Weekly SaaSology ⚡️ 10.29.21
Hedge Funds versus VCs 💸, e-commerce disruptors 🛒, and spooky szn puns 👻
Brace yourselves for a FAANG-tastic Halloweekend 🎃, sorry not sorry! Next week onwards, I’ll publish on Saturdays to also cover announcements made on Fridays.
Top Seven Investments 🚀
Thrasio, a Boston-based aggregator of e-commerce brands 🛍️, raised $1 billion at a $5 billion-plus valuation in Series D funding led by Silver Lake and Advent, with participation from Upper90, Oaktree, PEAK6, and Corner Capital. Thrasio has acquired 200+ direct-to-consumer (D2C) brands to operate them under one roof and leverage its expertise and resources to turn them into profitable brands.
ClickUp, a San Diego-based productivity platform, raised $400 million at a $4 billion valuation in Series C funding led by a16z and Tiger Global, with participation from Lightspeed and Meritech. More than 800,000 teams across various organizations, including Google, Netflix, and McDonald’s, use ClickUp for project management, collaboration, and other team-based functions. It competes against platforms like Asana, Wrike, and Monday.com (yet another SaaS tool you might remember from a repetitive YouTube commercial).
Attest, a London-based “no-code” research surveys-as-a-service platform, raised $60 million in Series B funding led by NEA and Kismet. It claims to connect its customers, including Microsoft, Walgreens, and Klarna, to an audience of over 110 million people in 49 countries. It competes against market research platforms like Qualtrics and SurveyMonkey and differentiates by leveraging machine learning to provide faster and more accurate results 🔎.
Extend, a New York City-based payments infrastructure platform, raised $40 million in Series B funding led by March Capital, with participation from B Capital, Point72 Ventures, and other funds and banks. Fintech platforms like Extend that are actually helping traditional banks versus trying to replace them are few and far between. It integrates with the legacy bank issuing systems 🏦 to enable modern virtual credit card features and distribution capabilities. It offers a suite of APIs (more on this soon) to enhance fintech products, facilitate commerce at point of sale (POS), and streamline payment operations.
Selfbook, a New York City-based payments platform for hotels 💳, raised $25 million at a $125 million valuation in Series A funding led by Tiger Global, with participation from Better Tomorrow, Abstract, TenOneTen, and 9Yards Capital. This round’s valuation is almost 16x higher than when it raised $2 million in seed funding just a few months ago. Selfbook is currently live in 16 hotels and will be activated at 75 more locations soon, offering “one-click” mobile payments while reducing chargebacks and eliminating fraud activities.
Vue Storefront, a Poland-based front-end experience platform 📱 for store merchants, raised $17.4 million in Series A funding led by Creandum, with participation from Earlybird and Paua Ventures. It helps 700+ stores build super-fast websites and apps on the front-end by automating third-party integrations like payments on the back-end. It enables “headless” commerce by allowing merchants to focus on user interface and experience (UI/UX) on the front-end without worrying about the separated back-end so they can provide a seamless online shopping experience across all devices (omnichannel).
Gamma, a San Francisco-based modern presentation platform, raised $7 million in seed funding led by Accel, with participation from Eric Yuan (Zoom CEO), Jeff Weiner (former LinkedIn CEO), and other VC funds. Gamma came out of stealth mode (building and operating in secret to avoid public attention) two months ago. It hasn’t rolled out the product yet but it aims to offer the ability to build stacks of cards that fit a brand’s aesthetic and prioritize design by linking content like videos and embeddable forms that can be filled out in real-time.
Top Two Trends ☁️
E-commerce aggregators and accelerators 🛒
Several e-commerce aggregators like Thrasio, Berlin Brands, and Perch have emerged and raised significant funding in the past few years, rolling up e-commerce brands 🛍 and allowing small business owners on marketplaces like Amazon to cash out at a substantial profit. Purchase prices are typically 2x to 4x of EBITDA, which stands for earnings before interest, taxes, depreciation, and amortization, I know ew 🤢. They usually focus on brands that opt for “FBA” (fulfillment by Amazon) which means they outsource the “heavy lifting” tasks such as storage, packaging, and shipping to Amazon.
On the flip side, you have e-commerce accelerators like Pattern, Spreetail, and Netrush. Unlike aggregators, accelerators help brands grow their sales by buying up inventory, figuring out the gaps in sales, optimizing it across marketplaces, and identifying insights for boosting margins 📈. Merchants can find it challenging to navigate selling processes as there are thousands of tools that help advertise and improve search engine optimization (SEO) visibility. The beauty of this model lies in the accelerator’s ability to streamline back-end logistics and simplify the complicated sales network.
Who do you think will emerge as the winner (if at all) in this battle for a larger pie of the growing international e-commerce market 🛒?
