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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.)

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2019 2020 Cloud Enterprise Exit Fundings & Exits SaaS Startups TC unicorns

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:

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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. 

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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

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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.