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Tuesday, February 27, 2007

Time and Cash

Just about every business, from a lemonade stand to a skyscraper construction company, requires an investment of cash and sweat. The cash and sweat has to be spent before you know the revenues from customers are going to be coming in, and coming in faster than the cost of running the business will be going out.

The cash is normally harder to come by than the sweat, which every entrepreneur has plenty of. When you've got a good story to tell to prospective investors, they'll listen, because they're just as hungry for a place to put their cash and earn a great return on their investment as the entrepreneur is for the cash needed to run the business.

In the early days of Tutor.com, the story was mostly an idea -- make it possible for parents and students to find tutors online and get the help they need quickly. That idea, along with lots of progress and proof along the way, helped me raise almost $20MM from venture capitalists, strategic partners like Scholastic, and individual investors to start and grow Tutor.com over the past 8 years.

Now the story is much more, as you've seen in previous postings of this blog. Tutor.com is the only way to have a one-to-one session with a professional tutor the moment a child needs help. We've served over 2 million live one-to-one on-demand tutoring sessions. No scheduling or advance notice needed. We do this through public libraries, state libraries, schools, and after-school organizations in over 40 states. The organizations will pay us well over $10MM and our institutional business will be profitable this year. Over 1,300 tutors work with us and love the work and the company. And best of all, 94% of the students completing a post-session survey tell us they got the help they needed and would recommend us to a friend.

So, we're doing a lot right and we're making money -- why should I be looking for more money from investors, you ask? A new, very expensive to build, lemonade stand? Sort of. Our success in serving students through institutions like libraries made obvious a new opportunity -- Tutor.com Direct, sold to parents and students. Similar, but different from the library Live Homework Help service. And getting the word out takes a lot of money, before the revenues are coming in from customers. That means it's time to be telling a great story to investors again.

And that's what I've been doing for the past couple of months, to a small selected group of investors -- buy a piece of Tutor.com buy investing $X million and you will own a part of a company that is the leading provider of online tutoring services, just as online tutoring is about to become a mainstream and popular choice for American families. We will use that $X million to make sure parents and students across the US know that when they are stuck and need help, they can turn to Tutor.com for instant help.

So, the good news: Investors love the story, and three of them have made offers to invest in the company. Those offers are usually called "term sheets". The terms vary, so we are busy working with the investors, and possibly bringing a couple of them together for one larger deal. I am confident we'll get the investment cash in to the company in the coming weeks so we can start spending it (wisely and gradually) to grow Tutor.com Direct and make sure we have plenty of tutors available as we grow.

The bad news: telling the story to investors takes time. Calls, meetings, presentations, document gathering, creating financial models, "due diligence", valuation negotiations, the list goes on. It all takes tons of time for me and part of my management team. Venture capital investors are often nice and smart people, and we learn a lot from telling the story and listening and responding to questions, but it does take away from time that can be spent on listening to our customers and enhancing our products. It's a necessary part of running a growing and exciting business.

And of course, it takes time away from blogging -- this entire posting is my long-winded explanation and excuse for why I've written one blog posting in the past 6 weeks. :-) When the investment round is done, there will be time for more frequent blogging.

George Cigale
gcigale@tutor.com