Jan
15
2020
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Cloudinary passes $60M ARR without VC money

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

Today we’re continuing our exploration of companies that have reached material scale, usually viewed through the lens of annual recurring revenue (ARR). We’ve looked at companies that have reached the $100 million ARR mark and a few that haven’t quite yet, but are on the way.

Today, a special entry. We’re looking at a company that isn’t yet at the $100 million ARR mark. It’s 60% of the way there, but with a twist. The company is bootstrapped. Yep, from pre-life as a consultancy that built a product to fit its own needs, Cloudinary is cruising toward nine-figure recurring revenue and an IPO under its own steam.

Jan
09
2020
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How some founders are raising capital outside of the VC world

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

Today, we’re exploring fundraising from outside the venture world.

Founders looking to raise capital to power their growing companies have more options than ever. Traditional bank loans are an option, of course. As is venture capital. But between the two exists a growing world of firms and funds looking to put capital to work in young companies that have growing revenues and predictable economics.

Firms like Clearbanc are rising to meet demand for capital with more risk appetite than a traditional bank looking for collateral, but less than an early-stage venture firm. Clearbanc offers growth-focused capital to ecommerce and consumer SaaS companies for a flat fee, repaid out of future revenues. Such revenue-based financing is becoming increasingly popular; you could say the category has roots in the sort of venture debt that groups like Silicon Valley Bank have lent for decades, but there’s more of it than ever and in different flavors.

While revenue-based financing, speaking generally, is attractive to SaaS and ecommerce companies, other types of startups can benefit from alt-capital sources as well. And, some firms that disburse money to growing companies without an explicit equity stake are finding a way to connect capital to them.

Today, let’s take a quick peek at three firms that have found interesting takes on providing alternative startup financing: Earnest Capital with its innovative SEAL agreement, RevUp Capital, which offers services along with non-equity capital, and Capital, which both invests and loans using its own proprietary rubric.

After all, selling equity in your company to fund sales and marketing costs might not be the most efficient way to finance growth; if you know you are going to get $3 out from $1 in spend, why sell forever shares to do so?

Your options

Before we dig in, there are many players in what we might call the alt-VC space. Lighter Capital came up again and again in emails from founders. Indie.vc has its own model that is pretty neat as well. In honor of starting somewhere, however, we’re kicking off with Earnest, RevUp and Capital. We’ll dive into more players in time. (As always, email me if you have something to share.)

Dec
24
2019
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Public investors loved SaaS stocks in 2019, and startups should be thankful

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

Today, something short. Continuing our loose collection of looks back of the past year, it’s worth remembering two related facts. First, that this time last year SaaS stocks were getting beat up. And, second, that in the ensuing year they’ve risen mightily.

If you are in a hurry, the gist of our point is that the recovery in value of SaaS stocks probably made a number of 2019 IPOs possible. And, given that SaaS shares have recovered well as a group, that the 2020 IPO season should be active as all heck, provided that things don’t change.

Let’s not forget how slack the public markets were a year ago for a startup category vital to venture capital returns.

Last year

We’re depending on Bessemer’s cloud index today, renamed the “BVP Nasdaq Emerging Cloud Index” when it was rebuilt in October. The Cloud Index is a collection of SaaS and cloud companies that are trackable as a unit, helping provide good data on the value of modern software and tooling concerns.

If the index rises, it’s generally good news for startups as it implies that investors are bidding up the value of SaaS companies as they grow; if the index falls, it implies that revenue multiples are contracting amongst the public comps of SaaS startups.*

Ultimately, startups want public companies that look like them (comps) to have sky-high revenue multiples (price/sales multiples, basically). That helps startups argue for a better valuation during their next round; or it helps them defend their current valuation as they grow.

