With steady growth, Egnyte reaches $150M ARR and looks to future IPO

After 14 years, it’s hard to keep calling Egnyte a startup. It’s more a wily veteran private company with steady growth, one that might have taken 12 years to reach $100 million in ARR, but took just two more to reach $150 million. It could surpass $200 million this year, and Egnyte CEO and co-founder Vineet Jain says that its next milestone could be an IPO.

Like most CEOs he’s vague on the timing of such an event, but he believes that it’s coming at some point, possibly this year. Jain told TechCrunch that in the last year or two that he has had interest from companies wanting to take him public via a SPAC or private equity firms, who would feast on a SaaS company with 35%-40% growth, wanting to scoop him up, but that is not the direction he wants to take. He wants very badly to become a traditional public company whenever the timing is right.

“It’s mainly the macroeconomic conditions that can impact when you go public. If the market is frozen, it doesn’t matter what your financials are, but I am absolutely committed to going public,” he said. A big part of that is that he wants to pay back the people who have stood by him — early investors and employees who have patiently watched the company grow slowly, but steadily without taking short cuts.

There’s also a personal reason why he wants to do it. He says as an immigrant who came to the U.S. in 1993, he sees building a successful company that enters the public markets, as a huge milestone for him personally. “I still wear that immigrant chip on my shoulder. I want to take a company public. I want to put a stamp on the middle of my forehead to say this guy could take a company public after building it from scratch, and he built a great public company,” he said.

Jain has always taken pride in building a financially responsible company with steady growth, while avoiding the cash burn we have seen some companies spending to drive fast growth. And he says he is starting to see more alignment with that approach from investors, especially as we find ourselves in a more volatile market. “[More recently], I’m seeing a major shift where our fiscal prudence is getting more recognition than ever before.”

That includes a growth rate of 25% to 35% in the last five years, along with gross margins in the 70s and improving retention metrics, and the fact that three out of the last five years they’ve been cash flow positive.

“I’m building a fiscally responsible growth company. I’m not a high flier where I might start with 90% or 70% [growth that will] keep going down. My growth rate is accelerating ARR-wise, growing from 18% to 26% to 30%, and it’s going to go higher. That story is getting a lot of [attention],” he said.

Egnyte has been fueling its growth in recent years by adding a layer of security and governance tooling on top of its content storage and collaboration products on which the company was originally built. Over the last several years the company has found success with that combination, especially in three key verticals — life science, construction and financial services. Those three categories have been driving the company’s growth with a 3-year ARR compound annual growth rate of 59%, 29% and 24%, respectively.

He said for now he is not tempted to expand that vertical strategy beyond adding government vertical some time in the next year. He said they are working on achieving FedRamp certification ahead of that goal. There are also plans to create products designed specifically for these verticals to continue pushing the growth.

Egnyte is an unusual SaaS company. It has been built with slow and steady growth into a viable company with growing revenue that could hit $200 million in ARR this year. That kind of balanced and low-risk approach could prove attractive to public market investors whenever the company chooses to go public.

Adding three more companies to the $100M ARR club

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

When we kicked off our series on private companies that have reached $100 million ARR, we didn’t expect it to last. Maybe a piece or two, but nothing more. Today’s entry should bring us past the thirty company mark.

It was less than a month ago that we added eight names to the club in a single post (HeadSpin, UiPath, DigitalOcean, BounceX, Wrike, Aeris, Podium and Lucid), the latter two of which had recently raised capital, announcing their revenue milestones at the same time. This morning, we’re appending just three names, but pay attention all the same.

We joked in February that our running tally of growth-oriented, private companies that had reached $100 million in annual recurring revenue read like a list of firms that either could, or should go public in short order. Since then, the IPO market has largely closed in light of COVID-19, so I suppose we’re more adding to the backlog than queuing up companies for an S-1.

Either way, let’s talk about ActiveCampaign, Recorded Future, and ON24 this morning!

