Bootstrapped to $200M: How One Company Achieved Success Without VC Funding
Greetings and welcome to The TechCrunch Exchange, your weekly source for insights into the worlds of startups and markets. This newsletter draws inspiration from the daily column featured on Extra Crunch, but is available to all, designed for your weekend enjoyment. To receive it directly in your inbox each Saturday, subscribe here.
Are you prepared? Let’s delve into financial matters, emerging companies, and intriguing initial public offering (IPO) discussions.
This week was remarkably active. For those just joining us, the Equity team dedicated significant time to analyzing a number of recent early-stage venture capital investments; you can find their analysis here. This week’s newsletter, The Exchange, will concentrate on developments in later-stage companies, although smaller startups will also be featured.
We’ll start with a look at a company that was previously unknown to me until a meeting earlier this week: Nextiva. Currently generating over $200 million in annual revenue, this company is a substantial, yet understated, player, and remarkably, has achieved this scale without relying on venture capital funding.
In a technology landscape often dominated by funding announcements, it was a welcome change to discuss with Nextiva how it successfully expanded its operations without depending on rapid growth fueled by external investment.
During a conversation with CEO and co-founder Tomas Gorny, I had the opportunity to learn more about the company’s origins. The story unfolds as follows: After relocating to California in 1996 at the age of 20, Gorny ultimately established a web hosting business in 2001, following employment at various tech companies during the dot-com era. This web hosting venture was acquired by Endurance International in 2007, which then sold as a unified organization for approximately a billion dollars in 2011, subsequently becoming a public company before being taken private last month for $3 billion — details of Endurance’s history can be found in this TechCrunch article from 2010.
Gorny launched Nextiva in 2008, concentrating on what it now defines as “UcaaS,” or unified communications as a service. The company’s revenue climbed to around $40 million in annual recurring revenue (ARR), at which point it encountered challenges with a third-party system responsible for integrating hardware, support, and service software, prompting a reevaluation of its strategy. The company then decided to develop its own platform.
Nextiva broadened its offerings, incorporating CRM software, analytics, and other features into its comprehensive suite as it continued to grow. This expansion was achieved efficiently; Gorny shared with TechCrunch that the company began with funding from its founding team and that he would have pursued the same approach even with external capital.
The transition to a new platform involved significant investment, with Nextiva estimating expenditures of $100 million on the project. The company acknowledged to TechCrunch that it might have experienced faster growth in the short term had it remained focused on its initial products.
The platform that Nextiva has dedicated considerable time and resources to developing is now available, and having increased from $100 million ARR in 2016 to $200 million this year, the company now believes it has successfully completed its transformation into a platform provider. This claim initially raised some skepticism, as many companies aspire to be platforms, but few truly are.
However, Gorny’s perspective offered a compelling argument. He explained that Nextiva initially created a collection of products, but was not yet a platform. He then asserted that the company became one when it developed a system that consolidated customer data across all its applications and services, enabling Nextiva to accelerate development on its core infrastructure. By a conventional definition of the term, prior to its overuse in the tech industry, this assessment appears reasonable.
Looking ahead, what are Nextiva’s plans? With growth exceeding 30% annually, an initial public offering is a possibility. Because it is self-funded, the company inherently avoids the excessive cash burn often associated with companies preparing for an IPO. Furthermore, while Gorny noted that remaining private allowed his company to adjust its growth trajectory to prioritize product development, I sensed a desire for increased brand recognition. An IPO would undoubtedly contribute to that goal.
2021 is anticipated to be a busy year for unicorn IPOs. It’s possible that some of these debuts will come from unexpected companies as well.
Market Notes
This week’s analysis of the startup landscape centers around three key areas: funding activity in artificial intelligence, developments in the fintech sector, and the emergence of private-market liquidity solutions.
The AI industry has experienced significant investment, particularly among companies in later funding stages. Olive, a healthcare AI firm headquartered in Ohio, secured $225.5 million in new funding, representing approximately half of its total $456 million raised to date. Olive has achieved unicorn status, with PitchBook estimating its post-money valuation at $1.50 billion.
This success story isn't isolated to a single company. Scale AI also completed a substantial funding round, raising $155 million and achieving a valuation of $3.5 billion, following a $100 million raise last year at a valuation exceeding $1 billion. Additionally, Versatile obtained $20 million in funding, and ultimate.ai also raised $20 million, indicating a highly active period for AI startups.
Shifting focus, Stripe has introduced a comprehensive suite of banking-as-a-service tools, expanding the highly valued payments company beyond its original focus into a wider – and potentially highly profitable – area of operation.
Will this development negatively impact smaller startups operating in the same space? Chris Dean, CEO of Treasury Prime, a startup providing banking services through an API, believes otherwise. He communicated to The Exchange that the Stripe announcement primarily signals to banks the necessity of offering open banking APIs to maintain relevance.
Dean also suggests that, given fintech companies typically utilize multiple vendors for various services, there will be ample opportunity for numerous providers within the banking-via-API space. He notes that Treasury Prime’s clients currently leverage Marqeta, Galileo, and Stripe to fulfill their banking requirements.
These updates from Stripe are noteworthy and, in my view, explain the company’s decision to postpone its initial public offering. It appears advantageous to launch the IPO with these new growth drivers in place, negating previous concerns regarding the delay.
Lastly, Carta X is particularly exciting news. Carta, a platform assisting startups with cap table management and employee equity, is developing a marketplace designed to enhance liquidity – and consequently, pricing signals and transparency – within the private markets. This is expected to launch in early next year.
Various and Sundry
Space is limited, so here are three concluding items for this week:
- Scale Venture Partners has secured a new investment fund totaling $600 million. This represents a 50% increase compared to their previous fund.
- Additionally, an analysis regarding a potential error made by Slack is worth considering.
Finally, The Exchange recently spoke with Yext CEO Howard Lerman concerning their latest earnings announcement. While the Q3 performance exceeded initial forecasts, the outlook for Q4 did not fully satisfy investor expectations.
During a conversation with Lerman – who previously participated in a TechCrunch Extra Crunch Live event – a clearer picture emerged. Yext’s efforts to provide search solutions are proving successful, attracting new clients and streamlining their sales expenses. However, renewed restrictions due to the pandemic are causing reduced sales of additional services in specific regions, negatively impacting their short-term net retention rate, a crucial metric for software businesses.
It’s important to remember that Yext is just one publicly traded SaaS company, and I don’t want to draw overly broad conclusions from its performance. However, the company’s candid evaluation of the challenges it anticipates regarding near-term expansion likely isn’t exclusive to their business – a point to keep in mind as we discuss Q4 growth with startups in the coming weeks.
Notably, Yext seems to be strategically enhancing its product offerings while some of its target markets grapple with broader economic difficulties. This is the scenario that startups often believe is most manageable while still privately held. Yext may provide a practical example of how to manage similar conditions as a public company.
Best wishes, and thankfully the weekend is here,
Alex
