Accel Invests $35M. in 99designs…After Years of Trying

Accel Partners has invested $35 million in the crowdsource design service 99designs— a monster of a series A. Of course, 99designs is not your average early-stage startup. Born in Melbourne, Australia out of an older company called, 99designs is bootstrapped, profitable and growing revenues at a rate of about 120% a year.

A few strategic angel investors also participated including Michael Dearing, Stewart Butterfield, Dave Goldberg and Anthony Casalena. Accel’s Andrew Braccia and Ryan Sweeney will join the board along with Dearing.

The growth helps explain why Braccia has been courting this deal since 2009. And he wasn’t alone. 99designs CEO Patrick Llewellyn says several VCs have been pinging the company, and until now, they’ve all been turned away. They all seem to find out about the company the same way: One of their portfolio companies uses the service to get a good, cheap logo. In Braccia’s case, it was Cloudera.

99designs was reluctant to take money for the good reasons: They didn’t necessarily need it, and without it the four owners were able to control the company’s destiny without outside meddling. But as the number of design contests doubled in the last four months, it became clear they were onto something and it was time to scale, says Llewellyn. After all, more than 90% of 99designs’ customers come through word of mouth. Imagine if the company actually invested in sales and marketing.

But the clincher was how hard 99designs found it to hire once they moved the sales part of the business to the Valley. “Any employee you look to hire here asks, ‘Who funds you?'” Llewellyn says. “You realize there’s a psyche that’s very different from Australia. To go to the next level and bring on the talent we wanted was going to be hard being a bootstrapped company from Australia.”

A good portion of the cash will go to the founders, who don’t have an operational role at the company. Meanwhile, the deal frees up new options for the team. The rest of the cash will juice sales and marketing, hire some engineers to build new features, and maybe buy a smaller complementary company or two, Braccia says.

So why’d Accel win? Persistance and its increasingly international focus that expands beyond just China and India, Llewellyn says. This is the third Australian deal the firm had done in less than a year.

Why’d Accel want to win so badly? As the above numbers show, 99designs is growing like a weed. It has paid out $20 million to designers over the last three years and some 6.5 million logos have been submitted. These days it’s paying users more than $1 million per month. It’s part of a wave of companies that are finally leveraging the Web to cost affectively sell to small businesses.

That’s a trend that’s talked up every five years or so, but has yet to break wide open. “We’re starting to see Vegas emerge from the desert,” Braccia says. “This is a big investment thesis for Accel.” Indeed Accel companies Groupon, Etsy and Dropbox all fit into the same bucket.

This growth — and no doubt the funding news– pisses a lot of people off. 99designs is hated by a vocal segment of the graphic design community, because it relies on designers presenting unpaid work to compete for jobs. Google “99designs” and “99designs scam” is the first phrase that pops up in the auto-complete. Many argue this devalues their work and ultimately destroys an industry.

This backlash has caught 99designs by surprise–especially because the contest model wasn’t the company’s idea. It was something that happened organically on the wonky designer forums that were a part of, the older company 99designs spun out of three years ago. They simply gave the community a platform to do what they were doing already, and, of course, took a cut of the transactions. (Cue more haters saying the company is getting rich off free, spec work.) “We¬†still take it very personally,” Llewellyn says. “We feel like what we’re doing is helping designers.” To his point, $1 million per month is a lot of money.

It’s important to underscore the haters are an intense, vocal minority. Many established graphic designers hate the idea of spec work, but don’t have to do it because they have established careers. 99designs isn’t competing with them. And many entry-level kids out of school like the idea of competing for the chance to make a few hundred dollars per job, rather than doing free work to build up experience and a portfolio. And 99designs’ most successful members use the site as a lead generation engine, keeping the customers they meet on the site for future work and never giving 99designs another dime.

The haters are missing two things: An obvious reality and a hidden reality. The obvious one is: The Internet does this to nearly any business where a service provider is charging a premium because of an inefficient market. Graphic designers should be thrilled that it took so long to get to them. Go cry to travel agents, independent bookstores, music industry executives and anyone in old media. It’s a sucky reality, but a reality nonetheless.

The good news is in any period of industry volatility, there are huge opportunities for people to out-earn what they could have made under the old system. Consider tech media: Arrington has become a millionaire, as thousands of journalists who didn’t embrace new media have lost their jobs. Since I jumped from old media, my income has gone up, and I’d guess the bank accounts of Erick Shonfeld, Om Malik and Kara Swisher would say the same thing. If you hustle and you’re talented, there’s still plenty of work. Come to the Valley where there’s a full-scale war on for great designers. And, I say this as a wife of a graphic designer who’d never do spec work, but doesn’t exactly lose sleep over its existence either.

That’s the obvious reality. The more hidden reality is that services like 99designs are giving equal opportunities to talent around the world– particularly in emerging markets where making a few hundred dollars for a winning logo can be a life-changing amount of money. We’ve already seen this trend with services like Elance and oDesk. Now, it’s just being pushed up the skill ladder, from basic coding to more aesthetic skills like design.

99designs may create opportunities for a kid in San Francisco to get his foot in the door of an industry or for a single-mother in Minnesota to earn income on her own time, but in emerging markets the impact is more staggering. In the Philippines, one designer was winning so many logo bids that he won an extra $10,000 sweepstakes 99designs was offering. The total was several times his annual salary as a registered nurse. In Pakistan, a man won so many contests he was able to pay for his sister’s wedding– a huge sign of pride and prosperity in a nation with few options for high-margin, creative jobs. Indonesia has been one of the most aggressive 99designs markets, which was no surprise to me. There is so much creative talent in Indonesia, and unlike other large demographic countries, there aren’t a flood of multinational jobs or foriegn venture capital ferreting them out and putting them to work.

The potential impact of something like this is beyond these individual stories. Juicy markets throughout the Middle East, Africa and Southeast Asia– where Western investment doesn’t flow quite as freely– have an ecosystem catch-22. With more than half of the populations under the age of 25 and job creation paltry, high-growth entrepreneurship is imperative for these countries– and frequently for America’s national security interests in these regions. But without more signs that high-margin, skilled jobs like design and engineering pay well, people train for jobs they know they can get instead of following their passions.

Local examples like the ones listed above, have tremendous ripple effects in these markets, that taken along with greater social, technology and financial changes have the potential to transform the “other half” of the world’s population only now surging into middle class modernity.