New names

We’ll start, then, with Recorded Future .

Recorded Future

Boston-based Recorded Future, a cybersecurity company focused on “threat intelligence,” announced that it crossed the $100 million ARR mark recently, making the firm a success story for its city. But as with so many companies that we add to our list, its inclusion is slightly fraught.

Monday.com surpassed $130M ARR before the remote-work boom

As efforts to flatten the spread of COVID-19 pushes employees from their offices, remote work is undergoing a surge in popularity.

Well-known remote-work friendly companies like Zoom have seen a rise in usage, while Slack has already reported that it is successfully converting new users into paying customers, which is pushing up its growth rate.

The pandemic is creating economic and social upheaval, but for a specific cohort of software companies that help distributed teams work together, it’s proven useful in business terms. But even before the outbreak of the novel coronavirus, execs from a standout project management company swung by TechCrunch HQ to chat with the Equity crew about their business and growth: Monday.com. 

What does an interview with Monday.com’s Eran Zinman (co-founder and CTO) and Roy Mann (CEO) have to do with COVID-19? Well, if remote-productivity-friendly services Slack and Zoom are seeing usage spikes amidst the changes, Monday.com is likely benefiting from similar gains. And during our chat with the company’s brass, the pair told TechCrunch that their company had crossed the $130 million annual recurring revenue (ARR) mark by mid-February. Add in a COVID-19 usage boost and perhaps Monday.com (which doesn’t have a free tier) is seeing its growth accelerate.

Previously, Monday.com announced that it had reached the $120 million ARR mark, and TechCrunch had inducted it into the $100 million ARR club earlier this year.

Revenue expansion was not our only topic. We also chatted with the pair of execs about customer acquisition costs and how to a run a SaaS business without terrifying burn. The Monday.com crew had more news up their sleeve, like when they expect the unicorn to become cash-flow positive. 

We’ve excised a larger-than-usual chunk of the interview for sharing as there’s a lot to take in:

After the jump, we dig a bit deeper into the obvious IPO candidate

New York’s BounceX reaches $100M ARR, rebrands

Welcome to the $100 million ARR club, BounceX.

This morning (evening, timezone depending), BounceX, a New York-based marketing technology startup, announced that it has reached the $100 million annual recurring revenue (ARR) threshold, adding its name to our running list of companies that have crossed over into nine-figure revenue while remaining private.

BounceX also announced a name change to Wunderkind, a move that its CEO Ryan Urban told TechCrunch signaled “a new chapter” for the firm. Summarizing the executive’s comments: After seven years in business and quite a lot of work building out its product line and revenue base, BounceX wants to think of itself as something more than merely another SaaS company; the name Wunderkind, in his view, demands that what they create “has to be extraordinary,” fitting into the idea.

Normally we’d gently tease such plainly stated aspirations, but with $100 million in ARR and a history of efficient growth behind the goal, we won’t. Instead, let’s talk about what the company does, and how it has grown to the size that it has.

What’s a BounceX?

I’ll spare you the details and explain what the company does without buzzwords, as best I can.

It starts with Web traffic. Everyone has it. But often you, an online retailer, don’t know who is coming to your website. BounceX (Wunderkind) can help you figure that out, matching anonymous web traffic to email addresses. Now you know some of the folks coming to your site, and how to reach them. Next, Wunderkind can help you send those identified folks targeted emails that match what is known about that person, or email address. The result of all this work is material revenue scale — the company claims that its technology boosts “behaviorally triggered emails to over 9%, on average, of a retailer’s digital revenue.”

For those doing the math at home, 9% is a lot.

All this works out for Wunderkind as well, with its ability to help companies drive revenue assisting it in landing deals. The company closes new customers pretty efficiently, with Urban telling TechCrunch that his company’s CAC-to-LTV ratio is “is probably the highest in [its] industry,” and has “been going up over time.”

