Zuora, the company that helps customers manage their subscription models, today announced a massive $115M funding round involving not just Silicon Valley venture capitalists, but also public market investors.
Those public market names include Wellington Management Company LLP and Blackrock Inc, as well as Premji and Passport Capital. Existing investors Benchmark Capital, Greylock Partners, Redpoint Ventures, Index Ventures, Shasta Ventures, Vulcan and Next World Capital also invested along with Dave Duffield, co-founder and chairman of the board at Workday; and Marc Benioff, chairman and CEO at Salesforce.com.
Today’s investment follows a $50M round in September 2013 and brings the total investment across all rounds to $250M, according to Zuora.
The size of this round and the involvement of those public market companies could signal that Zuora is ready to move to the IPO stage. While CEO and co-founder Tien Tzuo was not ready to commit to such a move, he did acknowledge that the pieces were in place should the company wish to go in that direction at some point. He said for now though, the company is content to take advantage of it’s non-public status.
“We now have a size round normally only available in the public markets and the type of investors in public markets, but we aren’t public. We don’t have to report on our earnings. We can continue to keep our heads down and work.”
He added, “We will IPO when the time is right of our choosing.”
Tzuo admitted while he was excited to announce this type of round, the money was a double-edged sword in some ways because in his words, “The bar has been raised. The expectations are high.”
He didn’t sound like a man who was afraid of that challenge, but he understood the implications of this type of investment.
Tzuo was an early employee at Salesforce, helped build its billing system and left in 2007 with the blessing and investment of CEO and founder Marc Benioff to start a company that would push the subscription model that Salesforce helped popularize.
“In 2007, that thing we talked about as a different business model and Benioff [recognized] every company was going through a similar transformation. Stop selling products and start serving subscribers,” he said.
Tzuo believes that this round validates the subscription model after years of working hard to act as an evangelist of sorts for this approach, and not just in areas you would expect like cloud software. Box and Zendesk, for example are Zuora customers, but so are companies you wouldn’t expect like Schneider Electric.
He explained in its old model, Schneider worked with contractors and sold them heating and cooling equipment. In today’s subscription model, they will install the equipment for free and base their fees on how energy-efficient they can make the buildings.
He says, it’s not just a new way of making money, it ends up reaching across the business and changing the entire company mindset. As Tzuo put it, “It breaks down the silos and allows companies to focus on the customer.”
Schneider engineers are motivated to make the most energy-efficient equipment possible and they can think creatively such as using sensors that could know that a room is empty or full and adjust the temperature accordingly.
It’s clear that the subscription approach, and its recurring revenue model is going to be the way many companies do business moving forward. It keeps in you in contact with your customers and gives you information you couldn’t get with a one-off sale because of the nature of that ongoing relationship — and that could be a competitive advantage, Tzuo explained.
Regardless, Zuora has been on the forefront of this approach, long before most people were even thinking about it, and today’s funding gives them clout to take it to the next level. It seems the subscription model is growing up and the next funding round you see from Zuora could be on Wall Street.