Given that it’s Christmas Eve, I’m going to present you with a somewhat ugly chart. Today I can do no better. Please excuse the annotation fidelity as well:

Dec
19
2019
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Extra Crunch members get 25% off Otter.ai voice meeting notes

Extra Crunch community perks have a new offer from voice meeting notes service, Otter.ai. Starting today, annual and two-year Extra Crunch members can receive 25% off an annual plan for Otter Premium or Otter for Teams.

Otter.ai is an AI-powered assistant that generates rich notes from meetings, interviews, lectures and other voice conversations. You can record, review, search and edit the notes in real time, and organize the conversations from any device. We also use Otter.ai regularly here at TechCrunch to produce transcripts and voice notes from panels at our events, and it’s a great way to easily organize and search the conversations. Learn more about Otter.ai here

To qualify for the Otter.ai community perk from Extra Crunch, you must be an annual or two-year Extra Crunch member. The 25% discount only applies to annual plans with Otter.ai, but it can be used for either the Premium or Teams plan. You can learn more about the pricing for Otter.ai here, and you can sign up for Extra Crunch here.

Extra Crunch is a membership program from TechCrunch that features how-tos and interviews on company building, intelligence on the most disruptive opportunities for startups, an experience on TechCrunch.com that’s free of banner ads, discounts on TechCrunch events and several community perks like the one mentioned in this article. Our goal is to democratize information about startups, and we’d love to have you join our community.

You can sign up for Extra Crunch here.

After signing up for an annual or two-year Extra Crunch membership, you’ll receive a welcome email with a link to sign up for Otter.ai and claim the discount. Otter.ai offers a free plan with capped minutes, and if you are interested in unlocking the full potential, you can purchase the annual plan with the 25% discount.

If you are already an annual or two-year Extra Crunch member, you will receive an email with the offer at some point over the next 24 hours. If you are currently a monthly Extra Crunch subscriber and want to upgrade to annual in order to claim this deal, head over to the “my account” section on TechCrunch.com and click the “upgrade” button.

This is one of several community perks we’ve launched for Extra Crunch annual members. Other community perks include a 20% discount on TechCrunch events, 100,000 Brex rewards points upon credit card sign up and an opportunity to claim $1,000 in AWS credits. For a full list of perks from partners, head here.

If there are other community perks you want to see us add, please let us know by emailing travis@techcrunch.com.

Sign up for an annual Extra Crunch membership today to claim this community perk. You can purchase an annual Extra Crunch membership here.

Disclaimer:

This offer is provided as a business partnership between TechCrunch and Otter.ai, but it is not an endorsement from the TechCrunch editorial team. TechCrunch’s business operations remain separate to ensure editorial integrity. 

Dec
18
2019
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Three SaaS companies we think will make it to $1B in revenue

What’s the most successful pure SaaS company of all time? The answer is Salesforce, and it’s no contest — the company closed the year on an $18 billion run rate, placing it in a category no other company born in the cloud can touch.

That Salesforce is on such an impressive run rate might suggest that reaching a billion in revenue is a fairly easy proposition for an enterprise SaaS company, but firms in this category grow or drive revenue like Salesforce. Some, in fact, find themselves growing much more slowly than anyone thought, but keep slugging it out as they inch steadily toward the $1 billion mark. This happens to public and private SaaS companies alike, which means that we can look at few public ones thanks to their regular earnings disclosures.

It’s a good time to look back at the year and analyze a few firms that should reach the mythical $1 billion in revenue at some point. Today we’re examining Zuora, a SaaS player focused on building and managing subscription-based services. GuideWire, a company transitioning to SaaS with big ambitions and Box, a well-known SaaS player caught somewhere between big and a billion.

Zuora: betting on SaaS

We’ll start with the smallest company that caught our eye, Zuora . We’ll proceed from here going up in revenue terms.

Zuora is as pure a SaaS company as you can imagine. The San Mateo-based company raised nearly a quarter billion dollars while private to build out the technology that other companies use to help build their own subscription-based businesses. To some degree, Zuora’s success can be viewed as a proxy for SaaS as a whole.