Hedge Funds versus VCs 💸
We’ve talked about investments led by crossover and hedge funds like Tiger Global, Coatue, D1, Altimeter, and Dragoneer. While these funds have dabbled in venture investing since the 2000s, their presence has never been as impactful in the venture community as this year. For instance, Tiger was the most active VC investor during the first half of this year, leading 264 deals this year alone.
These funds are taking a very unconventional approach to venture investing, making decisions rapidly (in less than 48 hours in some cases), submitting founder-friendly terms (forgoing board seats and performing light diligence), and paying significantly more 💰 than traditional VCs. By offering more cash, lower dilution (we discussed this in last week’s newsletter), and fewer restraints, crossover and hedge funds seem to be building their portfolios like indexes of “hottest private tech companies”.
As discussed in the first newsletter, more companies are staying private for longer and scaling significantly before IPO/SPACing (or whatever the cool kids are calling going public these days). Prolific IPO prospects for best-in-class businesses have made early-stage investing much more “lucrative” for public market investors. What differentiates them from traditional VCs is not only their gigantic fund sizes 🤑, like Tiger's proposed $10 billion new vehicle, but also their capacity to hold their stake beyond public market debuts. While several crossover and hedge funds have made their presence truly felt in private markets, it’s rare to see VC funds that have made the opposite move.
Sequoia, one of the most celebrated VC funds, is forming a single fund for its U.S. and European investments. This fund will have a permanent structure like a hedge fund, funneling capital down to a series of smaller funds that will invest by stage. Just like a16z, Sequoia is filing to become a registered investment advisor to invest more in public stocks and cryptocurrencies.
It’s quite interesting how VC and crossover/hedge funds are seeking creative means of backing revolutionary and category-defining businesses from founding to IPO and beyond - tapping into stages they haven’t traditionally invested in and dipping their toes into each other’s area(s) of expertise 💸.
Do you think this “private stock picking” strategy by crossover and hedge funds is sustainable? Are other VC funds going to follow the footsteps of Sequoia Capital and re-vamp their fund structure? Share your thoughts below 👇
Startup Spotlight ✨
Founded in 2018, Veed is a London-based video editing platform 🎥. It offers several editing and enhancement capabilities like subtitling, translation, noise reduction, cropping, transitions, branding, compression, and format conversion. Just imagine Apple’s iMovie or Window’s Movie Maker on steroids. As a cloud-based platform, Veed allows creators and marketers to collaborate and simultaneously edit, store, and share videos. Veed has been bootstrapped so far - it became profitable in 2020 and is currently just shy of $6 million in ARR (VC topic of the week) with 47 employees.
Bootstrapping means building a business without raising capital from external investors. The business relies on its funding from founders or free cash flows to fuel operations 📈
VC Topic of the Week 📚
Let’s talk about Annual Recurring Revenue (ARR). ARR is a high-level financial metric that talks about how much predictable revenue a SaaS business can expect to generate from its subscribers every year. ARR is essentially:
ARR = Sum of all Yearly Recurring Charges of all paying customers
All the charges included must be 'recurring' 🔁 in nature. Similar to ARR, Monthly Recurring Revenue (MRR) is how much “predictable” revenue can be generated every month. If customers are billed monthly, ARR can be calculated in two different ways:
MRR = (Monthly Contract per Customer) x (# of Monthly Subscribers)
and “forward-looking” ARR = “Most Recent” MRR x 12
or ARR = (Total Contract Value) x (12 / Duration of contract in months)
If a customer signs a 3-year contract (36 months) for $60,000, which is billed monthly, the ARR equals $60,000 x (12 / 36) = $20,000. If billed annually:
ARR = Contract Value / Duration of contract in years
If a customer signs an annual contract for two years at $40,000, ARR equals $20,000. Note that ARR is not the same as cash 💵. Assuming an upfront payment in the case discussed above, cash received is actually $40,000. Mistaking ARR for money can create a falsified image of a company’s cash balance.
Investors love the predictable nature of subscription revenue and the visibility it provides into top-line income, both current and future. SaaS businesses can also be valued on an ARR multiple (just like EBITDA multiples). Here is a graph from SaaS Capital that illustrates median valuation (ARR) multiples - more on this later.
Came across an investing concept that you can’t wrap your mind around? Reply to this email with it, and I’ll be sure to explain it in a future edition.
Tweet of the Week 🐦
Feel free to reach out to me by replying to this email or @dhruvcashpoor on Twitter if you have any questions, comments, or suggestions 🙂
Have a safe and spooky Halloween. I'll see you again next week!
This newsletter is intended for informational purposes only. Sources: Axios, CNBC, Chargebee, Shopify, TechCrunch, Feedvisor, Vue Storefront, Business Insider, Supply Chain Brain, FT, PitchBook, Crunchbase, SaaS Capital, Amazon