Nassim Khadem Reporter

Nassim covers the accounting and tax rounds for BRW, as well as general business news. She previously worked for The Age newspaper covering general news, state politics and economics.

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Textbook rental start-up Zookal raises $600,000 from US investors for Asian expansion

Published 01 October 2013 07:34, Updated 26 November 2013 12:10

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Textbook rental start-up Zookal raises $600,000 from US investors for Asian expansion

The company has capitalised on Australia’s $500 million textbook market and has more than 100,000 users this year.

Textbook rental start-up Zookal has raised $600,000 from leading Silicon Valley investors to fund its expansion into Asia’s $12 billion textbook sector and to make new technology investments.

The former chief financial officer of US-based textbook rental site Chegg, and current CFO of Gemini Israel Venture Funds, Omer Regev, is leading the funding round together with Silicon Valley’s Filtro Investments.

It comes on top of existing Series A funding, bringing Zookal’s total funding to date to $2.1 million.

Chief executive Ahmed Haider says ideally the company will grow as big as Chegg – the US site with the backing of Hollywood actor and tech investor Ashton Kutcher that is valued at about $US1 billion.

Zookal was formed in 2011 when four university friends raised money from their family and friends, bought 300 textbooks and started releasing flyers to students at the University of Technology Sydney business faculty that the books were available for rent. “To our surprise we rented out all 300 books and got 18,000 hits on our website,” Haider says.

The company has capitalised on Australia’s $500 million textbook market and has more than 100,000 users this year, which is about 10 per cent of the 1.2 million students across 43 universities in Australia, Haider says.

Apart from textbook rental, Zookal also allows tertiary students to buy and sell textbooks and apply for the Zookal internship program, which is designed to help international students find work in Australia.

Zookal had been facing tensions, with publishers accusing it of copyright infringement. But Haider says it has backing from the industry group that represents bookseller interests. “The Australian Booksellers Association has said that all rental of textbooks is completely legal and within the confines of the law,” he says.

“The misunderstanding was around digital content that comes bundled with textbooks that can’t be rented,” he says. “We don’t rent this material.”

Billion-dollar valuation

Haider and co-founders Chris Zaharia, Jon Tse and Vicky Lay have been talking to angel investors and Silicon Valley venture capitalists for the past two years.

In September 2011, Haider went to the US and met the founder of Chegg, Aayush Phumbhra, as well as other leading investors, and after 10 days returned with $1.2 million in funding.

Although Haider won’t disclose Zookal’s revenue, he says it’s not unrealistic to set similar revenue and valuation targets as Chegg.

Chegg also specialises in online textbook rental, as well as homework help and scholarships through Zinchcom, a website that helps college students connect.

Chegg was founded in 2001, almost a decade earlier than Zookal, by three Iowa State University students. Based in Santa Clara, California, Chegg makes $US250 million ($268 million) in annual revenue and is aiming to raise $US150 million in an IPO later this month.

“We think gaining 30 per cent control of Australia’s textbook market is realistic, given Chegg is at a similar point in the US,” Haider says. “It took them seven years to build a billion-dollar company. With a bit of help we could get there faster. Because we have access to Chegg resources, we don’t need to do as much exploration as they had to.”

He says the Zookal founders are ready to go to Series B funding next month, aiming to raise between $8 million to $10 million from top-notch investors in the US and Asia. “The bulk of capital is to finance growth and enter the Asian market,” Haider says.

The Series B round should be easier than the team’s initial funding search. Start-ups like BigCommerce, which Haider says he has frequently turned to for advice, tend to find the second and third round of funding easier than their angel stage.

The Zookal founders have previously talked to top-tier venture capital firms including Accel Partners, Sequoia Capital and Founders Funds.

Haider says in Series B they intend to meet with more leading venture capital funds including General Catalyst Partners, Floodgate and Mayfield Fund. “Silicon Valley is an amazing place where every other person is working on a start-up, and is keen to go for big bold ideas,” he says.

Asia the next big deal

Asia’s textbook market is worth about $12 billion, significantly larger than Australia’s, which is valued at about $500 million.

Zookal is focusing its planned expansion in south-east Asia. Haider says they already have joint venture partners in Singapore and Malaysia and plan to enter the much larger Indonesian market next year.

“We’re initially hoping to a 10 per cent share of the total number of students in universities in each of these countries,” he says. Malaysia, with a population of about 29 million, has about 2 million students across its universities, and Indonesia, with a population of about 250 million, has about 5 million students.”

Haider says while the numbers are bigger, the risks are higher.

“Asia is harder than Australia,” he says. “Sure there’s higher volumes of students – in Australia there’s about 30,000 students per university, whereas in Asia it’s about 100,000 per university – but the challenges we face in Asia are bigger. It’s important to find good, trustworthy people on the ground who can help us navigate the regulatory requirements and risks. We need to make sure we’re not stepping on anyone’s toes.”

He says when the team initially went to Asia: “We thought we could be in every country. But after talking to local entrepreneurs we’ve have decided to take it one country at a time.”

Australian entrepreneurs have found it hard to raise funding in Asia. Australia is a hard enough market in which to raise money, but CatchaGroup’s Patrick Grove recently told BRW Asia was even harder. “Especially in an environment with no VCs and no successful case studies,” Grove told BRW.

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