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Contxto – Duolingo slipped a new investor to its table last month. With a contribution of US$10 million, General Atlantic is now a stakeholder for this edtech. It might seem odd that a startup that raised US$30 million late last year would suddenly need funds. More so considering it’s stated it has a steady flow of cash thanks to its paying users.
So why avoid the media shabang for this investment? Because according to Duolingo, it’s not about the money.
General Atlantic and Duolingo
“Because our business has been growing very fast and we have more than enough capital, there was limited need for us to raise more primary capital,” said the startup. “However, over the last year, we developed a relationship with General Atlantic.”
Through this arrangement, the edtech unicorn hopes to grow further in Asia where there’s a vast market of English learners.
Among the other negotiations that went down, there was also a secondary transaction. An existing investor sold some of their stock so that General Atlantic would have a bigger share. Though who was it that made the wiggle room is unknown.
One pro and one con regarding secondary transactions
Behind every venture capital (VC) firm are the original investors who want to see results (money). And when times get tough, these backers may pressure further to see some liquidity.
But that doesn’t happen when their startups who though have amassed plenty of capital, aren’t ready to make that IPO leap or be sold. Much less when they’re focusing on hunkering down to weather through challenging times.
- Related article: Duolingo is growing like crazy, is it preparing to take IPO flight?
As a result, VC investors may partake in secondary transactions. This approach is beneficial for them as it can procure money for its backers without withdrawing completely from the startup’s table.
But, secondary transactions tend to be stigmatized because they suggest that an investor has lost confidence in a startup.
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