However, while SaaS has chugged along admirably, Zuora has seen its share price fall by more than half in recent quarters.

At issue is the firm’s slowing growth:

  • In the quarter detailed on March 21, 2019, Zuora’s subscription revenue growth slowed to 35% compared to the prior year period. Total revenue growth grew an even slower at 29%.
  • In the quarter announced on May 30, 2019, Zuora’s subscription revenue grew 32% while its total revenue expanded 22%.
  • Moving forward in time, the company’s quarter reported on August 28, 2019 saw subscription revenue growth of 24% and total revenue growth of 21% compared to the year-ago quarter.
  • Finally, in its most recent quarterly report earlier this month, Zuora reported marginally better 25% subscription revenue growth, but slower total revenue growth of 17%.

Why is Zuora’s growth slowing? There’s no single reason to point out. Reading through coverage of the firm’s earnings report reveals a number of issues that the company has dealt with this year, including slow sales rep ramp and some technology complaints. Add in Stripe’s meteoric rise (the unicorn added tools for subscription billing in 2018, expanding the product to Europe earlier this year) and you can see why Zuora has had a tough year.

Adding to its difficulties, the company has lost more money while its growth has slowed. Zuora’s net loss expanded from $53.6 million in the three calendar quarters of 2018. That rose to $59.9 million over the same period in 2019. But the news is not all bad.

In spite of these numbers, Zuora is still growing; the company expects around $276 to $278 million in revenue in its current fiscal year and between $206 and $207 million in subscription top-line revenue over the same period.

At the revenue growth pace set in its most recent quarter (17% in the third quarter of its fiscal 2020) the company is eight years from reaching $1 billion in revenue. However, Zuora’s rising subscription growth rate in the same period is very encouraging. And, the company’s cash burn is declining. Indeed, in the most recent quarter Zuora’s operations generated cash. That improvement led to the firm’s free cash flow improving by half in the first three calendar quarters of 2019.

It also has pedigree on its side. Founder and CEO Tien Tzuo was employee number 11 at Salesforce when the company launched in 1999. He left the company in 2007 to start Zuora after realizing that traditional accounting methods designed to account for selling a widget wouldn’t work in the subscription world.

Zuora’s subscription revenue is high-margin, but the rest of its revenue (services, mostly) is not. So, with less thirst for cash and modestly improving subscription revenue growth, Zuora is still on the path towards the next revenue threshold despite a rough past year.

Guidewire: going SaaS the hard way

Dec
12
2019
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Why Bill.com didn’t pursue a direct listing

Bill.com went public today after pricing its shares higher than it initially expected. The B2B payments company sold nearly 10 million shares at $22 apiece, raising around $216 million in its IPO. Public investors felt that the company’s price was a deal, sending the value of its equity to $35.51 per share as of the time of writing.

That’s a gain of over 61%.

On the heels of its successful pricing run and raucous first day’s trading, TechCrunch caught up with Bill.com CEO René Lacerte to dig into his company’s debut. We wanted to know how pricing went, and whether the company (which possibly could have valued itself more richly during its IPO pricing, given its first-day pop) had considered a direct listing.

Lacerte detailed what resonated with investors while pricing Bill.com’s shares, and also did a good job outlining his perspective on what matters for companies that are going public. As a spoiler, he wasn’t super focused on the company’s first-day return.

For more on the Bill.com IPO’s nuts and bolts, head here. Let’s get into the interview.

René Lacerte

The following interview has been edited for length and clarity. Questions have been condensed.

TechCrunch: How did your IPO pricing feel, and what did you learn from the process?

Lacerte: I think the whole experience has been an incredible learning experience from a capitalism perspective; that’s probably a broader conversation. But you know, it really came down to how our story resonated with investors, and so there’s three components that we kind of really talked to folks about.

