacity bringing on former GV advisor Shernaz Daver as its chief marketing officer.

The hire of Daver proved to be a stroke of genius. She was key in Udacity’s move toward vocational training and focused nanodegrees, helping the company develop new relationships with companies like Netflix and Walmart that were ultimately much more effective than its deal with SJSU. With Daver in the fold, Udacity raised a $35 million Series C at a $200 million valuation in 2014 and its unicorn round in 2015.

Daver stuck around at Udacity until 2017, when she returned to GV. She now serves as an advisor to both Kitty Hawk (the autonomous flying taxi startup also co-founded by Thrun) and 10x Genomics. In the aforementioned interview with TechCrunch, Thrun put Daver’s impact on Udacity in blunt terms.

“The company was really in bad shape,” he said. “She turned the company around.”

Since Daver’s departure, there have been new signs of trouble. Late last year, Udacity confirmed it had laid off 5% of its staff (about 25 workers). Shortly thereafter, in November 2018, VentureBeat reported that Udacity was conducting 125 more layoffs. And this April, the business parted ways with another 75 employees, according to TechCrunch, bringing its total workforce down to about 300 full-time employees.

In the meantime, other startups in the online education space were busy growing. As Udacity was laying off workers in April, one of its biggest competitors, Coursera, was in the midst of closing a new $103 million round of funding at a $1.66 billion valuation, taking the company’s total VC backing to more than $300 million. More pertinent, perhaps, is the fact Coursera has gathered more than $185 million from VCs in the four years since Udacity raised its last cent of venture funding.

But perhaps the worst is now over. In August, Thrun authored a blog post to announce the addition of LendingTree alumnus Gabriel Dalporto as Udacity’s new CEO, in the process noting that Udacity has been cash-flow positive since June and that it’s “growing aggressively.” Thrun also wrote that, in the three months prior to Dalporto’s appointment, Udacity had grown its consumer business by 60%.

If the company keeps that up, it might not be long before it ends its four-year fundraising drought.

Featured image via fstop123/iStock/Getty Images Plus

  • 2016-10-05-11-14-50-442x480.jpg
    Written by Kevin Dowd

    Kevin Dowd wrote The Weekend Pitch newsletter for PitchBook, covering startups, buyouts and the rest of the private market.

    A native of the Pacific Northwest, he’s an alumnus of the University of Washington with a degree in creative writing and journalism. He enjoys books and basketball and, most especially, books about basketball. He feels uncomfortable writing about himself in the third person.

Join the more than 1.5 million industry professionals who get our daily newsletter!