CodeCombat is Gamifying Computer Science

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The CodeCombat team has been selected as a “Top Deal” by KingsCrowd. This distinction is reserved for deals selected into the top 10% of our due diligence funnel. If you have questions regarding our deal diligence and selection methodology please reach out to


Computer programming skills are becoming more important every year. And yet, access to educational programs for coding is not readily available. Many schools are struggling to integrate computer science into their curriculum. This creates challenges, both for society and individuals who could benefit from these skills. Difficulty of learning is another common obstacle. Some options exist today that allow users to learn the most elementary of development skills. These options often can’t take learners beyond the most basic skills though. Other solutions, like sophisticated programs or coding bootcamps, can be expensive, difficult, or both.


One of the best ways to learn is to learn by having fun. This is what the founders of CodeCombat believe. Through management’s expertise, the founders of this business have built an entire ecosystem dedicated to teaching today’s youth how to code. The company’s approach is different from coding bootcamps or after-school coding programs though. They have designed an interactive game for children to play. To proceed through the game, users must code in their actions. When an applicable option is recognized by the system, it allows the programmed action to take place. When there’s a mistake instead, the game alerts the user and tells them how to correct the error in question. The coding languages currently emphasized by CodeCombat are Python and JavaScript.


Since launching, CodeCombat has seen extraordinary growth. Today, the company has over 170,000 active learners playing on its platform from home. This is not just a game for children to download though. The company also caters to other parties for its services. According to management, it has 473 middle and high schools currently paying for access to its platform. With an average of $2,300 per school each year, this worked out to bookings in 2019 of $1.1 million. The company also has a B2B2C component to it. This includes sales to its coding education partners. Last year, the business had 71 of these, with average revenue per partner totaling $8,500. This generated bookings for the year of $607,000. Bookings from at-home learners, meanwhile, were also robust. Average revenue per year from more than 10,000 paying customers totaled $63, working out to $633,000 for the year as a whole.


Not only is CodeCombat pushing through its successful products today, it’s also working on other products. Its next big game, Ozaria, will be ideal for distance learning according to management. The business is also targeting the launch of its online coding sessions. Both private and small group options will be available. For these, the business intends to charge between $159 and $399 per month. In all, CodeCombat has focused most of its efforts toward the US and China. Even so, the firm’s open source community has worked to translate its content into more than 50 languages. This has resulted in more than half of the game’s traffic coming from outside of the US and China.


So far, CodeCombat’s efforts have borne fruit. Last year, the company generated $2.01 million in revenue. This was up from just $906,656 a year earlier. The only big downside, though, was that costs for the business remain high. In 2018, the company generated a loss of $2.57 million. This grew to a loss of $3.27 million last year. Over the same period of time, the company’s operating cash outflow grew from $1.74 million to $3.20 million. Despite these high cash needs, the company has done well to retain cash. Total cash and cash equivalents last year ended at $2.22 million. This includes $223,730 in restricted cash. Part of the company’s success on this front is attributable to its business strategy. Accepting annual payments for monthly services allows the firm to bring in a great deal of cash before that cash needs to get spent. Deferred revenue last year ended at $845,702. The firm had another $141,238 on its books in the form of customer advances.


The future is uncertain and the advent of COVID-19 has made things even more uncertain for many companies in the world. For CodeCombat, though, it has been a blessing. During the rise of COVID-19, 125 thousand B2B distance learning trial licenses were registered. Their B2C bookings have also fared very well, coming in 75% in a two-month window compared to the same period last year. Based on these figures, management felt confident projecting revenue for 2020 at around $4.7 million. If this comes to fruition, it might help to stem some of the business’s high spending, but it would be unreasonable to expect for it to stop altogether.

