Deal Radar 2010: Chegg

This year’s Deal Radar series begins with a company that is direct competition for your campus bookstore, Chegg. Chegg is an online textbook rental company whose name is a play on the well-known conundrum of which came first, the chicken or the egg. Founded in 2003 by Aayush Phumbhra, Josh Carlson, and Osman Rashid, Chegg started as a “Craigslist-like” classifieds site at Iowa State University. The three realized that the high cost of textbooks was a huge problem for students and started to rent textbooks. Though Carlson left Chegg in 2006 to pursue other interests, Phumbhra and Rashid tweaked the original version and launched Chegg.com nationwide in 2007.

Based in Santa Clara, CA, the company’s value proposition is helping students and parents save on the high cost of textbooks. Chegg allows students to rent as many textbooks as they like with just a few clicks. Books are delivered in less than a week. The company also refunds the entire amount if the books are returned within 30 days. There are no monthly subscription fees or hidden charges. Chegg also buys back books from students. Further, Chegg supports the environment by planting a tree for every textbook rented through a partnership with American Forests and has planted more than 1.5 million trees around the world to date. According to Compete, Chegg had 248,658 unique visitors out of 348,439 total visits in November 2009.

The company believes that with 18.5 million students attending college, the textbook market is roughly $10 billion. Chegg uses the textbook market as a whole to measure its total addressable market, since the company feels that it can thrive in the textbook rental market segment by capitalizing on those currently using other segments. The company faces competition from Textbooks.com, BookRenter.com, Flat World, and CampusBookRentals.com. Chegg feels that its biggest competitor is the college bookstore. However, according to VentureBeat, Flat World’s offering of open-source textbooks that are freely accessible online could prove to be a bigger threat than Chegg thinks. As Chegg points out, the cost of textbooks is rising at four times the cost of inflation.

Chegg.com has raised approximately $150 million in venture capital funding since its inception. Most recently, Chegg.com secured $112 million: $57 million in Series D equity funding, a $25 million credit facility led by Insight Venture Partners and $30 million in debt facility from Pinnacle Ventures and TriplePoint Capital. In December 2008, Chegg.com raised $25 million from Kleiner Perkins Caufield & Byers and Foundation Capital, with participation from return investors Gabriel Venture Partners and Primera Capital. In August 2008, the company raised $7 million from Gabriel Venture Partners, Mike Maples, and Primera Capital. The company received its initial funding in January 2007 when Chegg.com raised $2.2 million in funding from Gabriel Venture Partners and angel investor Mike Maples. The company plans to use the cash recently raised to double the size of its workforce and increase the number of colleges it serves.

Chegg generated $10 million in revenue in 2008 and generated the same amount in January 2009. It rented more than 1 million textbooks in 2009. The company said that at present, the right strategy is to work towards profitability, ruling out exit as an option at this point. Management also wants to greatly increase awareness of the textbook rental category among students and parents, develop partnerships with publishers such as McGraw-Hill on revenue sharing opportunities, grow its affiliate network, and establish new partnerships.

Suggested Reading:

Forbes Column 2009: The Education Solution
An Overview of the Education Market in India
Forbes Column 2008: ‘Edutainment’ Needs Entrepreneurs

This segment is a part in the series : Deal Radar 2010