20VC Duolingo's Luis von Ahn on How CEO's Can Scale With The Company, How VC Herd Mentality In The Valley Really Works and How Chatbots & AI Play A Role In The Future of EdTech

In this episode of "20 minutes VC," Harry Stebbings interviews Duolingo's founder and CEO, Luis von Ahn. They delve into von Ahn's journey from selling two companies to Google in his 20s to revolutionizing language learning with Duolingo, which now boasts over 100 million users and has received investments from prominent firms such as USV, Kleiner Perkins, and NEA. They discuss the challenges of the edtech space, the role of AI in education, and the importance of gamification and user retention. Von Ahn also shares insights into his growth as a CEO, the significance of diversity in tech, and Duolingo's ambitions to become a publicly traded company.

• Harry Stebbings welcomes listeners to the "20 minutes VC" podcast and introduces himself.
• Harry invites listeners to follow him on Snapchat for behind-the-scenes content.
• Luis von Ahn, founder and CEO of Duolingo, is introduced as the guest.
• Luis's accomplishments are highlighted, including his role in creating CAPTCHAs, being a MacArthur fellow, and selling two companies to Google.
• Harry acknowledges Leila Sturdy at Capital G for introducing Luis to the show.
• Harry promotes Lattice, a performance management solution, and Recurly, a subscription management platform, before transitioning to the interview with Luis.

"Welcome back to the 20 minutes VC with me, Harry Stebbings at H Debbings with two B's on Snapchat."

This quote is Harry introducing himself and the podcast, inviting listeners to engage with him on social media.

"So joining us today we have Luis von Ahn, founder and CEO at Duolingo, the leading language learning platform with over a hundred million users."

Harry introduces Luis von Ahn, emphasizing his role at Duolingo and the platform's success and user base.

"And prior to Duolingo, Luis is known for inventing CAPTCHAs, being a MacArthur fellow, or otherwise known as the genius grant, and selling two companies to Google in his 20s."

Harry outlines Luis's notable achievements before founding Duolingo, highlighting his reputation in the tech and scientific communities.

• Luis discusses the origin of Duolingo and his desire to work on something related to education.
• He was a computer science professor at Carnegie Mellon University when he decided to focus on language learning.
• Language learning is a significant global market, with 1.2 billion people learning a foreign language and $80 billion spent annually.
• Luis highlights the irony that most language learners are low-income individuals seeking to learn English for better job opportunities, yet language learning software was expensive.
• Duolingo was founded to provide a free way to learn languages.

"Yeah, this was five, five and a half years ago. I had just sold my second company to Google, and I wanted to do something related to education."

Luis recounts the time frame and his motivation for starting Duolingo, following the sale of his second company to Google.

"Everywhere else in the world, learning a language is a huge deal, particularly learning English. So we decided that we wanted to do something related to learning languages."

Luis emphasizes the global importance of language learning and the decision to focus Duolingo on this area.

"It seemed ironic to us that it required about $1,000 to get out of poverty by learning English. So we decided to make Duolingo, which was going to be a free way to learn languages."

Luis explains the paradox of expensive language learning options for low-income individuals and introduces Duolingo's mission to provide a free alternative.

• Luis discusses the perceived difficulty of the edtech space among venture capitalists.
• He differentiates between edtech tools that teach content and those that support classroom management or communication.
• Luis argues that creating content for teaching is complex and cannot be easily crowdsourced.
• The regulation of education and decentralized spending at district levels make it challenging to create scalable edtech tools.
• Different teaching methods across districts and countries add to the complexity of the edtech sector.

"Oh, we have spent years discussing this inside the company. I think there's a number of reasons."

Luis acknowledges the internal discussions at Duolingo about why edtech is considered a challenging industry.

"If you're going to decide to teach something, there is a big problem, which is I don't believe there's an easy way to do a really simple app where in some way, kind of, you crowdsource the teaching from one side to the other."

Luis points out the difficulty in creating an app that effectively facilitates teaching, as opposed to simply connecting users.

"I think another big difficulty is that education is regulated and it's tough. A lot of the money that is in education is to governments, and that's pretty tough because it's pretty decentralized."

Luis highlights the regulatory challenges and the decentralized nature of educational funding as significant hurdles for edtech companies.

• EdTech must compete with free and high-quality education systems in wealthier countries.
• To be competitive, an EdTech solution must be significantly better than existing school systems.
• Achieving a product that is ten times better than a good school system, like Switzerland's, is challenging.

"So if you make something and you want to compete with the school system, it's kind of hard. You have to do something that is ten times better than the school system."

This quote highlights the difficulty EdTech faces in distinguishing itself from established education systems, particularly in countries where schooling is both free and of high quality.

