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How EdTech Giant Kahoot! Bought Its Way To Scale

When a company takes financing from venture capitalists, they also take on a mandate to grow as big as possible, as quickly as possible. In that classic business dichotomy between “buy vs. build,” Kahoot! Group seems to have bought its way to scale.
Founded in 2012, the Oslo-based Kahoot! Group is an education technology company founded on the concept that game mechanics can make learning both engaging and fun, while also driving better educational outcomes.
These concepts emerged from research conducted by co-founder and CTO Morten Versvik in the lab of Professor Alf Inge Wang at the Norwegian University of Science and Technology (NTNU). Alongside fellow co-founders Johan Brand, Jamie Brooker, and Åsmund Furuseth, the team would go on to build and launch Kahoot! in private beta at SXSWedu in March 2013 and, ultimately, built a company that raised tens of millions in venture capital, achieved a multi-billion dollar valuation on that markets, and scaled its educational platform to provide 250 million games to tens of millions of active users by the end of 2020. 
Kahoot! may have launched its business around a single standalone application—a tool for building, sharing, and proctoring short multiple-choice quizzes for individuals or groups—but look at the company today and it’s anything but a monolith.  
Kahoot! now offers a collection of learning tools integrated into a technology platform for home learners, schools, and corporate training and education efforts. The company’s current business lines are all enabled by a set of relatively recent startup acquisitions.

Spend Money to Make Money

Although Kahoot! Group was founded over nine years ago, it only started acquiring companies within the past couple of years. The beginning of its acquisition spree roughly coincides with Eilert Giertsen Hanoa’s appointment as CEO in November 2019. Hanoa was the first active investor in Kahoot! and served as Chairman of the Board from 2014 through 2019. Co-founder and outgoing CEO Åsmund Furuseth transitioned to Chief Product Officer of the company.
As of its Q1 2021 earnings report, Kahoot! Group’s revenue run rate was USD 69 million per year. In public earnings statements from Q4 2020, Kahoot! Group says it intends to generate over USD 200 million in annual recurring revenue (ARR) by the end of 2023. But first, it intends to hit USD 100 million in ARR by the end of 2021. To reach those aggressive growth targets, Kahoot! is buying up learning platform companies to aggregate talent, activity, and, most importantly, revenue under one corporate umbrella.
Here’s a breakdown of Kahoot! Group’s acquisitions, based on publicly available data.
* Note: Total consideration for the Clever and Motimate transactions are presented in the above table as the range reported by Kahoot! Group. The total consideration includes a performance-based component which will be paid out after a period of time.
Each one of Kahoot! Group’s acquisitions operate relatively independently of their parent organization. For the most part, Kahoot! Group subsidiaries maintain the same business models they had prior to acquisition...albeit with a few Kahoot! integrations. For example, DragonBox and Poio still sell standalone applications (through Kahoot! Group’s account) on the Apple App Store and Google Play Store, but access to those apps is bundled with certain tiers of monthly subscription to the company’s home learning product, Kahoot! for Home (at least for now).
This allows Kahoot! Group’s acquired subsidiaries continue to develop their own products while the Kahoot! Group gets to benefit from additional revenue streams adding to its topline figures.
Just look at revenue growth since the company started publicly reporting these numbers in late 2019.
It’s hard to overstate just how much Kahoot! Group is pinning its growth prospects on its acquisition strategy. In its Q1 2021 earnings report (published May 6, 2021), the company reported that it had sold more than 760,000 paid subscriptions, an increase of 85,000 from Q4 2020. Now out of that 85,000—44,000 are Kahoot! licenses. In other words, just over half of Kahoot! Group’s subscriber growth between Q4 ‘20 and the end of Q1 ‘21 is attributable to scaling up its acquired subsidiaries.
In the table and charts below we break down the subscription numbers quoted in the Q1 ‘21 earnings report.
Roughly 33.6% of Kahoot! Group’s total subscribers are in its Work category; 36.2% are in its School category, and 30.2% are in its Home and Study category. Amd around 41.4% of the entire Kahoot! Group’s subscription base is attributable to customers of its acquired companies.

The Clever Path To Scale

These figures do not include Kahoot!’s acquisitions of the K-12 education company Clever and the corporate learning company Motimate, both of which took place in Q2 2021. 
On April 7, 2021 Kahoot! Group announced that it had acquired Oslo-based Motimate AS, an employee engagement and corporate learning management application company. Motimate will, presumably, be folded into the Kahoot! Work category. At the time of the transaction Kahoot! stated that Motimate had roughly 130,000 users across more than 230 enterprise accounts including 7-Eleven, Staples, and Manpower. 
And how much did Kahoot! pay? Motimate sold for an enterprise value (EV) of between USD 25 - 27 million or approximately 5x its 2021 ARR target, according to the company, indicating an expectation that the subsidiary could pull in around USD 5 million in 2021.
While a USD 25 million M&A transaction is nothing to sneeze at, the Motimate deal is small compared to Kahoot! Group’s other Q2 2021 buyout: Clever. On May 6, Kahoot! Group announced its agreement to purchase Clever Inc. for USD 435 – 500 million in cash including a performance-based element to be determined over 2021-2022. At over 3.6x the cost of its other acquisitions, combined, Kahoot! Group’s half-billion-dollar Clever bet is its biggest yet—by far.
Clever will be rolled into Kahoot’s School category, and although neither company disclosed how, exactly, Clever’s subscriber base––which represents over 89,000 schools in 13,000 school districts around the United States––will be quantified in its upcoming Q2 2021 earnings report, the acquisition announcement says it all: 
“Clever expects to reach USD 44 million in billed revenues for 2021 from its U.S. ecosystem partners, following an annual revenue growth rate of approximately 25% CAGR in the last three years, running the business on a cash flow neutral basis, redeploying all cash into development of its offerings."
In one fell swoop with the Clever deal, Kahoot! Group acquired a revenue stream that could take its ARR from the USD 69 million reported in its Q1 2021 earnings to beyond its year-end goal of USD 90 - 100 million. 

Why all the buys, and why now?

After nine years in business, Kahoot! Group is finally reaching its hypergrowth phase. The pandemic accelerated trends that were already in motion; education is becoming increasingly self-directed, and work is becoming more distributed. But these tailwinds alone might not have been sufficient to propel the company to the heights expected by its investors, including its biggest stakeholder, SoftBank––a firm known for its moonshot investments. 
At the end of the Q2 2021 Kahoot!’s market capitalization sits at around USD 3.3 billion; a hefty multiple on current revenue with some growth priced in. Kahoot! Group is currently traded on the Euronext Growth stock market in Oslo. Also known as the Oslo Børs or Merkur Market, it’s generally a stock exchange to help small and medium-sized companies raise money from public markets to finance their growth. It’s a bridge between raising money from private investors (e.g. venture capitalists) and a full-fledged initial public offering on a flagship exchange like Euronext.
However, in February of 2021, Reuters that Kahoot! Group was exploring an IPO on the main Oslo Euronext exchange, bringing it into the big leagues. The company has reportedly retained Goldman Sachs, ABG Sundal Collier, and Arctic Securities to run the listing process. If its IPO goes out at the USD 7 billion valuation its underwriters are reportedly seeking, it would be one of the continent's largest in years.
Kahoot! Group will have to grow into that valuation. The company is on track to double its 2020 revenues in 2021 and seeks to at least double them again by the end of 2023. That’s going to take significant investments in organic growth, and perhaps more opportunistic acquisitions going forward.

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