Magoosh, Test Prep Startup From Berkeley, Wins Inaugural North Bridge Seed Competition

Berkeley, CA-based Magoosh, a developer of low-cost online multimedia materials for the lucrative test preparation industry, is one of two startups to snag the top prize in North Bridge Venture Partners‘ first seed capital competition. Both Magoosh and Pittstown, NJ-based Profitably, a business intelligence software startup focused on small businesses, will receive $50,000 in seed capital from North Bridge, along with $25,000 worth of in-kind software development support and six months of incubation space in the firm’s offices.

The winners were named in an announcement yesterday. It’s the first time North Bridge has run the competition, as the Waltham, MA- and San Mateo, CA-based firm’s answer to the profusion of seed funding and incubator programs springing up across the Bay Area and Boston investing scenes.

There’s no shortage of takers for such programs. North Bridge didn’t publicize the competition widely, but received “an awful lot more” applications than it had expected, according to Cali Tran, the San Mateo-based principal who co-organized the contest. The firm therefore had its pick of the litter across the sectors North Bridge invests in, including software, digital media, wireless and communications technology, materials, and healthcare.

In fact, the firm started off intending to hand out the $50,000 top prize to just one startup, but “based on the quality [of the applications], we opted to double our prize and pick two,” Tran says.

“The top 10 were all pretty amazing,” says Tran. “One of the things we were delighted and surprised about was the level of maturity of the products, even at the seed stage. A fair number of the top 10 were already [earning] revenue.”

The other seven finalists, chosen from entries that consisted simply of 10-slide PowerPoint decks, included the following startups:

—Bizstro, a social media marketing firm
—Cause It’s Cool, ane-commerce product review service
—DPL Health Games, a social gaming service
—Launchtime Mom, a social networking site
—MobileMob, a community for wireless consumers
—Neoflect, acloud-based personal computing startup,
—Ubiqi Health, a mobile health management firm.

Each of these finalists received feedback and criticism from the North Bridge partners who reviewed their entries.

Tran says seed investing is a long tradition at North Bridge. He says more than half of the firm’s deals since its founding in 1994 have been seed investments (meaning investments on the order of tens or hundreds of thousands of dollars, often in return for convertible notes rather than equity). But despite that, North Bridge isn’t widely known among entrepreneurs as a company that invests at the seed stage, Tran says. “One of the objectives of this competition was to introduce ourselves to a community of entrepreneurs who may not know us,” he says.

The North Bridge competition differs from other venture-incubator programs such as TechStars and Y Combinator in that it anoints fewer startups (just one or two in comparison to about 10 per session for Y Combinator and TechStars) and provides them with quite a bit more cash (TechStars companies get up to $18,000 and Y Combinator companies get $11,000 plus $3,000 per founder). In a conversation yesterday, Tran shared additional details about the philosophy behind the seed capital competition, and talked about what the firm hopes to achieve with its $50,000 purses and the accompanying incubation space, development support, and mentorship.

The point of any seed investment, he says, is to “address a critical question that may validate or dispel an idea.” But an additional goal with this competition, he says, is simply to get to know more entrepreneurs, in the hopes of finding those who have the ambition, appetite, and drive to build the next market-defining, $100 million businesses.

“What we’re trying to do is help decrease the time it takes for an entrepreneur or a team to discover any potential pitfalls in their idea, so they can decide whether this is something worth pursuing,” Tran says. “There is so much risk in starting a company that we can help facilitate those answers, and if anything, help answer them together. And in the process, what a great way to get to know an entrepreneur.”

Magoosh caught the attention of North Bridge with a novel idea for a market that’s proven to be a big money-maker. Hansoo Lee, one of Magoosh’s three founders, says his company’s vision is to provide video-driven academic help and personalized analytics for future test-takers at rates that are more affordable than those charged by the market’s incumbents, companies like Kaplan and The Princeton Review. The North Bridge investment, Lee says, will help his nascent firm market its study guides for the GMAT business-school admission test more widely, and to develop new materials geared toward the GRE, the standard exam required of thousands of aspiring graduate students every year.

If that works, then the startup will know it’s on to something potentially big. “If we can prove that our approach works with these two exams, then you can extrapolate both our offering and our customer acquisition vehicles to other exams,” says Lee, who, like his co-founders Pejman Pourmoezzi and Bhavin Parikh, is a 2010 graduate of Berkeley’s Haas School of Business.

The Magoosh team considered applying to other venture seed programs, but decided that programs such as Y Combinator, weren’t a good fit, Lee says. “My understanding of Y Combinator is that they are looking more for the hacker type, and we definitely do not fit that mold,” he says. The team was attracted to North Bridge’s competition because they hit it off personally with Tran, who stopped at Berkeley to drum up interest in the program, and because entering was easy. “The process was entrepreneur-friendly in that it didn’t take up too much of my most precious resource, which is time,” Lee says.

After the six months and the $50,000 have been spent, Lee acknowledges, it could turn out that the Magoosh idea is flawed—or that it’s more likely to develop into what venture insiders often refer to dismissively as a “lifestyle business,” rather than one capable of returning high multiples on an initial venture investment. But even in that case, the money wouldn’t have been wasted, both Tran and Lee emphasized.

“The one thing Cali stressed to me was that he is looking to develop relationships with the next generation of entrepreneurs,” says Lee. “That includes myself and my partners. We all came to business school with the sole purpose of starting a business, and that is in our DNA. I would put money on the fact that this will not be our last venture together, so what Cali said to us was that this is an opportunity for him and for North Bridge to develop a relationship, as well as to put resources behind a business that they believe in right now.”

Wade Roush is the producer and host of the podcast Soonish and a contributing editor at Xconomy. Follow @soonishpodcast

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