Zendesk’s latest problem is an activist investor

Zendesk has been having some issues with its investors lately.

Last month, it turned down a $17 billion takeover offer from a consortium of private equity investors, saying the deal undervalued the company. Later in the month, unhappy investors rejected the company’s $4.1 billion acquisition offer for the parent company of SurveyMonkey, Momentive.

That’s a lot of turbulence for any company to be dealing with in such a short time, but yesterday, activist investor Jana Partners, which owns 2.5% of the company’s stock, piled on with an SEC filing that wasn’t terribly friendly.

In a no-holds-barred filing, the firm put Zendesk management on notice that it wasn’t pleased at all, and said it was nominating four candidates for election to Zendesk’s board of directors at the company’s 2022 shareholder meeting.

“We believe the Zendesk Board of Directors’ (the “Board”) misguided attempt to acquire Momentive Global Inc. (“Momentive”) exposed the Board’s blatant disregard for stockholders and ongoing failures of oversight. Absent meaningful change to the Board, we believe Zendesk will fail to achieve its potential and suffer a persistent valuation discount – with stockholders left paying the price,” Jana wrote in the filing.

Jana’s filing comes after a slew of public letters and a presentation in which it questioned the Momentive deal and urged Zendesk management to cancel the acquisition.

At the time of the $17 billion takeover offer, we ran an analysis of Zendesk’s financials. Momentive, in spite of investor objections, would have sped up growth, but even without it, the company was on track to do just fine, so much so that $17 billion seemed like a low-ball offer.

Our argument was simple: The offer to buy the company was worth a somewhat-slim 30% premium on its market value, and with accelerating revenue growth in recent quarters, Zendesk had a credible growth story under its belt.

Seed is not the new Series A

The incredible success of the cloud business applications space in recent years has driven up valuations and fundraising across all stages of venture investment. That has in turn increased VC fund sizes, led to massive cloud IPOs and brought a new cadre of investors to further fuel the fire.

The median Series A raised by cloud companies these days is about $8 million and can often go well above $10 million, according to PitchBook data from the first quarter of 2021. Series Cs now routinely include secondary capital for founders, and many Series Ds are above $100 million with valuations in the billions.

There is a widening gap in the funding continuum between angel/seed funding at inception and the new-age $10 million Series A at $2 million in ARR.

Such an influx of capital and interest has upended many structures and long-held norms about how startups are funded. Venture funds continue to grow and must write larger checks, but ever-higher valuations force many firms to hunt for opportunities earlier. The VC alphabet soup has been spilled, making A rounds look like Bs used to, and the Bs seem like the Cs of old.

Which begs an interesting question: Is the seed round the new Series A?

We don’t think so.

Seed rounds have certainly grown — averaging about $3 million nowadays from around $1 million to $2 million previously — but otherwise, seed investments are the same as before and remain very different from Series As.

Our favorite companies from Y Combinator’s W21 Demo Day: Part 2

We’ve reached the end of Y Combinator’s biggest Demo Day, which saw more than 300 companies pitching back-to-back over eight hours.

Earlier, we highlighted some of the companies that caught our eye in the first half of the day. Now we’re back with our favorite companies from the second half. From a marketplace to help you resell formalwear to a startup that offers self-driving street cleaners, it’s quite the mix.

If you’d like to browse all of the companies from this batch YC has a catalog of publicly-launched W21 companies here.

Terra

Heading into this particular demo day, I had my eyes peeled for startups focused on delivering services via an API instead of offering managed software. Happily, there have been a number to dig into, including Pitbit.ai, Bimaplan, Enode and Terra.

Terra stood out to me because it solves a problem I care deeply about, namely fitness data siloization. My running data is stuck in one app, biking data in another, and my weight-lifting data is stuck in my head, though I doubt Terra has an API for that interface quite yet.

What Terra does is permit fitness app developers to better connect their services, which permits the sharing of data back and forth. Presenters likened their startup to Plaid — a popular thing to do in recent quarters — saying that what the fintech startup did for banking data, Terra would do for fitness and health information.

Getting developers to sign on will be tricky, as I presume all of the apps I use in an exercise context would prefer to be my main workout home. But I don’t want that, so here’s hoping Terra realizes its vision.

— Alex

AgendaPro

Calling itself “Shopify for beauty and wellness” in Latin America, AgendaPro wants to help small businesses in the region book customers online and collect payments. 

The company’s idea isn’t as radical as some companies that we heard from today — Carbon capture! Faster drug discovery! — but the company did share several metrics that made us sit up. First, AgendaPro has reached $152,000 in MRR, or just over $1.8 million in ARR. And representatives shared that its gross margins are 89%. As far as software margins goes, that’s pretty damn good.

The startup has more than 3,000 merchants using its service at the moment, and it claims that there are more than four million businesses that it could service. If AgendaPro can get software and payments revenues from even a respectable fraction of those companies, it will be a big, big business. And who doesn’t love vertical SaaS?

— Alex

Atom Bioworks

One of the holy grails of biochemistry is a programmable DNA machine. These tools can essentially “code” a molecule so that it reliably sticks to a specific substance or cell type, which allows a variety of follow-up actions to be taken.

For instance, a DNA machine could lock onto COVID-19 viruses and then release a chemical signal indicating infection before killing the virus. The same principle applies to a cancer cell. Or a bacterium. You get the picture — and it looks like Atom Bioworks has something a lot like this.