Student Hub Chegg Files for IPO, Aiming to Raise $150 Million; Expands Board
Chegg, the startup that began as an analog online book rental service and has itself transformed into a multifaceted digital hub for students, has filed publicly for an initial public offering to raise about $150 million.
The Santa Clara, Calif.-based company has already been working with the Securities and Exchange Commission, doing what is called a “secret filing.” That means that Chegg used the 2012 law, the Jumpstart Our Business Startups (JOBS) Act, that allows any private company that has less than $1 billion in annual revenue to work confidentially with regulatory agencies ahead of the public IPO announcement. Both Workday and Trulia filed successfully in this manner.
This speeds up the offering process, getting regulatory issues resolved quietly and also keeping the IPO shielded from scrutiny at the start. It also allows companies such as Chegg to make initial contact with potential investors, and sources said that Chegg has done so.
Now it will be three weeks before the company can start its official road show to sell itself to Wall Street, which will then be followed by the IPO itself. The most recent valuation of the company was $800 million, but its public market value is likely to be much higher.
As part of the transaction, Chegg said it had added four members to its board, which now includes CEO Dan Rosensweig, former Netflix CFO Barry McCarthy and Kleiner Perkins partner Ted Schlein. They are: Jeffrey Housenbold, president and CEO of Shutterfly; Marne Levine, Facebook’s VP of public policy; Richard Sarnoff, KKR & Co. senior adviser; and Jed York, CEO of the San Francisco 49ers.
Chegg will use the money it is raising to expand its offerings. The company is not without competitors, which have had varying degrees of success, including BookRenter, Kno and, perhaps most significantly, Amazon.
It needs that cash. According to its filing, Chegg said:
“In 2010, 2011 and 2012, we generated net revenues of $148.9 million, $172.0 million and $213.3 million, respectively. During the same periods, we had net losses of $26.0 million, $37.6 million and $49.0 million, respectively. In the six months ended June 30, 2012 and 2013, we generated net revenues of $92.5 million and $116.9 million, respectively, and net losses of $31.9 million and $21.2 million, respectively.”
The filing, which you can read below, notes that Rosensweig has 1.5 million stock options, vesting over four years, as well as a grant of 750,000 restricted shares (also vesting) and a salary of $400,000 before an annual bonus. Kleiner Perkins holds a 15.1 percent stake in Chegg, about 12.5 million shares.
Chegg was founded in 2005 at Iowa State University as a hyper-local classifieds directory, and the business evolved two years later into a textbook-rental service. It now has a variety of offerings centered on students from high school onward to many thousands of educational institutions.
It has raised $195 million from a variety of venture firms and investors, including Kleiner Perkins, Pinnacle Ventures and Insight Venture Partners. It has used the funds to aggressively expand and also to buy up a number of startups related to the expansion of its business, including course-selection advice, homework help and personalization.
Other Internet IPOs are expected to follow this year and into the beginning of next year, including a pair of expected blockbusters: Twitter and Alibaba Group.
Here’s the Chegg S-1, with all the deets of the IPO, whose top bankers include J.P. Morgan and Bank of America: