6 minute read
Master of his domain
you’ve heard MasteryPrep’s origin story by now. Baton Rouge High School graduate Craig Gehring earned perfect scores on the ACT and SAT college admission tests, but rather than attending an elite university, he started a test-prep company.
After about a decade in business, MasteryPrep opened its next chapter in November when New York City education investment firm Achieve Partners bought the Baton Rouge company. While the price was not disclosed, the parties involved say the investment is substantial and will allow the firm to expand its workforce and its reach to more students.
“MasteryPrep is a double-bottom-line company,” Gehring says. “We’re a business, but we’re very focused on creating a social good, and Achieve is directly aligned to our mission and our ethos.”
The sale is also a win for MasteryPrep’s local investors, who will receive a cash payout, equity in the new version of the company or a mix of both. Some of that money will find its way back into the local entrepreneurial ecosystem in 2023, helping to stand up or grow other companies.
The acquisition sends a message to local entrepreneurs, potential entrepreneurs, and anyone who might be in a position to financially support their efforts: It can happen here.
“The hope is that those returns are going to find their way back as seed money for more entrepreneurs in the area,” Gehring says. “I hope that we’re part of a virtuous cycle.”
SPREADING THE WEALTH
MasteryPrep provides college readiness services and resources preparing students for the SAT, ACT, TSIA-2, EOC and WorkKeys tests, partnering with schools and districts to help level the standardized assessment playing field, the company says.
MasteryPrep has ranked among the Inc. 5000 “Fastest Growing Companies” for several years. Business Report named Gehring “Young Businessperson of the Year” for 2020.
While a sale to an out-of-state firm often means the local company is moving away, Gehring plans to keep his home base at the Nexus Louisiana Tech Park on Florida Boulevard. Stephen Loy, executive director for the tech park, says Gehring will continue to serve as a coach for other entrepreneurs at the park, adding that the acquisition will spur reinvestment into other Louisiana startups.
“You have one acquisition, one company that is successful and spreads out the wealth,” Loy says. “Those people either create other companies or invest that wealth in other companies because this one was successful.”
This is the second significant exit for a portfolio company of Innovation Catalyst, a local nonprofit venture development organization that works to promote formation of new tech companies. The first was Waitr, now known as ASAP.
CEO Bill Ellison says Innovation Catalyst took 10% of its return in equity and 90% in cash, which can now be invested in other early-stage companies. OfficerReports, a tech park firm that provides software for security guard companies and is expanding into supporting remote work for all sorts of businesses, is the first beneficiary, he says.
“The return was pretty substantial relative to what we put in originally,” says board chair Veneeth Iyengar. “This is exactly how this process is supposed to work.”
Ellison, who also directs the Red Stick Angel Network, says Gehring was the first entrepreneur to pitch Red Stick’s accredited investors in January 2020.
“You could tell Craig was just a superstar,” Ellison says. “Everyone liked his vision and how he was going about achieving it.”
He says most investors would prefer to bet on a “grade A” founder with a “C-type company” rather than the other way around.
Will the MasteryPrep sale help boost the Capital Region’s startup ecosystem?
BY DAVID JACOBS
SMART MOVE: Craig Gehring passed on attending an elite university to launch MasteryPrep and eventually sold the company a decade later—a win for investors who backed his vision.
“A good founder can make a lot of hay with a company that doesn’t have a fantastic business model,” Ellison says. “In Craig’s case, it’s a fantastic jockey and a fantastic horse.”
The bet paid off sooner than anyone expected when MasteryPrep issued the Red Stick investors a dividend in year two, which is basically unheard of, Ellison says. They’re now getting an exit after less than three years, rather than the seven to 10 years that would be more typical. Some eschewed cash and took only equity, choosing to let it ride with the expectation of future growth.
THE CAPITAL PIPELINE
Startup funding is in a global slowdown. Venture capital investment for the third quarter of 2022 totaled $81 billion, down by $90 billion (53%) year over year and by $40 billion (33%) quarter over quarter, according to Crunchbase News. However, optimists say the $290 billion of committed capital to VC firms represents “dry powder” that could reenergize the startup market in 2023, the Harvard Business Review notes.
The Capital Region has never been a magnet for VC funding, nor does it have many angel investors. The region has plenty of wealthy people, they just don’t necessarily include early-stage tech-enabled companies as part of their portfolio, Ellison says.
But investors across south Louisiana made a killing with MasteryPrep, which could inspire others to adjust their thinking. The Red Stick group started with 18 investors and now has more than 40 members, and Ellison hopes to grow that number this year.
And the federal government is sending up to $113 million our way through the State Small Business Credit Initiative. Louisiana entities can use the money to match privately raised funds to invest in startups, Ellison says, though strings will of course be attached and it could take years to fully deploy those dollars.
Local entrepreneurs often say there isn’t enough startup capital here, while investors sometimes say there aren’t enough worthwhile deals. This year, we might begin to find out who’s right.
“In the coming months, there are going to be a lot of funds with a lot of money,” Ellison says. “Are we going to have enough deal flow? That’s a good question.”
SPREAD YOUR WINGS Tips for aspiring angel investors
Make sure you’re qualified. Accredited investors need to have earned more than $200,000 (or $300,000 with a spouse) in each of the last two years and reasonably expect to earn the same for the current year, or have a net worth over $1 million individually or with a spouse, excluding the value of a primary residence. Know where to find deals. Many angel investors have a network of founders and entrepreneurs in their area of expertise or participate with an established group. The Angel Capital Association can help you find a group to join, while organizations such as AngelList, Angelsoft, Funding Post and Microventures showcase investment opportunities. Practice due diligence. What are they going to do with the money? Who are the other investors? Do they have a minimum viable product? You’re an angel, not a bank or a venture capital fund, so you can sit on the sidelines as long as you want until you find a deal that you like. Check the resumé. Some investors say they’re mainly betting on the founders’ talent and drive, not so much the business plan. Be patient. You might have to wait 10 years or more before that startup is ready to make a rewarding exit. Spread the wealth. Angel investing is risky because startups often fail. Some angels invest in dozens of companies in hopes of finding that shooting star that makes it all worthwhile.
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Aiming Higher
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