Nov
27
2019
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Box looks to balance growth and profitability as it matures

Prevailing wisdom states that as an enterprise SaaS company evolves, there’s a tendency to sacrifice profitability for growth — understandably so, especially in the early days of the company. At some point, however, a company needs to become profitable.

Box has struggled to reach that goal since going public in 2015, but yesterday, it delivered a mostly positive earnings report. Wall Street seemed to approve, with the stock up 6.75% as we published this article.

Box CEO Aaron Levie says the goal moving forward is to find better balance between growth and profitability. In his post-report call with analysts, Levie pointed to some positive numbers.

“As we shared in October [at BoxWorks], we are focused on driving a balance of long-term growth and improved profitability as measured by the combination of revenue growth plus free cash flow margin. On this combined metric, we expect to deliver a significant increase in FY ’21 to at least 25% and eventually reaching at least 35% in FY ’23,” Levie said.

Growing the platform

Part of the maturation and drive to profitability is spurred by the fact that Box now has a more complete product platform. While many struggle to understand the company’s business model, it provides content management in the cloud and modernizing that aspect of enterprise software. As a result, there are few pure-play content management vendors that can do what Box does in a cloud context.

Nov
26
2019
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Vivun snags $3M seed round to bring order to pre-sales

Vivun, a startup that wants to help companies keep better track of pre-sales data announced a $3 million seed round today led by Unusual Ventures, the venture firm run by Harness CEO Jyoti Bansal.

Vivun founder and CEO Matt Darrow says that pre-sales team works more closely with the customer than anyone else, delivering demos and proof of concepts, and generally helping sales get over the finish line. While sales has CRM to store knowledge about the customer, pre-sales has been lacking a tool to track info about their interactions with customers, and that’s what his company built.

“The main problem that we solve is we give technology to those pre-sales leaders to run and operate their teams, but then take those insights from the group that knows more about the technology and the customer than anybody else, and we deliver that across the organization to the product team, sales team and executive staff,” Darrow explained.

Darrow is a Zuora alumni, and his story is similar to that company’s founder Tien Tzuo, who built the first billing system for Salesforce, then founded Zuroa to build a subscription billing system for everyone else. Similarly, Darrow built a pre-sales tool for Zuroa after finding there wasn’t anything else out there that was devoted specifically to tracking that kind of information.

“At Zuora, I had to build everything from scratch. After the IPO, I realized that this is something that every tech company can take advantage of because every technology company will really need this role to be of high value and impact,” he said.

The company not only tracks information via a mobile app and browser tool, it also has a reporting dashboard to help companies understand and share the information the pre-sales team is hearing from the customer. For example, they might know that x number of customers have been asking for a certain feature, and this information can be organized and passed onto other parts of the company.

Screenshot: Vivun

Bansal, who was previously CEO and co-founder at AppDynamics, a company he sold to Cisco for $3.7 billion just before its IPO in 2017, saw a company filling a big hole in the enterprise software ecosystem. He is not just an investor, he’s also a customer.

“To be successful, a technology company needs to understand three things: where it will be in five years, what its customers need right now, and what the market wants that it’s not currently providing. Pre-sales has answers to all three questions and is a strategically important department that needs management, analytics, and tools for accelerating deals. Yet, no one was making software for this critical department until Vivun,” he said in a statement.

The company was founded in 2018 and has been bootstrapped until now. It spent the first year building out the product. Today, the company has 20 customers including SignalFx (acquired by Splunk in August for $1.05 billion) and Harness.

Nov
21
2019
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Linear takes $4.2M led by Sequoia to build a better bug tracker and more

Software will eat the world, as the saying goes, but in doing so, some developers are likely to get a little indigestion. That is to say, building products requires working with disparate and distributed teams, and while developers may have an ever-growing array of algorithms, APIs and technology at their disposal to do this, ironically the platforms to track it all haven’t evolved with the times. Now three developers have taken their own experience of that disconnect to create a new kind of platform, Linear, which they believe addresses the needs of software developers better by being faster and more intuitive. It’s bug tracking you actually want to use.

Today, Linear is announcing a seed round of $4.2 million led by Sequoia, with participation also from Index Ventures and a number of investors, startup founders and others that will also advise Linear as it grows. They include Dylan Field (Founder and CEO, Figma), Emily Choi (COO, Coinbase), Charlie Cheever (Co-Founder of Expo & Quora), Gustaf Alströmer (Partner, Y Combinator), Tikhon Berstram (Co-Founder, Parse), Larry Gadea (CEO, Envoy), Jude Gomila (CEO, Golden), James Smith (CEO, Bugsnag), Fred Stevens-Smith (CEO, Rainforest), Bobby Goodlatte, Marc McGabe, Julia DeWahl and others.

Cofounders Karri Saarinen, Tuomas Artman, and Jori Lallo — all Finnish but now based in the Bay Area — know something first-hand about software development and the trials and tribulations of working with disparate and distributed teams. Saarinen was previously the principal designer of Airbnb, as well as the first designer of Coinbase; Artman had been staff engineer and architect at Uber; and Lallo also had been at Coinbase as a senior engineer building its API and front end.

“When we worked at many startups and growth companies we felt that the tools weren’t matching the way we’re thinking or operating,” Saarinen said in an email interview. “It also seemed that no-one had took a fresh look at this as a design problem. We believe there is a much better, modern workflow waiting to be discovered. We believe creators should focus on the work they create, not tracking or reporting what they are doing. Managers should spend their time prioritizing and giving direction, not bugging their teams for updates. Running the process shouldn’t sap your team’s energy and come in the way of creating.”

Linear cofounders (from left): KarriSaarinen, Jori Lallo, and Tuomas Artma

All of that translates to, first and foremost, speed and a platform whose main purpose is to help you work faster. “While some say speed is not really a feature, we believe it’s the core foundation for tools you use daily,” Saarinen noted.

A ?K command calls up a menu of shortcuts to edit an issue’s status, assign a task, and more so that everything can be handled with keyboard shortcuts. Pages load quickly and synchronise in real time (and search updates alongside that). Users can work offline if they need to. And of course there is also a dark mode for night owls.

The platform is still very much in its early stages. It currently has three integrations based on some of the most common tools used by developers — GitHub (where you can link Pull Requests and close Linear issues on merge), Figma designs (where you can get image previews and embeds of Figma designs), and Slack (you can create issues from Slack and then get notifications on updates). There are plans to add more over time.

We started solving the problem from the end-user perspective, the contributor, like an engineer or a designer and starting to address things that are important for them, can help them and their teams,” Saarinen said. “We aim to also bring clarity for the teams by making the concepts simple, clear but powerful. For example, instead of talking about epics, we have Projects that help track larger feature work or tracks of work.”

Indeed, speed is not the only aim with Linear. Saarinen also said another area they hope to address is general work practices, with a take that seems to echo a turn away from time spent on manual management and more focus on automating that process.

“Right now at many companies you have to manually move things around, schedule sprints, and all kinds of other minor things,” he said. “We think that next generation tools should have built in automated workflows that help teams and companies operate much more effectively. Teams shouldn’t spend a third or more of their time a week just for running the process.”

The last objective Linear is hoping to tackle is one that we’re often sorely lacking in the wider world, too: context.

“Companies are setting their high-level goals, roadmaps and teams work on projects,” he said. “Often leadership doesn’t have good visibility into what is actually happening and how projects are tracking. Teams and contributors don’t always have the context or understanding of why they are working on the things, since you cannot follow the chain from your task to the company goal. We think that there are ways to build Linear to be a real-time picture of what is happening in the company when it comes to building products, and give the necessary context to everyone.”

Linear is a late entrant in a world filled with collaboration apps, and specifically workflow and collaboration apps targeting the developer community. These include not just Slack and GitHub, but Atlassian’s Trello and Jira, as well as Asana, Basecamp and many more.

