Deal Radar 2010: CampusBookRentals.com, Utah

CampusBookRentals.com (CBR), which describes itself as being like Netflix for textbooks, rents textbooks to college students for prices that can be more than 50% off the purchase price. The company is an early entrant in the burgeoning market of textbook rental, where students pay to keep books for a certain period of time. 

Founded by CEO Alan Martin in August 2007, CBR had its first customers in northern Utah but within the first 12 months of launch was shipping books nationwide. There are currently 20 employees. CBR achieved growth of 850% in 2009, and is tracking at 400% growth for 2010. It was named as one of Utah’s fastest-growing companies for 2009

Martin was working as a contract negotiator for the U.S. Air Force and nearing completion of his master’s degree when the idea came to him to rent textbooks nationwide. During over five years of school, Martin had essentially broken even on textbooks by buying and selling online during key seasons of the year. He was in the process of buying a textbook online for his master’s class when he realized that if he could continue to break even on the buying and selling of textbooks, but obtain a rental fee in the process, it could become a profitable venture as long as he could rent and sell to a national audience. Apart from being a longtime student, he had no textbook industry experience. That changed as he formed partnerships and relationships which would ultimately be the foundation for CBRs success.

Within six months of founding the company, Martin made the decision to walk away from his career with the Air Force and from his master’s degree, which was only two classes away from completion. With a wife, a daughter, and a son on the way, it was a complicated decision; however, two new partners (Todd McCormick and Shane Willard) offered to pay the bills for the first six months of leaving, which would provide enough of a buffer to get CBR off the ground. In the month he quit, CBR’s net revenue was only $204. Twelve months later CBR had tens of thousands of active customers and had shipped books to over 3,500 college campuses.

At the time CBR was founded, there was nothing apparent like it in the nation. The two main competitors, Chegg and BookRenter, had not yet surfaced. The main competetion was the college bookstore itself, and CBR knew it had a value proposition that would pull students from the bookstore: saving more than 50% off on their textbooks and allowing them to realize that savings upfront. CBR was positioning itself as a disruptor in an old and stale textbook industry that despite talk of change, had seen almost no real change in decades. But with Chegg, BookRenter, CollegeBookRenter.com, Skoobit, and even Barnes & Noble, the space is much more crowded now. There are of course also numerous sites that offer used textbooks and heavy discounts, which some students may prefer because there is no no limit to the amount of writing or highlighting they can do in books they own. CampusBookRentals differentiates itself with free shipping in both directions, renting and returning.

The textbook market is roughly $10 billion annually. There are nearly 20,000,000 college students attending nearly 8,000 schools in the United States; however, not every college student is part of CBR’s TAM. To be included in the TAM, a student must require textbooks for their classes, not have scholarships or vouchers that pay for their textbooks, and have access to a major credit card as a means to pay. CBR estimates that nearly 80% of students qualify. Almost all students either have at least one major credit card or have a parent with one.

The customer base has grown approximately 241% each semester, owing largely to word of mouth and a general increase in awareness. Each customer spends on average $80 per semester at CBR. The company has well over 100,000 customers and ships books to roughly 5,000 campuses each major semester. There are nearly 1,000 customers at the single most penetrated campus, Weber State University.

The lowest-hanging fruit for CBR are students who currently buy their books at Amazon or other online stores. Since the two are often now side by side on many textbook price comparison sites, CBR goes against Amazon constantly in the textbook online arena. The more difficult to reach, yet arguably easier to convert segment is students who now shop almost entirely in their college bookstore. The value proposition is evident to a student who is used to paying bookstore prices, but the difficulty is getting in front of them, and 70% of all textbook transactions happen inside college bookstores.

Based on Q1 2010, CBR will reach approximately $16 million and may reach $20 million in revenue for 2010. The company technically reached profitability in 2009; however, CBR is still building textbook inventory, which draws heavily on cash balances and requires continued investment.

CBR funded 100% of its own growth for the first 18 months through about $250,000 in credit cards to use as seed money to get CBR off the ground. In January 2009, one of the partners father-in-laws loaned CBR $200,000. Martin’s father loaned CBR $42,000. A friend of the team loaned CBR $25,000. Then in March 2009, a local PE firm that had contemplated an equity investment loaned CBR $175,000 (strictly debt – the note was not convertible). In July 2009, that same PE firm re-upped with a $750,000 loan (once again, purely debt, not convertible). These funds were used to continue to fund inventory and development, and not one of the loans was convertible. In October 2009, the same PE firm that re-upped at $750,000, upped its loan again to $1,250,000. In March 2010, CBR closed a financing deal with the same PE firm for another piece of debt, this time convertible. The company recently took a small equity round from a northern Utah PE firm and hopes is to continue to expand its inventory through a suitable debt instrument but is still keeping options open for a series B round.

CBR’s growth strategy is college bookstores. Although the company’s online growth was about 850% in 2009, the key to ultimately obtaining substantial market share lies within the walls of the bookstore. Once inside a substantial amount of college bookstores, CBR is confident that an exit will present itself, most likely by way of an existing textbook wholesaler. The rental model is a model of inventory acquisition below wholesale prices which will create a large secondary inventory stream to an existing wholesaler.

Recommended Readings
Deal Radar 2010: Chegg.com
Amazon, Netflix, And Me

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