• AI and machine learning are seen as critical components in language education.
• Duolingo's goal is to replicate the effectiveness of one-on-one human tutoring through AI.
• Educational psychology studies, like the Bloom's two Sigma study, show that individual tutoring vastly outperforms traditional classroom learning.
• The challenge is scalability, as one-on-one tutoring is not feasible on a large scale.
• Duolingo is investing in AI to create a scalable solution that rivals personal tutoring.

"What I would like Duolingo to be is I would like Duolingo to be as effective as a one on one human tutor."

Luis von Ahn expresses the ambition for Duolingo to match the educational outcomes of personalized tutoring using AI, recognizing the substantial benefits of individualized instruction.

• Chatbots represent a potential paradigm shift in language learning due to the importance of conversational practice.
• A chatbot was launched by Duolingo to help users practice conversation, and it has been very successful.
• Chatbots may not be as disruptive in other areas of education, such as math, where conversation is not the primary focus.

"I think that's why chatbots and language learning are really natural for that to happen."

Luis von Ahn explains that chatbots are particularly suited for language learning since they provide an opportunity for conversational practice, which is a core element of language acquisition.

• Gamification has been a key factor in Duolingo's success and differentiation in language learning.
• Keeping users motivated is the most challenging aspect of self-directed learning.
• Duolingo aims to make its platform as addictive as possible to maintain high user retention.
• The company compares its retention metrics to those of popular games, not traditional education companies.
• Duolingo employs strategies from casino games to enhance addictiveness.

"So today, one of the things that I'm happiest about is with Duolingo, our user retention numbers are pretty similar to kind of. We compare ourselves to games."

Luis von Ahn discusses how Duolingo's user retention is comparable to that of successful games, reflecting the effectiveness of gamification strategies in keeping users engaged with the educational content.

• Duolingo tracks user retention metrics rigorously and compares them to gaming industry standards.
• The company has a team dedicated to making the platform addictive.
• Simple changes, like adding a notification icon, can significantly increase user engagement.
• Duolingo's competitors are seen as games rather than other educational platforms.

"We have a team whose job it is to make Duolingo addictive."

Luis von Ahn reveals that Duolingo has specialized teams focused on enhancing user engagement through addictive design elements, demonstrating the company's commitment to maintaining user interest and participation over time.

• A significant portion of users in wealthy countries engage with Duolingo as a form of guilt-free entertainment.
• Users prefer Duolingo over games like Candy Crush because they feel it's not a complete waste of time.
• Duolingo is seen as a productive alternative to other forms of procrastination.

"A pretty large fraction of our users, it's not quite 50%, but if you look at wealthy countries, it is close to 50% large fraction of our users. What their answer was was none of these. It was basically, I just don't want to completely waste my time."

The quote highlights that a substantial number of Duolingo users from affluent countries are motivated by the desire to use their time productively, rather than traditional reasons for language learning such as travel or family communication.

• Luis von Ahn discusses the transition from managing small teams to leading a larger company.
• He emphasizes the shift from doing tasks to motivating others to do them.
• Communication and ensuring everyone is aligned with the company's direction are now his main tasks.

"The first thing I had to do was stop micromanaging. That's the first thing I had to do. And then I had to really learn that my job is not actually doing the things that need to get done, but really motivating people to do the things that need to get done."

This quote explains Luis von Ahn's personal growth as a CEO, where he had to move away from micromanaging to focusing on motivating his team members and steering them towards common goals.

• Luis von Ahn shares his struggles with firing people, revealing the learning curve he experienced in this area.
• He also learned the significant impact his casual comments could have on the team's actions.

"The first person I fired inside Duolingo, I had to fire them four times because they didn't actually understand that they were being fired."

The quote illustrates the difficulty Luis von Ahn initially had with clear communication in difficult situations, such as firing an employee, and the importance of clarity in leadership roles.

• Duolingo adopts a "hire slow, fire slow" approach, being very selective during the hiring process.
• The company values giving new hires a chance and views hiring mistakes as a time sink.

"We're very picky at hiring. ... We would be able to have way more employees than we do now. But we're very careful with hiring because for us, we just think that hiring mistakes are just a huge time sink."

Luis von Ahn explains the company's cautious approach to hiring, prioritizing quality over quantity to avoid the costs associated with hiring mistakes.

• As Duolingo grew, Luis von Ahn realized the weight of his words and the unintended consequences of his offhand comments.
• He now takes care to clarify when his ideas are just suggestions and not directives.

"I have to be really careful when whatever I say, a lot of times I have to say, hey, I'm just going to say this. This does not mean that you guys need to start doing it or anything."

This quote reflects the increased responsibility that Luis von Ahn feels to communicate precisely, acknowledging that his role as CEO means his words can be interpreted as instructions even when they are not intended as such.

• Duolingo's recent funding round was different as they aimed to raise less money than offered.
• The funding serves as insurance and allows for faster hiring.

