Brad Burnham
Union Square Ventures
Matthew Prince

CloudFlare Reveals $50M Round From Union Square Ventures

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In what is quite possibly a move to bolster valuation ahead of raising a new round,CloudFlare has revealed that it raised a $50 million Series C in December of 2012, according to CEO and co-founder Matthew Prince.

In case you’re unfamiliar with CloudFlare, it’s a service for website owners that offers protection from online threats, speeds up page load time, and optimizes content across devices. The company launched back in 2009, and has since gone on to raise a total of $72.1 million, including a $2.05 million Series A led by Pelion Venture Partners and Venrock, as well as a $20 million Series B from existing investors alongside New Enterprise Associates.

So where did this $50 million round come from?

Prince revealed that almost a year ago exactly, Union Square Ventures joined up with existing investors to inject $50 million into the company.

During this time, CloudFlare received a number of term sheets, some with valuations as high as $1.2 billion. In the end, CloudFlare chose to go with the offer made by Union Square Ventures, which was at a lower (yet undisclosed) valuation, because of Brad Burnham. Around then, we also reported that CloudFlare was raising at near $1 billion valuation.

The story goes that Burnham was on the FCC’s committee on Net Neutrality alongside CloudFlare cofounder Michelle Zatlyn. After they got to know each other, and Burnham proved what an asset he could be in potential Net Neutrality-related obstacles for CloudFlare, Prince and Zatlyn came to the conclusion that they wanted USV and Burnham as an investor.

Though Burnham won’t be joining the board, he will be observing from further back and helping advise.

Since the funding last year, CloudFlare has doubled its userbase to 1.5 million users, accounting for 5 percent of web requests across the internet. In fact, one in every 20 sites is now on CloudFlare.

But it hasn’t all been sunshine and roses. CloudFlare was at the center of one of the biggest DDoS attacks in the history of the internet, a turbulent time for the company.

Still, Prince revealed that revenue is up 460% since last year, with costs coming in way lower than expected and subscription revenue coming in 10 or 15 percent higher than expected.

“We run the real risk of being profitable by January,” said Prince.

Of course, he wouldn’t disclose actual numbers, but he did say that the current valuation of the company is far greater than that $1.2 billion from a year ago.

Which leads me to my next question: Why is CloudFlare sharing all of this information now?

The official answer from Prince has to do with showing your work.

“The ethos in the Valley is to pump your first and pound your chest when you raise money, but that’s not our ethos,” said Prince. “Oftentimes, you raise money on promises of what you’re going to do, not what you’ve done. We wanted to do it differently.”

And this isn’t the first time that CloudFlare has pulled a late reveal.

Of course, a more realistic answer has to do with what’s coming next for CloudFlare. There are a number of reasons why a company would reveal funding a year later. Perhaps they’re trying to attract new talent or increase credibility while acquiring more users. But that doesn’t make a lot of sense given the timing of the story.

On the other hand, the company could be planning to raise another big round in the coming months, and are looking to build up valuation. In fact, it’s not impossible that CloudFlare is looking at an IPO in the future.

Personally, my money is on another large funding round, but only time will tell.