I made a $100 investment into Digital Dream Labs as a Crowd SAFE security at a valuation cap of $5M and a 20% discount using the Republic platform. For more information on the deal, check out their deal page. I invested in the company due to the EdTech innovation opportunity, early traction (profitable!), and interesting product.
Digital Dream Labs is an education technology company that focuses on hardware and software gaming integrations to help students learn complex STEM concepts. Their flagship product, Puzzlets, is a Bluetooth-enabled hardware game that connects to tablet software, which simplifies classroom integration. Currently, the company is developing a software game focused on chemistry for elementary school-aged children called Monstrous Molecules. Their education platform has seamless integration with their hardware and drones and robots for education on a range of science, technology, and coding topics for children.
Company website: https://digitaldreamlabs.com
Total Addressable Market
The education market is HUGE, with a calculated TAM of $252B by 2020. Many companies are taking advantage of the fact that education is one of the slower markets to be disrupted. Much of the delay is due to slow sales cycles (1x/year deals for many school districts), small budgets, and government bureaucracy. These reasons actually deter venture investment into this vertical because the long sales cycles and barriers make it difficult to see rapid growth and predictable forecasts. This company doesn’t necessarily have to go a typical venture capital route due to their traction I highlight below.
The company’s flagship product is “Puzzlets,” a hardware/software integration that teaches middle school children STEM concepts. They own a patent for their RFID blocks to connect to iPad-enabled software. The software game “Cork the Volcano” connects to the hardware, and preliminary studies show students gain a 10-25% increase in logic and sequencing skills. I find that number to be minimal, but this is only their first product. It has received top reviews from customers. The company is already developing its software-enabled chemistry game “Monstrous Molecules.” the long-term plan is to create a software ecosystem for education gaming connected to hardware such as robots and drones to teach STEM concepts.
The CEO is Jacob Hanchar, who is a first-time founder. Total of 8 employees. This area is likely the weakest spot from an investment standpoint, as first-time solo founders are typically unfamiliar with the challenges of starting a company. With that said, he built a profitable company so far, so that eases any concerns I may have.
Schools, educational support organizations, and parents form DDL’s primary client base. Puzzlets in +3,400 schools in the U.S. Adopters of the company’s technology generally fall into one of four categories: Cutting-edge, tech-focused schools with state-funded budgets or neighborhoods that support innovation in the classroom, schools supported by ESAs (Educational Support Associations non-profit institutions that buy educational technology products on behalf of school districts that lack funding, sales groups or other companies that focus on selling to schools use Puzzlets as part of their solution package, and parents who make up a significant portion of DDL’s sales through their e-commerce site or Amazon.
Currently, Puzzlets is in +3,400 schools, and the company is building a sales pipeline of $3.8M in growth accounts. There is a backlog of 20K ready for distribution and have seen 2x revenue growth from 2014-2017. Expected 2019 sales are $1M and will grow to $3M in 2020.. Also, they are profitable, a rarity in the startup space. They currently operate off a SaaS model, with margins ranging from 50-90% depending on the product line.
The company has raised capital from Carnegie Melon, Alphalab, and Innovation Works equally $1.65M. There is competition in the space, but the market is large that it isn’t too concerning. I think the biggest obstacles will be the long sales cycle, inexperienced team, and steady (but not rocketship) growth. EdTech is hard, but I like to do my part and contribute to the cause.