Georgian doubles down on Top Hat with $130 million USD investment as company swaps CEOs

Longtime Top Hat investor Georgian Partners has committed an additional $130 million USD into the EdTech startup following a year of COVID-fueled changes and industry-disrupting acquisitions, culminating in new leadership.

The financing comes with news that founding CEO Mike Silagadze will step down from the role in favour of a new ‘top hat’, former Bazaarvoice chief revenue officer, Joe Rohrlich. Rohrlich is set to take over as Top Hat’s CEO March 15.

Silagadze’s decision to depart as CEO comes after more than 12 years leading the company. He is set to remain on Top Hat’s board and plans to remain involved, supporting day to day and general operations.

The investment brings Georgian’s share to just below 50 percent majority ownership of the company. SEC filings confirm a new Georgian Alignment Fund I.
 

The $130 million Series E round, which a company spokesperson told BetaKit now valued Top Hat at “about half a billion,” consists of $50 million in primary capital, with the remaining $80 million going towards a secondary purchase of past investors. Top Hat’s many backers include Inovia Capital, Union Square Ventures, Emergence Capital, Leaders Fund, and Golden Venture Partners. Top Hat would not confirm to BetaKit which investors were cashing out, but noted that all prior investors would still hold some stake in the company following the deal.

The investment, Georgian’s fourth in Top Hat, represents a continued and increasing commitment to the startup by the firm. Referred to by the outgoing CEO as “effectively a private equity investment” to “double down on successful companies in [Georgian’s] portfolio,” the deal brings the firm’s share to just below 50 percent majority ownership of the company.

Sources familiar with the financing who spoke with BetaKit on condition of anonymity indicated that at least part of Georgian’s investment came via a new, unannounced fund. SEC filings made just before the end of 2020 indicate a new fund launched by the firm named Georgian Alignment Fund I.

Georgian declined to comment when asked about the source of the Top Hat financing or the new Alignment Fund I.

Georgian lead investor Margaret Wu did tell BetaKit the investment reflects the firm’s belief Top Hat has “hit critical mass” and is poised to dominate the higher education sector. “We think it’s a category creator, we think it is a category winner,” she said.

“This is incredibly exciting and a huge vote of confidence from our investors,” said Silagadze in an interview with BetaKit.

Georgian first invested in Top Hat in 2014, leading its $10 million Series B round. It also co-led last year’s Series D round alongside Inovia Capital, and has invested in each of Top Hat’s rounds over the last six years.

“Georgian invested in Top Hat around five [to] six years ago, when we had less than a 10th of the revenue we have now; we were under $5 million in revenue,” said Silagadze. “So, they’ve seen us grow, they’ve seen us evolve and really build a pretty exciting business.”

The new investment and transition of CEOs points to a new stage for Top Hat, where the company is looking to optimize on its current trajectory and scale its go-to-market strategy.

Top Hat competes with traditional textbook publishers, and offers digital textbooks and course materials for professors and students at postsecondary institutions. According to the startup, more than three million students are enrolled in courses using Top Hat at 750 of the top 1,000 higher education institutions in North America.

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The Toronto startup has evolved rapidly over the past year as the education landscape has been forced to change due to COVID-19. After pulling in a $55 million USD Series D round last year, Top Hat acquired three traditional publishers, including the game-changing purchase of Nelson Education’s post-secondary textbook business.

Top Hat is looking to use the $50 million equity financing from Georgian to continue its merger and acquisition (M&A) strategy, with Silagadze noting the company is in talks with around a dozen traditional publishers, including plans to purchase at least two this year.

In addition to its M&A strategy, which added hundreds of textbooks to its platform, Top Hat is also hoping its new CEO, Rohrlich, will help with organic growth, bringing more professors and students onto its platform from large post-secondary institutions across North America.

“My number one focus is ready to go-to-market for [Top Hat’s] next phase of scale,” Rohrlich told BetaKit.

“Getting that primed, not only to continue, but also to service what’s a changing ecosystem where the institution is going to become more involved in buying these sorts of capabilities and solving these types of challenges,” he said.

“I was really impressed with Joe’s track record and background,” said Silagadze about Rohrlich’s appointment to his old role. “Joe was responsible for bringing Bazaarvoice[’s] … revenue up from $30 million, up to over $300 [million], which is exactly the kind of journey that I think Top Hat deserves.”

The transitions at Top Hat are much in line with the transitions happening in the education sector more broadly. The education sector has seen a massive shift from in-person to online due to the COVID-19 pandemic.

While Top Hat’s digital learning model is now aligned with the new normal, allowing Top Hat to grow its revenue by 40 percent year-over-year, 2020 was not all peaches and cream for the company.

The pandemic led to internal restructuring of its team, as well as Top Hat’s platform. The company turned its focus to helping educators transition to emergency remote teaching and “rebuilt” its platform for the Fall 2020 academic term to offer hybrid learning options.

Despite the turmoil, Silagadze expressed confidence that Top Hat – with its new CEO and being well-capitalized – is on a positive trajectory.

“In many ways, Top Hat’s … overarching strategy hasn’t changed, it’s just been accelerated,” he said. “The willingness to adopt technology and courses has dramatically increased as a result of the pandemic, where previously you had professors that we were … looking to work with basically saying, ‘No, you will pry that paper book out of my cold, dead hands,’ that are now switching to digital and are eagerly looking for digital solutions in the context of an educational environment that’s going to be more and more digital, more and more online and hybrid.”

“Top Hat fits really nicely into that and we’ve been fighting the good fight around that for years,” he said.

With files from Isabelle Kirkwood and Douglas Soltys.

Feature image source Top Hat via Glassdoor