Saarinen would not be drawn out on which of these (or others) that it sees as direct competition, noting that none are addressing developer issues of speed, ease of use and context as well as Linear is.

“There are many tools in the market and many companies are talking about making ‘work better,’” he said. “And while there are many issue tracking and project management tools, they are not supporting the workflow of the individual and team. A lot of the value these tools sell is around tracking work that happens, not actually helping people to be more effective. Since our focus is on the individual contributor and intelligent integration with their workflow, we can support them better and as a side effect makes the information in the system more up to date.”

Stephanie Zhan, the partner at Sequoia whose speciality is seed and Series A investments and who has led this round, said that Linear first came on her radar when it first launched its private beta (it’s still in private beta and has been running a waitlist to bring on new users. In that time it’s picked up hundreds of companies, including Pitch, Render, Albert, Curology, Spoke, Compound and YC startups including Middesk, Catch and Visly). The company had also been flagged by one of Sequoia’s Scouts, who invested earlier this year

Sequoia Logo Natalie Miyake

Although Linear is based out of San Francisco, it’s interesting that the three founders’ roots are in Finland (with Saarinen in Helsinki this week to speak at the Slush event), and brings up an emerging trend of Silicon Valley VCs looking at founders from further afield than just their own back yard.

“The interesting thing about Linear is that as they’re building a software company around the future of work, they’re also building a remote and distributed team themselves,” Zahn said. The company currently has only four employees.

In that vein, we (and others, it seems) had heard that Sequoia — which today invests in several Europe-based startups, including Tessian, Graphcore, Klarna, Tourlane, Evervault  and CEGX — has been considering establishing a more permanent presence in this part of the world, specifically in London.

Sources familiar with the firm, however, tell us that while it has been sounding out VCs at other firms, saying a London office is on the horizon might be premature, as there are as yet no plans to set up shop here. However, with more companies and European founders entering its portfolio, and as more conversations with VCs turn into decisions to make the leap to help Sequoia source more startups, we could see this strategy turning around quickly.

Nov
13
2019
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Freshworks raises $150M Series H on $3.5B valuation

Freshworks, a company that makes a variety of business software tools, from CRM to help-desk software, announced a $150 million Series H investment today from Sequoia Capital, CapitalG (formerly Google Capital) and Accel on a hefty $3.5 billion valuation. The late-stage startup has raised almost $400 million, according to Crunchbase data.

The company has been building an enterprise SaaS platform to give customers a set of integrated business tools, but CEO and co-founder Girish Mathrubootham says they will be investing part of this money in R&D to keep building out the platform.

To that end, the company also announced today a new unified data platform called the “Customer-for-Life Cloud” that runs across all of its tools. “We are actually investing in really bringing all of this together to create the “Customer-for-Life Cloud,” which is how you take marketing, sales, support and customer success — all of the aspects of a customer across the entire life cycle journey and bring them to a common data model where a business that is using Freshworks can see the entire life cycle of the customer,” Mathrubootham explained.

While Mathrubootham was not ready to commit to an IPO, he said they are in the process of hiring a CFO and are looking ahead to one day becoming a public company. “We don’t have a definite timeline. We want to go public at the right time. We are making sure that as a company that we are ready with the right processes and teams and predictability in the business,” he said.

In addition, he says he will continue to look for good acquisition targets, and having this money in the bank will help the company fill in gaps in the product set should the right opportunity arise. “We don’t generally acquire revenue, but we are looking for good technology teams both in terms of talent, as well as technology that would help give us a jumpstart in terms of go-to-market.” It hasn’t been afraid to target small companies in the past, having acquired 12 already.

Freshworks, which launched in 2010, has almost 2,500 employees, a number that’s sure to go up with this new investment. It has 250,00 customers worldwide, including almost 40,000 paying customers. These including Bridgestone Tires, Honda, Hugo Boss, Toshiba and Cisco.

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