"We did not want to raise a lot of money. ... It's because we didn't think we needed more money."

Luis von Ahn discusses the rationale behind raising a smaller amount during the latest funding round, indicating a strategic decision based on the company's financial health and needs.

• Luis von Ahn observes a cyclical pattern of venture capital firms expressing interest in investing in Duolingo.
• Interest from venture firms tends to cluster within a short timeframe, leading to speculation about the cause.

"In a span of about two weeks, I hear from like twelve of them and they're all like, hey, I'd like to invest."

The quote captures the periodic and intense interest from venture capitalists that Duolingo experiences, suggesting that external tools or communication within the VC community might trigger these waves of interest.

• Duolingo was approached by multiple well-known firms.
• A board meeting was held to discuss the potential of accepting additional funding.
• Bing Gordon from Kleiner Perkins expressed interest in increasing the company's bank account by $25 million.
• Duolingo did not have an immediate need for the money but considered it beneficial to have additional funds.

"I wouldn't mind an extra $25 million in the bank account."

The quote from Bing Gordon indicates an openness to the idea of increasing the company's financial reserves, suggesting that having more capital could provide a safety net or allow for further investment opportunities.

• Drive Capital is not a Silicon Valley firm; it is based in the Midwest.
• The firm invests in category leaders, and Duolingo is seen as a leader in language learning.
• Drive Capital values companies in the Midwest, unlike many Silicon Valley firms.
• The firm was founded by former Sequoia employees who chose to focus on the Midwest for investments.

"Their investment thesis is category leaders that are located in the midwest."

This quote outlines Drive Capital's focus on investing in companies that are leaders in their respective categories and are based in the Midwest, which aligns with Duolingo's position as a category leader in language learning and its Pittsburgh location.

• Drive Capital does not view Duolingo's Pittsburgh location as a downside.
• The firm's team was described as A-plus by Duolingo.
• Silicon Valley investors often assume companies are local to them, leading to logistical misunderstandings.
• Drive Capital's different geographical focus is seen as a breath of fresh air.

"We're not there. So for most Silicon Valley investors, it's a downside that we're in Pittsburgh."

This quote reflects the common Silicon Valley-centric perspective of investors and highlights how Duolingo's location in Pittsburgh is often perceived as a disadvantage by them, whereas Drive Capital sees it as a positive factor.

• Luis von Ahn's favorite book from his teenage years is "Gödel, Escher, Bach" by Douglas Hofstadter.
• More recently, he found "High Output Management" by Andy Grove to be beneficial for his role as a CEO.
• "Gödel, Escher, Bach" introduced him to the basics of computing, while "High Output Management" provided practical management insights.

"I really liked high output management by Andy Grove, who was the CEO of intel."

The quote signifies the impact that "High Output Management" has had on Luis von Ahn, particularly in his development as a CEO, by offering him valuable management strategies and insights.

• Luis von Ahn has a precise 16-minute daily workout routine.
• The intensity of the workout requires additional time to recover.
• He believes in the importance of exercise but is constrained by time.

"I work out for precisely 16 minutes. And I basically 16, I started with ten and I kept on increasing until about 16."

This quote details Luis von Ahn's commitment to a daily workout routine, emphasizing the specific duration and gradual increase of his workout time to optimize his exercise within a limited schedule.

• Luis von Ahn regularly reads Fred Wilson's blog.
• He appreciates the content and opinions shared by Union Square Ventures, one of Duolingo's investors.

"I really like Fred Wilson's blog."

The quote reveals Luis von Ahn's preference for Fred Wilson's blog, suggesting it offers valuable insights or perspectives that resonate with him.

• Luis von Ahn wishes to see increased diversity in startups and venture capital firms.
• He acknowledges the challenge of societal and cultural change in achieving diversity.
• The lack of diversity is a widespread issue that affects tech companies and VC firms alike.

"Diversity. I would like startups and vcs to be more diverse."

This quote emphasizes Luis von Ahn's desire for a more inclusive and diverse startup and VC ecosystem, recognizing the benefits that diversity can bring to the industry.

• Duolingo aims to become a publicly traded company.
• The company's revenue growth is expected to justify going public potentially by 2019.
• Preparations are underway to reach this milestone.

"We want to be a publicly traded company."

This quote indicates Duolingo's strategic goal of going public, reflecting the company's confidence in its financial trajectory and long-term vision.

• Luis von Ahn is optimistic about Duolingo's future and its potential IPO.
• The episode concludes with a light-hearted mention of Luis's workout routine and an invitation for listeners to share their attempts at it.
• Acknowledgments are given to those who facilitated the interview.

"I'm hoping that in 2019 our revenues would justify a publicly traded company."

The quote provides a timeline for Duolingo's ambition to go public, suggesting that the company's revenue growth is on track to meet the criteria for an IPO within a specific timeframe.