Ukrainian startup Grammarly created the technology that made it the world leader in online writing services and raised $ 200 million in investment.
If you like to watch Youtube videos for free, you can't escape the five-second commercials before each of the videos. Sometimes it is an aggressive advertisement that you want to close quickly, sometimes it is a more subtle and soft one that you look closely at. The latter includes an advertisement for the Grammarly spelling checker, which attracts users in the United States and Germany, Japan, and Ukraine.
As far as at ShareUApotential we also write some articles in English the service seemed to be useful, so we tried it. The general impression (not as an advertisement) is an easy, user-friendly interface, good navigation through the text, online correction.
And then the idea of this article was born - after all, Grammarly is considered one of the first Ukrainian Unicorns - a startup company whose value in a short period exceeded $ 1 billion.
Formally, Grammarly is an American company headquartered in San Francisco. At the same time, the owners of the company are Ukrainians, and the main development office is located in Kyiv. It is more than a landmark company for the entire Ukrainian market of startups and venture capital investments. It turned out that Ukrainians can not only exploit the Soviet mining and metallurgical heritage and squeeze the juices out of the world's best land, but also create real unicorns that are well-known all over the world.
Fighters against plagiarism
The idea of working with texts was born in the early 2000s with the problem of plagiarism in student papers. Alexey Shevchenko and Maxim Lytvyn tried to solve this problem - this is how the MyDropBox service appeared in 2002. At that time, there were practically no such projects in the world, the market was completely new.
Initially, licenses to use the technology were sold to American universities. The creators themselves entered the MBA programs at the Universities of Tennessee and Toronto, which allowed them to sell the product not from Ukraine, but by communicating face-to-face with potential customers in North America at exhibitions and conferences. After the sale of the first licenses, the company began to grow - it already had more than ten developers in Ukraine and several sellers in North America.
Several years of successful development, and in 2007 MyDropBox was sold to Blackboard. Then the founders of the project spent two years on its adaptation to the buyer's requirements (which was part of the sale agreement), while Dmitry Leader was in charge of the adaptation project - at that time a developer in MyDropBox.
Creation of Grammarly
After fulfillment of the agreement with Blackboard in 2009, Lytvyn, Shevchenko and Leader launched a new project - a service that would help their users write and communicate in English more effectively. Initially, the project was called SentenceWorks, then EssayRater. In May 2010, the name Grammarly appeared, and Brad Hoover, a former partner of the General Catalyst investment fund (specializing in investing in start-ups), joined the team in the role of CEO. To develop the project, the creators used funds from the sale of their previous company, but within the first year of operation, the new product became profitable (in 2010, Grammarly already had about 150 thousand subscribers).
Almost from the very beginning, Grammarly has used natural language processing and machine learning technologies in its products. Now these technologies have already become widespread in various industries, but at that time only a few (as for Ukraine - it is for sure) knew about them. The company also fully exploited the opportunities provided by cloud computing technologies.
After the arrival of Brad Hoover, the main office of Grammarly moved to San Francisco, while R&D was mainly carried out in Kyiv (as for the founders - Lytvyn and Shevchenko moved to San Francisco, Leader remained in Kyiv). Initially, the company earned money by providing a subscription to its services and grew without borrowed funds. This was quite unconventional for a startup, as the development of a startup usually looks like this: idea - product prototype - increase in the number of users of the product - search for an investor - investment - (possibly) sufficient ROI. In case of Grammarly everything looked in a different way: idea - product - payback - sustainable growth - investment.
According to the estimates of Evgeny Sysoev, managing partner of Ukrainian venture capital fund AVentures Capital, in 2012 the project earned about $ 10 million (and the number of its subscribers exceeded two million).
Only in 2015 was the free version of the product released, and Grammarly switched to the Freemium model. It included a free version, as well as two paid ones - Premium and Business. The free version attracts new users, who then subscribed to paid services. New model - new risks. At that time Grammarly already had a lot of paid subscribers, and there was a risk that these users would switch to the free version.
Grammarly attracted customers and sold its products exclusively online using standard methods - search engine optimization, banner advertising, Youtube, social media promotion. The company used the principle of optionality as much as possible - “we took on everything at once, saw what worked best, and invested more resources there” (from an interview of Lytvyn to ain.ua). As a result, in 2018, Grammarly took first place in the ranking of advertising effectiveness on Youtube (based on the reaction of Youtube users to ads).
To improve the text verification algorithm itself, the key was user reviews. This not only made the product itself better, but also smoothed the user experience of errors in the service.
The freemium idea worked - two years later, the number of users of the service exceeded ten million people (when the company just launched the free version in 2015, the number of users was ten times less). At the same time, despite the focus on retail, Grammarly still has many corporate clients - Cisco, Boeing, Dell, and others.
The time has come to attract external investment.
The first round was realized in May 2017. It raised $ 110 million from General Catalyst, IVP, Spark Capital, which are some of the most successful venture capital funds in Silicon Valley (the company's total valuation according to PitchBook was $ 550 million).
According to Brad Hoover, money was not at the forefront of this round. Know-how, ideas, new challenges, an outside perspective - that's why Grammarly turned to venture capitalists for help, according to the company's CEO.
“We want to make new mistakes, not old mistakes” - these are Lytvyn's words about the importance of attracting the experience of the largest venture capital funds to business development.
It was also necessary to continue to develop technologies and new directions – Grammarly had to compete with such giants as Microsoft and Google. As a result, Grammarly is gradually evolving from a spelling checker to a full-fledged "smart" assistant that evaluates context, a user's tone, and the overall impression the text makes. The emphasis is on personalization - the service tries to understand user preferences and assist exactly where it is needed. And, of course, the service learns from user feedback.
Business scaling continued - the number of users exceeded the mark of 30 million people, which means that the requirements for algorithms and computation speed, as well as for technical support, increased. Surprisingly, only a few dozen people worked in the company's technical support, while the company as a whole - at the beginning of 2020 – had only about 300 people in offices in Kyiv, San Francisco, New York and Vancouver. More than half of the company's employees - 140 people - worked in Kyiv (you can enjoy photos of Grammarly state-of-art Kyiv office here).
In October 2019, Grammarly held the second round of investments, in which the same world's largest venture capital funds participated. In the second round, the company raised $ 90 million, and the total business valuation exceeded $ 1 billion (according to PitchBook estimation, however, Grammarly itself did not agree with).
In May 2021, Forbes Ukraine magazine published an updated list of TOP-100 richest Ukrainians. In this list, the three founders of Grammarly shared 38-40 positions with a total fortune of $ 250 million each. The neighbors in the rating are the co-founder of Fozzy (Silpo) Vladimir Kostelman, then Konstantin Grigorishin and the Surkis brothers.
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