How does it do that? By the company having what it called “really high [deal] close rates.” Fine, but how does the tech drive the company’s close rate? By promising results and cutting itself off if it fails.

Wunderkind runs short-term pilots with potential customers, say four months long. The company will only move to a more traditional SaaS contract if it sufficiently drives revenue for the potential customer. According to Urban, “90 to 95% of the time” his company “deliver[s] the guaranteed revenue.”

And the customer converts, voila!

This method of snagging customers led to Wunderkind having some pretty stellar SaaS metrics. Picking one from TechCrunch’s call with the CEO, “a lot of [Wunderkind sales] reps have north of $3 million quotas a year and they hit,” he said, meaning that they meet that high expectation.

So what?

You can probably see where this is going: What happens when a company has a very strong customer value to customer acquisition cost structure, and a very efficient sales team? It doesn’t burn a lot of capital. Unsurprisingly, Wunderkind has been super efficient to date, with Urban telling TechCrunch that “the amount of equity [his company has] actually put to work is probably sub-$35 million,” with less than $50 million in equity capital raised. The company also has debt lines that it can use, the CEO noted.

Getting from $0 in ARR to $100 million while spending around $35 million in equity-sourced funds is pretty bonkers, but perhaps even more nuts is the fact that, per the CEO, Wunderkind got through its first four years on $1.5 million in external money. Urban chalked the low-burn results to the founding team and early employees having experience working with one another, and building features “purely focused on improving experience [and] driving revenue.”

That’s enough for now, we’ll write about the company more when it reaches its next ARR threshold, executes a secondary transaction to put off an IPO, or files. The lesson from today is that it’s possible to build a SaaS company to-scale with far less revenue than I thought possible. Anyhoo, Wunderkind joins the $100 million ARR cadre with what I think is the second-best result in terms of efficient growth. Only boostrapped Cloudinary has cleaner metrics, though with a smaller ARR total for now.

For more on the $100 million ARR club, you can check out this and this to read about other companies that have been inducted this year.

DigitalOcean raises $100M in debt as it scales toward revenue of $300M, profitability

DigitalOcean, a cloud infrastructure provider targeting smaller business and younger companies, announced today that it has secured $100 million in new debt from a group of investors, bringing its 2016-era debt raise to a total of around $300 million. The company’s nearly $200 million debt raise in 2016 was preceded by an $83 million Series B in 2015.

TechCrunch spoke with DigitalOcean’s CEO Yancey Spruill (hired in 2019, along with a new, IPO-experienced CFO; the company added a new CMO earlier this year) to get under the skin of the new funding, and better understand the company’s revenue scale, its financial health and its future IPO plans.

The firm intends to use the new funds to invest in partnerships, boost product investment and grow what its CEO called an “early-stage” inside sales capacity.

For readers of our regular $100 million ARR club series, consider this something of a sister post. We’ll induct DigitalOcean later on. Today, let’s focus on the company’s momentum, and its choice of selecting debt over equity-derived fundraising.

Contextual growth

DigitalOcean is a large private company in revenue terms, with the former startup reporting an annualized run rate of $200 million in 2018 and $250 million toward the end of 2019. According to Spruill, all the company’s revenue is recurring, so we can treat those figures as effective annual recurring revenue (ARR) results.

Sticking to the financial realm, DigitalOcean told TechCrunch that it has a mid-20s percentage growth rate, and the company claims that its EBITDA (an adjusted profit metric) are in the low 20s. Citing a “strategy over the next several years to continue to focus very specifically on the SMB and developer communities,” Spruill told TechCrunch that DigitalOcean will scale to $1 billion in revenue in the next five years, and it will become free cash flow profitable (something the CEO also referred to, loosely, as profitability) in the next two.

All that and the company expects to reach a $300 million annualized run rate inside the first half of 2020. How has it done all of that without raising new capital since it put roughly $200 million in debt onto its book back in 2016? A good question. Let’s talk about DigitalOcean’s economics.

