Bhavin Parikh, co-founder and CEO of Magoosh, talks about the company which offers online help to students taking tests such as GMAT exams, at the Magoosh offices in Berkeley, California, Tuesday, November 17, 2015. Thor Swift for the Financial Times
Bhavin Parikh, co-founder and chief executive of Magoosh © Thor Swift

The best start-up ideas often focus on finding solutions to problems that have already caused the founder personal pain. They do not come more personal and painful for business school students than studying for their entry exams.

Magoosh is an online test preparation site that drills students for graduate school entrance tests GMAT and GRE, as well as SAT, a college-entrance exam, using video explanations and web-based lessons. The idea is to make test prep more accessible, convenient and affordable.

The idea

Bhavin Parikh is co-founder and chief executive of Magoosh, based near his alma mater, the Haas School of Business at the University of California, Berkeley. There he developed the idea after his own frustrations at taking the GMAT.

“I used a book, but it was not representative of the exam,” he recalls. “We talked with other students, our classmates, and found that many others shared frustrations around their prep, ranging from cost, which amounted to thousands of dollars for classes, to the effectiveness of the services offered.”

Students pay for access to Magoosh’s content. The average price is less than $100 and 95 per cent of students pay only once.

“Ideally they pay, use the product, improve their score, and get into their dream school,” Mr Parikh explains.

“All of our paying customers can also ask us for help on any of our material
or general study advice, typically via email, and we have a team of experts that responds to them within one to two days. We don’t charge extra for
this service.”

Business school support

Haas provided access to an “amazing” network, Mr Parikh says, including other entrepreneurs “who were years ahead of us”, investors and lawyers.

“We also tapped into the student network for feedback since all of our classmates had recently taken the GMAT.”

The team found their first investor, Michael Berolzheimer, from the Haas network. He had completed his MBA at the school in 2007 and is now the managing partner at Bee Partners, a venture capital firm based across the Bay Bridge in San Francisco.

Overcoming adversity

Magoosh’s four founders were Haas classmates and they pooled $20,000 of their own money to get the venture started. Funding was a challenge in the early days. A seed round of about $500,000 was secured in the spring of 2011. But by the following February, the cost of operations left the team with about three months of money left and they fell to further fundraising.

“We were burning about $30,000 a month and had less than $100,000 in the bank remaining,” Mr Parikh says. “I talked with our investors and other founders, and the recommendations were to try to raise money or sell the business.” The five-person team at that stage decided to raise an additional $250,000 and cut costs.

“I asked several team members to
go part time, and I cut my salary to zero,” Mr Parikh says. “Luckily, we were able to raise a little funding, and unbeknown to us, the GRE [season] started to pick up. At the time we had products for the GMAT and GRE.” By May 2012, the company broke even for the first time and has been cash flow positive nearly every month since, Mr Parikh notes.

Revenues this year are expected to come close to $7m, Mr Parikh claims. Nearly 10 per cent of students taking the GRE or GMAT are now Magoosh customers, the company estimates.

The future

The next stage for the business is to expand into other exams, such as the ACT (a university entrance test that is accepted in the US) Mr Parikh explains. The team is also experimenting with smartphone apps, including one called Vocabulary Builder which has had more than 1m downloads. “We want to help even more students get accessible and effective prep,” he says.

Copyright The Financial Times Limited 2022. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Follow the topics in this article