How much Kno sold for & why it failed

Computer crash

On Friday, November 8, 2013, Kno, a Santa Clara, Calif.-based e-learning startup was acquired by Intel, and the event got the usual news treatment. Friday is usually a day when you announce news for two reasons  — you want the media to obsessively cover your news through the weekend, or what is usually the case — bury the news. And my first reaction to the news was summed up by this tweet:

A few phone calls later, it seemed Kno really did want to bury the news. Why?

Because it sold for literally pennies on a dollar. Well placed sources who were in the know told us that the company sold for $15 million with some retention bonuses for the employees. Intel bought the company mostly for its hardware-related intellectual property and the employees. Intel also was one of the largest investors in the company — having pumped in $20 million via its Intel Capital arm.

Kno started life as Kakai Inc. and was co-founded by former Chegg CEO Osman Rashid and semiconductor industry veteran Babur Habib. In its four year lifespan, raised $73.4 million from venture capital firms of Andreessen Horowitz, First Round Capital, FloodGate Capital, Advanced Publications, Ron Conway’s SV Angel, GSV Capital and Intel Capital. It raised about $20.3 million in debt as well. Given how debt deals are structured, the venture investors lost pretty much their shirts on this deal.

The company launched a tablet with much pomp and circumstance only to see Apple’s iPad come and eat its lunch. The company shifted focus to adapting its platform and using it for providing books to students via its tablet apps. The more it refocused its plans, the more skeptical we became of the company and its chances.

The company had been flailing for a while and earlier this year, the company tried and failed to cut a deal with CourseSmart, an online book and educational content consortium started by text book publishers.

CourseSmart has been kept alive by publishers who have been pumping cash into the company. In order for the two companies to work together, Kno had to take on all of CourseSmart’s liabilities and at the same time honor its contractual obligations. That deal, which was being masterminded by uber venture capitalist and one time wunderkind Marc Andreessen didn’t really work out.

Industry sources tell us that Kno cut deals with publishers that limited its take to about 15 percent of gross revenues. At the same time, it wasn’t able to get the volumes necessary to grow its business — it was in competition for dollars from older ways of doing things: buying textbooks, both new and old and of course, the newer trend of renting books from the likes of Chegg.

Kno, in many ways is a case study in Silicon Valley hubris, where white-boarding and theoretical thinking doesn’t always match up with the reality of the real world. A book publishing industry insider pointed out that Kno was trying to solve a problem that wasn’t acute enough for the publishers and the end customers — students. It was a problem Kno wanted to solve for Kno.

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