Whiz-kid’s woes
He’s helping National diagnose its problems, but should Crimson Consulting founder Jamie Beaton be looking closer to home? Daniel Dunkley reports.
Jamie Beaton has it all. The successful 25-year old entrepreneur behind Crimson Education, one of New Zealand’s most prominent emerging companies, has a multimillion-dollar paper fortune, four degrees from Harvard and Stanford, and a prestigious Rhodes Scholarship from Oxford University, achieving in his mid-20s what most people fail to do in a lifetime.
The precocious Beaton, whose university admissions consulting and tutoring business is said to be worth US$260 million (NZ$360m), is regarded as one of New Zealand’s brightest young achievers, with admirers including former Prime Minister Sir John Key, a shareholder in, and adviser to, his startup. The National Party is so enamoured by the whiz-kid that it appointed him to a panel to review the wreckage of its humiliating election defeat.
Ask figures in the New Zealand venture capital community about Beaton, and they acknowledge the Crimson co-founder as ‘‘super-bright’’, ‘‘charismatic’’, and ‘‘persuasive’’, a savvy-operator who ‘‘knows business inside out’’, and how to raise money from venture capital firms.
But despite the plaudits he has earned as the cofounder of one of the region’s hotly-tipped emerging companies, a litany of legal disputes has plagued Beaton and Crimson in recent years. Lawsuits involving former business partners have become a regularity for the company, founded in 2013. The disputes have earned Crimson and its founder a litigious reputation, taking some of the sheen off New Zealand’s bright young thing.
In 2017, Crimson fought a court battle to keep details of ‘‘potentially damaging’’ allegations from former employee Samantha Berry secret from the press. Berry, the founder of UniTutor, a business acquired by Crimson, had resigned from the company, with Crimson alleging breach of contract. Berry countered with her own allegations and filed a separate case in the High Court. The parties reached a private settlement.
Reports earlier last year revealed that Crimson Education had faced two High Court lawsuits since 2018. In December that year, the University of Auckland filed a suit against MedView, a Crimson subsidiary for medical school applications, over an alleged breach of copyright, settling out of court.
Meanwhile, the owner of Princeton, another education business acquired by Crimson, also brought a case against the company in April 2019, relating to Crimson shares. Like Berry, Princeton’s founder Victor Li filed separate Employment Relations Authority proceedings against Crimson. Like the other cases, the dispute was settled out of court.
The latest, current case involves Eurekly, an online tutoring business which is said to have had joint venture talks with Crimson. Eurekly’s owner, Austen Clarke, is waging a $10m suit against the company. Eurekly and Clarke allege that Crimson reneged on the joint venture after Crimson poached its key employee, head of product Natalia Rozova. Eurekly alleges Crimson attempted to poach additional developers. Crimson denies the claims, and the two sides are due to fight it out in the High Court.
In a further twist, Beaton has filed a civil assault claim against Eurekly’s Clarke. Such claims, usually launched by individuals after the police decline to prosecute, are rare in New Zealand. Notable past civil assault claims include a case against former National Party deputy leader Gerry Brownlee in 2002. A protester won a case against Brownlee after alleging he felt threatened by the MP at a party launch.
When approached by the Sunday StarTimes for an interview, Beaton and Crimson instead answered questions by email. A spokesman said: ‘‘It is not unusual for companies in Crimson’s position – a disruptor in its sector with a high growth rate and numerous transactions – to experience some commercial litigation.’’ It declined to comment on the civil claim brought by Beaton.
Eurekly’s Clarke issued a statement through his spokesperson: ‘‘Eurekly’s actions in seeking $10m in damages from Jamie Beaton and Crimson for breaches of confidence and contract follow several other court actions against Crimson by other parties.
‘‘As to subsequent civil actions against me alleging assault, clearly we have a difference of opinion of what transpired, and I feel his actions are being employed simply for leverage on the wider case. I strongly reject his claims against me, and the fact is that the claims have not been pursued by the police.’’ Police declined to comment.
Beaton’s past interviews with Stuff allude to a ruthless competitive streak. In 2016, the then 20-year-old said his competitive personality could alienate people: ‘‘It is a trait that’s a powerful weapon when channelled correctly but it can manifest itself badly.’’
The long list of legal cases comes as the company attempts to grow its main lines of business (advising students on university applications and tutoring) and diversify into new areas.
Crimson was launched seven years ago to provide consulting services to students applying for the world’s best universities, including Harvard (Beaton’s alma mater, whose official colour is crimson), Yale, Princeton, Oxford and Cambridge. Crimson students have received 268 offers to America’s elite Ivy League universities, and 99 to ‘‘Oxbridge’’.
The company’s YouTube adverts claim students using its service have a four times greater chance of getting into Ivy League institutions. Crimson says its 2019-20 Ivy League admission rate is 21 per cent, ‘‘almost three times the global acceptance rate’’.
Wealthy parents are prepared to spend big to give their kids an advantage, and Crimson charges handsomely for its services. Admissions programme costs
range from $10,000 to $25,000 per student, and tutoring services range from $50 an hour to more than $120. The company uses students, graduates, and former admissions offices staff for its consulting arm, and an army of students at top universities for tutoring.
Companies that help students with university places are likely to come under more scrutiny in the US following the 2019 college admissions scandal, which unearthed organised cheating schemes at some of America’s top universities. Actress Felicity Huffman was among several highprofile figures sent to prison over fraudulent admissions, as rich families paid to cheat exams and obtain false sporting credentials.
Crimson, which has not been accused of wrongdoing or linked to any of the scandals, says 2019’s news ‘‘served to identify bad actors who were acting both illegally and unethically; their exit from the marketplace has not lessened clients’ desire to get into top colleges’’. The company says it is ‘‘confident in the sustainability of its business model’’ in the wake of the American developments.
