# Top Hat Raises $22.5M Series C in a Tough Vertical: What Can We Learn from their Success By boris, February 15, 2017 Our portfolio company Top Hat just closed a$22.5M (USD) Series C round. Union Square Ventures – one of our favorite co-investors – added to Top Hat’s existing investors and USV’s Albert Wenger joined their Board of Directors.

This funding is big news, particularly since 2016 was a weak year for Ed Tech funding. Generally speaking, Ed Tech has proven to be a tough vertical, primarily due to the fact that it’s hard to charge consumers (students) directly. And selling to institutions requires a long sales cycle.

While a funding round is certainly not the only path to success for a start-up, this is an important milestone. As such, Top Hat can provide key lessons for early-stage companies:

1. They took an innovative approach to distribution

Top Hat adopted a bottoms-up approach to distribution, as covered in the Globe and Mail article: Sales took off after Top Hat ignored advice and flipped its sales strategy. Back in 2010, the team tried approaching university administrators to get them to adopt their platform. The problem was that these school officials had other priorities and little incentive to change the way students access course materials. So Top Hat decided to flip their sales strategy and market/sell directly to university students and teachers.

While bottom-up distribution is pretty common now in other verticals, it’s important to realize that bottom-up is rarely done in Ed Tech. Top Hat co-founder and CEO Mike Silagadze said: “Most people we talked to were very skeptical about our marketing approach; they thought it wouldn’t work. If we’d listened to outsiders it would have been a terrible idea because they would have told us not to do it.”

2. They focused on revenue early on

Top Hat had an early and continuous focus on revenue; they have been operating profitably since their launch in 2009. This meant there was less pressure to raise capital and they had more proof points when they did go looking for funding.

3. They hustle

Ultimately, success comes down to the persistence and hustle of the founders. I’ve seen examples of this time and time again. And, there are very few people out there who can outhustle Mike Silagadze.

4. They expanded their vision over time

Top Hat began as a classroom interaction tool, and they are now building a content/textbook marketplace. Interactive textbooks, test questions, and homework are authored by academics/instructors and available on the Top Hat marketplace. Finding a “second act” is tough to do, but when done right, it expands the underlying opportunity in a huge way.

In short, Top Hat was able to identify a winning formula for classroom interaction, adopt the right distribution strategy to bring the tool into the classroom, and then expand the platform from there. Congratulations to Mike and the entire Top Hat team on this latest milestone. We’re so proud of the progress you’ve made so far and are looking forward to the rest of your journey in disrupting education.