An Opaque (But Attractive) Market

The market that CodeCombat operates in is hard to place. Management, in their filings, considers the company’s space to be the online education market. This space should grow to $350 billion by 2025. That’s too broad a market for our liking though. One source we decided to compare it to was the coding bootcamp market. That space, it’s believed, generated $460.73 million in sales in the US alone in 2019. This year, that figure should expand to $480.90 million. Last year 33,959 bootcamp graduates flowed into the market, up 4.38% compared to 2018. That figure included nearly 7,000 online learners. Even though this appears to be the major source of computer programmers, the cost can put a lot of learners off. One source estimated that 71.74% of bootcamps charge $10,000 or more in tuition every year.


Because of the nature of CodeCombat, it’s difficult to place the company and its offerings into any one space. A better way to look at upside, then, might be to consider its core end market: schools. We already know that the company charges an average of $2,300 per school each year. Consider now that there are around 130,930 primary and secondary schools in the US (including private ones). This works out to annual revenue potential for CodeCombat of up to $301.14 million. In China, there are around 541,000 such schools. This represents a revenue opportunity worth $1.24 billion. All of this ignores the other nations where the company might be able to expand. It also ignores at-home user revenue, online classes, and more.


To some, it may seem unlikely that CodeCombat can grow that large. However, their potential should not be underestimated. Unlike the coding bootcamp approach to learning, the firm’s business model is incredibly cheap and fit for a wide swath of today’s youth. At the $2,300 per year average that the business is charging schools, it has touched the lives, management claims, of 19.8 million students. This proves that it’s a more accessible and more affordable approach to learning to code than other options out there.

Terms of the Deal

To keep growing, the management team at CodeCombat is seeking out additional capital. They are doing this through two concurrent raises, one of which is its Regulation CF raise. There, the firm hopes to raise up to $1 million, but total funding being sought across both raises is $1.335 million. To close a round, the business must hit a target minimum of $478,000. Of that, $25,000 must come from its Regulation CF investors. In all, the company has $650,804 committed to its raise. In exchange for a minimum investment of $500, investors will receive preferred equity in the firm, priced at $1.71 per unit. This particular raise values the business at $25 million on a pre-money basis.

An Eye on Management

At this time, there are three key individuals behind CodeCombat. The main individual is co-founder and CEO Nick Winter. Prior to his time at CodeCombat, he worked as the co-founder and CTO of Inkrem. For those who don’t know, Inkrem founded, a leading platform that taught users how to learn Chinese and Japanese characters. The next person in line at CodeCombat is Matt Lott, the business’s co-founder and CTO. In the past, he founded Funnel, a mobile blogging site that emphasizes visual storytelling. Before that, he served as a Software Engineer at Microsoft. The last individual of note is Bill Wang, the General Manager of CodeCombat’s Greater China and Asia operations. Previously, Wang worked as an Expert Advisor for McKinsey & Company. Before that, he was Head of China for Branch, and prior to that he was employed as a VP and Head of Corporate Development at Yirendai.


The project that CodeCombat is working on is impressive. Even more impressive is the amount of traction the company has generated during its short life. Strong revenue and revenue growth, combined with a significant amount of cash on hand, makes it appealing. The industry is rather opaque. But what is clear is that this is an area of high demand. In all, it’s likely worth billions of dollars annually, and management has created a platform that addresses a large chunk of users at a low cost. So long as the firm’s games remain both educational and entertaining, it should have no problem expanding from here. Add in management’s expertise and the company’s dual focus on the US and China, and it’s obvious that it’s a compelling prospect.


On the negative side, there really isn’t much. Like any early-stage business, there’s always the threat of competition. Besides that, the only real negative for investors to consider are the significant net losses and cash outflows of the business. Management must, before too long, get the company’s bottom line at least flat. That or it must generate strong enough sales growth to make future investors not care about the losses for a while. Even with this downside, though, we feel confident that this is a top tier prospect and, as a result, we have elected to rate CodeCombat a Top Deal.

About: Daniel Jones

Daniel Jones is a graduate of Case Western University with a degree in Economics. He has spent several years as an equity analyst writer for The Motley Fool where he focuses primarily on the Consumer Goods sector but also likes to dive in on interesting topics involving energy, industrials, and macroeconomics, in addition to contributing equity research to publications such as Seeking Alpha.

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