Whether US regulators place more scrutiny on admissions companies remains to be seen, but venture capital investors in New Zealand are sceptical of Crimson’s ability to scale up that part of the business. They point to a finite number of places at top universities, and a lack of recurring revenues, with most students only applying once or twice for university courses. There’s also strong competition in the US from established names such as Ivy Wise and Top Tier Admissions.
Those concerns have not dissuaded some of the world’s best-known investors. Behind 31.4 per cent owner Beaton (and Crimson co-founder Sharndre Kushor, who holds a 6.54 per cent stake according to the NZ Companies Register), the company’s key backer is US hedge fund guru Julian Robertson. Robertson, worth US$4.3 billion according to
Forbes, is listed as a 17.7 per cent shareholder in Crimson Consulting by the NZ Companies Register.
Beaton is said to have persuaded Robertson to give him a scholarship while he was a student at Harvard. The American investment tycoon was so impressed by the Kiwi he later provided US$1m in seed capital for Crimson. In a Forbes article two years ago, Robertson (who owns assets in New Zealand including luxury lodges at Cape Kidnappers) described Beaton as a ‘‘brilliant mind’’. Robertson also supports the Rhodes Scholarship in New Zealand, awarded to the Crimson boss in 2017.
Crimson last raised funding from investors in October 2019, raking in US$20m from investors at a US$260m ‘‘post-money’’ valuation. Last August, it welcomed Solborn Investment, the venture capital arm of Korean holding company Solborn. Other key backers in Asia include the Singaporean giant Temasek, which, according to the Companies Register, holds a 9.5 per cent Crimson stake.
Although the company has a roll-call of impressive backers, it is hard to ascertain the true international breadth of the business. A USA Today report last year cast doubt over the scale of its global operations, and claimed there was no evidence of staffed Crimson offices in New York, San Francisco, Los Angeles or London.
It is unclear how many of the locations listed on the Crimson website are permanent, and which are co-working spaces. Its London site, for example, appears to be owned by Spaceworks, a company which provides hot-desking and co-working stations.
When asked how many of its locations were permanently manned, Crimson said it had ‘‘a couple of smaller offices that operate in co-working and hot-desk spaces like many businesses who make use of the flexible co-working model’’. It pointed to permanent offices in Australia, Singapore, China, Korea, Kazakhstan, Russia, Vietnam, New Zealand and South Africa.
New Zealand’s private company disclosure laws mean there is little public information on Crimson’s financials. Venture capital market sources claim the business has not yet turned a full-year profit. Crimson declined to comment.
But according to leaked documents seen by the Sunday Star-Times, Crimson Consulting made a pre-tax loss of $19.7m in the year to July 2019, after ‘‘administrative expenses’’ of $32.7m. The business made a $19.6m loss in the 2018 financial year.
According to the report, Crimson’s gross revenue jumped to $36.7m in 2019 from $20.9m the year before. The financial documents say Crimson is ‘‘uprising towards breakeven’’. Crimson declined to comment on the 2019 financial report.
The company’s US $260m valuation, reached at its last fundraising round, is based on the price its most recent VC backers were willing to pay. Venture capital funds say the company has a lofty ‘‘tech-company valuation’’, considering it includes traditional ‘‘brick and mortar’’ divisions, including the tutoring business Number Works ’n Words, acquired in 2016.
When asked about its technology offering, Crimson said it ‘‘largely relies on a proprietary technology suite, alongside some high-quality external providers’’ to carry out its services, such as consulting and tutoring: ‘‘Our technology is largely housed in the Crimson App, which incorporates a lot of the tools that we use in our student work.’’
The pivot to online schooling, through Crimson Global Academy, is viewed as the most scalable and potentially profitable of the company’s business lines. Crimson says it plans ‘‘to build the world’s largest and most effective school’’ after launching the proposition last year. Part-time students will be charged $4000 per subject, and fulltime students $16,000 for the year.
Crimson has drafted in Key to advise the online school. Beaton has a long relationship with the Key family, appointing Sir John’s son, social media influencer Max, to a consulting role between 2015 and 2017, advising students on American sports scholarship applications. The former PM’s son and Beaton went to the same private school, King’s College, in Auckland.
It is unclear whether Key paid for his small stake in Crimson, or was awarded the shares. The former prime minister, who says Crimson ‘‘has the brainpower, the leadership, and the vision to change the landscape of education’’, is listed as a 0.02 per cent shareholder. Crimson wouldn’t reveal whether Key bought his shares, describing the transaction to bring the ex-National leader on board as ‘‘commercially sensitive information’’.
With most emerging companies, the end game is usually a sale to a bigger rival. Crimson’s lofty valuation is effectively meaningless until its founders cash out. The success of the muchtrumpeted online school is likely to dictate just how profitable and scalable Crimson is in the future.
Crimson and its figurehead continue to divide opinion, and this enigmatic Kiwi company has people guessing about its future. While Beaton has US and Asian investment titans and the political establishment in the palm of his hand, some executives in New Zealand’s startup scene remain unconvinced.
‘‘All of the CEOs in the sector admire what he’s done, they admire the charisma,’’ says one Kiwi venture capital boss. ‘‘But they don’t believe he’s building a real scalable business.’’
‘‘There’s every chance they will get a big exit,’’ says a rival VC fund manager. ‘‘That’s the model here. It’s all about making money.’’
Crimson’s court showdown with Eurekly and Austen Clarke has been delayed until May 2022, and will loom over the company in the new year as it attempts to woo new investors. Unlike Crimson’s other cases, settled out of court, it is expected to end in a High Court battle, potentially leading to an explosive public dispute.
As the gifted Beaton finalises his post-mortem of the National Party’s election campaign, the Aucklander has no shortage of challenges to contend with in the year ahead.