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Textbook rental site Chegg.com announced today that it has raised $25 million in a third round of funding led by Kleiner Perkins Caufield & Byers and Foundation Capital.
That’s an impressive amount of cash, especially with the current economy and what some see as Kleiner’s move away from web investments. But Chegg’s co-founder and chief executive Osman Rashid says the Santa Clara, Calif. startup has already proven that its business model is sound. When the company launched its textbook rental service in July 2007, it had a spreadsheet of 53 assumptions, such as whether students want to rent textbooks and whether fraud will become a big issue, he says. In the intervening 18 months, all of those assumptions have been validated.
Chegg isn’t sharing too many details about its success, but the company says it saved students from more than 4,000 universities about $16 million this year. When I remember the huge dent college textbooks left in my budget, and how many of my friends scoured the internet for good deals, it’s no surprise that the Chegg is taking off. It claims to save students between 65 and 85 percent on their textbook bills. (And hey, you can even highlight in the books.) With the current economic slump, Chegg’s bargains look even more tempting.
The company also says it pays to plant one tree for every book that’s rented; Chegg has now funded more than 150 city blocks of trees.
In retrospect, the Netflix-for-textbooks model seems obvious, and Rashid says he expects competition to emerge soon. But Chegg has a built-in lead, and will be using its new backing to improve the service, though Rashid won’t reveal anything about what those improvements will involve. He says he isn’t worried as much about competition, but rather, “Are we doing all the things we need to be doing [to scale the business]?”
If the news sounds a bit familiar, it’s because TechCrunch reported last month that Chegg had raised $15 million from Kleiner Perkins. At the time, Rashid said the rumor was “not accurate,” and a source told us that another investor was involved. Now, he tells me the funding wasn’t finalized until last week. He won’t confirm whether Kleiner’s portion of the round was $15 million; I’m guessing it was.
Chegg previously raised $2.2 million. Existing investors Gabriel Venture Partners and Primera Capital also participated in the new round.
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