Udacity's Acquisition by Accenture: A Bittersweet Exit for Investors and Employees

Image Source. Written by Phil Haslett:

​Yesterday, Accenture announced that it plans to acquire Udacity. Terms were not disclosed.

Based on some data from EquityZen, a couple observations:

Udacity had raised $174M in equity financing:

Dec 2011: $7M Series A
Oct 2012: $17M Series B
Sep 2014: $35M Series C
Nov 2015: $115M Series D (at a reported $1B valuation)

All $174M had a 1x liquidation preference. Series D had priority over Series A-C.

Udacity had *also* raised $75 million in debt, led by 💪 Hercules Capital, Inc. 💪 (a well-known lender to venture-backed startups). The debt was due in September 2024.

Debt terms: Prime + 4.5%, Floor rate 7.75%, PIK interest 2%, 3% Exit Fee

What does that mean for an exit?

🎂 Think of it like that cake scene from Office Space. Accenture sponsored the cake, and then people get in line to receive a slice. Here's the order:

Hercules (the debtholder) goes first. They get their $75M.
Series D investors go next (they get money back before other investors). They get $115M.
Series A-C investors are next.
Then, employees/founders get what's left.

Now, without knowing the price tag of the deal, it's hard to tell how much money each group got. One can assume, however, that Udacity sold for less than the amount they raised in debt/equity ($249M). (recent rumors pegged an exit at closer to $100M, link in comments)

If ^^ is true, then employees/ex-employees likely got zero for their equity holdings**. 🍩

🤔 So how'd this happen? One possible scenario:

Udacity last raised equity in Nov 2015, and was judicious with that $115M. They waited FIVE YEARS to raise again, suggesting a business model that only really needed to burn $20M/year. When Udacity raised $75M in debt, they likely had a business that was close to profitability (otherwise a lender wouldn't be interested).

⏩ Fast-forward four years, the $75M debt is coming due in September 2024, growth has stalled. No equity investor wants to put in more money.

🔚 So, you find a home for the company. A buyer that will keep the vision of Udacity intact, even if it means a 💩 outcome for common stock holders.


** It's worth highlighting that there's likely some form of management/employee incentive plan for the 230+ Udacity team-members that are joining Accenture. This can come in the form of new equity grants, milestone bonuses, and performance bonuses. No viz into what that looks like her.