Economic efficiency

DigitalOcean has a pretty efficient go-to-market motion, which in human terms means that it can attract new customers at relatively low costs. It does this, per the CEO, by attracting millions of folks (around four million, he said) to its website each month. Those turn into tens of thousands of new customers.

Because DigitalOcean is a self-serve SaaS business, folks can show up and get started without hand-holding from sales. Sales cycles are expensive and slow. But, while allowing small companies to sign up on their own sounds attractive, companies that often lean on this acquisition method struggle with churn. So, I asked Spruill about that, specifically digging into customer churn via graduation, the pace at which customers that joined DigitalOcean as small companies left it for other players like Azure and AWS as they themselves grew (quote slightly condensed for readability):

Like any self-serve, early-stage, or SMB-focused business, [the] first three to four months is critical for [customers]. But when you look at our customer base over time — we look at every cohort of the eight year history of our company — all of our cohorts have grown each year, and our churn, which is what [your graduation rate] question is, do customers leave our platform, is de minimis after customers have been on our platform for a year or more.

So it doesn’t appear that churn is a catastrophe at DigitalOcean, which gives it what I’d call pretty attractive economics: Customers come in at relatively low customer acquisition costs, and with churn slipping very low after an initial quarter or so, the company can extract gross margin from those customers for quite some time. What does it do with that cash? It reinvests it. Here’s how Spruill explained that process:

The high retention rates of the customers and the strong revenue growth enable cash flow to support the growth and investment of the business and paying and supporting the debt. And when you think about the dilution, when you think about a business at our size and scale — the roughly $400 million of capital raised is probably the right proxy, if you look at our peers and our size and stage of company development — most of them the vast majority of the capital is equity. In our case, only a quarter of the capital, a little over quarter the capital is equity. So we’re going to use the cash flow leverage of the business to drive enormous returns to the equity in terms of not taking on that significant dilution, and still being able to grow the business in a in a responsible and exciting way.

The chorus sound effect you are hearing in the background are the company’s early-stage investors rejoicing at DigitalOcean not selling more shares to grow, concentrating the value-upside to existing shares. Shares that they own a lot of.

So let’s sum quickly: DigitalOcean is working to carve out an SMB and developer-focused cloud infra niche, keeping its economics in a good place by using low-CAC, self-serve revenue generation. The margins from that are paying for the company’s development, and its overall economics are good enough to allow it to leverage debt to invest in itself instead of equity. Overall, not what I expected to hear this morning, but that’s the fun part of news.

What’s in the future? Probably not an IPO any time soon. The company just raised more debt, money that it probably intends to use before debuting. The CEO told TechCrunch that “the IPO option for DigitalOcean is on the table,” going on to cite his company’s growth, growth rate, operating margins, “soon-to-be free cash flow margins” and scale as allowing the upstart “to have the conversation that this is a company that could go public.”

Next, adding DigitalOcean to the $100 million ARR club, and then I fancy a few more revenue milestones until an eventual S-1.

The $100M ARR club welcomes four new members

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

Today we’re adding a few names to the $100 million annual recurring revenue (ARR) club. The new entrants come after we kicked off 2020 with a previous four new members. So far in January, we’ve also highlighted SiteMinder’s $70 million ARR and expected ramp to $100 million, Cloudinary’s $60 million ARR sans venture capital and Seattle’s ExtraHop, which expects to reach $100 million ARR this year.

The $100 million ARR club, in case you’re just joining us today, is a list of yet-private companies that have either reached the $100 million ARR mark, or are close to reaching it and have plans to crest the threshold in short order. The goal of writing and publishing the list is to provide a non-valuation lens through which we can view the private market’s leading constituents. Revenue milestones matter more than valuation bumps.

This morning we’re digging into MetroMile, Tricentis, Kaltura and Diligent (with a caveat). Let’s begin!