WordDive, an AI-based language learning application, gathered €1.2 million worth of financing in the Invesdor crowdfunding service in January 2017.
Operating as a mobile and online application, the Finnish WordDive combines gamification, interactivity and the simultaneous use of several different senses in a unique method for efficient language learning. Artificial intelligence optimizes the exercisesfor each user. If you learn quickly, the program will speed up. If a topic needs more revising, practice for it is automatically increased.
In Finland, WordDive is best known for an English prep course that was launched in 2014 and aimed at high school students preparing for their final exams. In two years, the course became the ultimate market leader. According to CEO Timo-Pekka Leinonen, only a few companies, such as Alko and Prisma, have been able to achieve a similar market penetration of over 60%.
According to Leinonen, crowdfunding enabled access to global markets and for long-term growth.
“Development and growth began with the help of crowdfunding. For the first time, we had enough funds to operate with a longer-term focus and on a larger scale.”
Venture capitalist, crowdfunding, or slower progress?
In 2016, right before the growth stage, WordDive’s revenue was a bit under €1 million. Crowdfunding was not an obvious choice, and Leinonen was also considering other options.
“One possible option would have been to look for venture capital funding, but that would have increased control and imposed strict conditions. I was sceptical about crowdfunding at first because it was a fairly new phenomenon. Without additional funding, we had the option to simply just progress a bit slower.”
A successful funding round completed by a familiar company with Invesdor became the decisive factor. Leinonen thought it seemed like a sensible approach, since the power to decide would remain with the original owners, and an opportunity to go global could be possible sooner rather than later.
The investors also found WordDive convincing, and the funding round was completed in five days. The goal was to raise €250.000, but the upper limit was raised to 1.2 million euros. According to Leinonen, it took two months from the moment the discussions began to the moment the funds were available.
Leinonen says that, in addition to fast growth, the funding round also brought along a significant increase of know-how.
“The investors brought in a high level of expertise. We gained about 100 technology and finance experts who have been available to assist if we have needed insight and guidance.”
Treat the investors as you would if you were a listed company
Since the crowdfunding round in 2017, WordDive has once applied for additional funding from new investors, and it now has about 1,000 owners. From the beginning, WordDive has aimed to follow rules that apply to listed companies in its operations and communications, Leinonen explains. The investors receive a quarterly shareholder letter and the company follows the instructions for the operation of the inner circle of the company when applicable.
“It’s good for every company to learn the rules of stock market,” Leinonen says, perhaps offering a clue about the long-term plans of the company.
According to Leinonen, keeping the promises and plans realistic from the beginning are the basis for establishing trust with investors. With a growth company, it is possible and even likely that the plans will undergo changes along the way. This happened with WordDive as well.
“Exporting the final exam prep course to Germany was not as successful as we had hoped, so we ended up doing a different kind of opening move. Even though our plans changed, we were able to fulfill our growth promise, and last year our revenue was €2.5 million. The WordDive brand also generates some operating margin.”
Most growth in Mexico and the US
When the entry to the German market did not go according to plans, WordDive was agile enough to change its direction. The Master English service was created based on significant market research and research on speech recognition that was done in pioneering cooperation with Tampere University.
“If you want to show off your language skills and buy pizzas for your friends in Spanish, there is some value to it. But if you want to be able to use English in your work, the value is much higher,” Leinonen describes.
Most growth is now happening with an application launched for iPhone in Mexico and the US. The base language in this application is Spanish. The application is based on the popular prep course but, instead of focusing on acquiring perfect knowledge of the grammar, the aim of this course is to learn to speak fluent English for the purpose of working life. The teacher – artificial intelligence – recognizes and gives advice, for example when there is something to correct in how the user pronounces the words.
“Based on extensive market research conducted in 2020, there is a massive demand for a product like this. We have great expectations for the future.”
How to complete a successful funding round?
Tips from Leinonen:
- Establish trust with the investors by giving realistic promises that you keep.
- The development of value should continue positively after the funding round, so avoid giving excessively optimistic estimates about the value of your company.
- Getting an anchor investor on board may be the crucial factor for whether or not the funding round is a success. Acquire a significant investor beforehand who will take part in the funding round under the same conditions.
- Make use of your own network. In 2017, WordDive already had hundreds of thousands of registered users, many of whom became investors. Many of them invested in an unlisted stock for the first time. When a product is already familiar, it is easier to decide to invest in it.