Cloudinary passes $60M ARR without VC money

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

Today we’re continuing our exploration of companies that have reached material scale, usually viewed through the lens of annual recurring revenue (ARR). We’ve looked at companies that have reached the $100 million ARR mark and a few that haven’t quite yet, but are on the way.

Today, a special entry. We’re looking at a company that isn’t yet at the $100 million ARR mark. It’s 60% of the way there, but with a twist. The company is bootstrapped. Yep, from pre-life as a consultancy that built a product to fit its own needs, Cloudinary is cruising toward nine-figure recurring revenue and an IPO under its own steam.

We’ve consistently paid extra attention to companies that achieve scale (eight-figure ARR, on the march to nine) with less capital than their peers. Earlier this week we took a peek at ExtraHop, a Seattle-area company that is also heading for $100 million ARR in short order. ExtraHop has raised just tens of millions of dollars to reach its current size. That’s far less than most companies that meet our scale requirements, but is bested by Cloudinary all the same. 

And, Cloudinary claims to be profitable. Bootstrapped, profitable software startups are effectively nonexistent, so we had to dig in. TechCrunch recently spoke with Cloudinary’s CEO Itai Lahan to learn more. Let’s go!

Quick facts

Bay Area-based Cloudinary has a few more than 200 staffers around the world, and, according to Lahan, has crossed the $60 million ARR milestone. It did so recently; when TechCrunch began talking to the company, an early copy of a release indicated that the firm was at the $50 million ARR mark; the CEO initially supplied the newer, larger number during an interview.

The company’s business deals with digital media — images and videos — how they are stored, displayed and edited. The SaaS product offers a free tier (that the CEO says is supported at a similar level to its paid products) and a few levels of paid products that stretch from SMB-focused to enterprise-aligned. 

Cloudinary, then, sounds similar to other SaaS startups that you and I see every day. Except that when you examine its funding history, all you see is secondary transaction with a traditional venture capital firm. You don’t see any primary investment. Let’s talk about how that happened.

The backstory

Speaking with Lahan, the CEO told TechCrunch how Cloudinary was born out of a need felt while running a service enterprise: “We had a small consultancy,” he said, explaining that his small business was designed to “help entrepreneurs build their their businesses.” His group would help others build their “own products from scratch” and “help them launch,” an exercise that helped him “realize what’s available in the market and what’s missing.” 

Something that the market obviously lacked? Intelligent image support. “We wrote a lot of code, again and again, to help solve images,” Lahan said, “from the uploads, to storage, to indexing in search, to taking those photos manipulating them, adapting them.”

What they “set out to do was to try and build a solution that wasn’t available in the market,” Lahan said. Those efforts would morph into Cloudinary. Lahan likens Cloudinary’s relationship to images as similar to Twilio’s position to comms. That would be a bold claim, if Cloudinary weren’t as large as it is, or growing as quickly as it appears to be.

But how did Cloudinary manage to build and grow without external monies? After all, SaaS companies are highly valued by investors, but it’s a known secret that they often consume mountains of cash to scale.

Lahan partially attributes his company’s capital-efficient history to the fact that it was born out of a consultancy, which gave it a background in self-funding, along with early customers. A handful of companies have been born in similar fashion, in his view:

If you look at all these companies, these started as consultancies. […] Two things are happening there: you know the problem, you build that as part of your day job, and you already have the customers. […] But I think there is also something there about managing a consultancy; there is no concept of raising funds. You need to make money so you can pay the bills, you can pay salaries. […] And I think it’s drilled down into your very being — it’s a business. […] We had a pricing page for Cloudinary the day we launched. It wasn’t, ‘yeah, let’s let’s reduce those barriers, let’s wait for a few years.’

But what about growth? Did not raising external capital slow Cloudinary down? Not in the CEO’s view.

While many startups raise capital so that they can boost hiring, or put new capital into their go-to-market (GTM) function, Cloudinary’s Lahan told TechCrunch that “never in the life of the company” had it felt like it lacked “the resources to do what [it needed] to get to the next level.”

And it did so while making money. 

The future

Cloudinary’s growth continues. Knowing that this series tends to cover $100 million ARR companies, and not companies at $60 million, Lahan told TechCrunch that his company will reach the higher milestone “early next year” and that his company is “growing like clockwork.”

Which makes Cloudinary’s note that it is profitable all the more interesting. I asked Lahan about that, specifically if the company was looking at profitability through the lens of cash instead of what might come into play under a GAAP scenario. He said that the company was “not losing money,” adding that “we’re spending all the money that we have on growth, but we’re not losing money, which for me is very healthy.” 

While I’d normally quibble about profit and the definition of it, because Cloudinary is self-funding, I like its answer. It makes some money, and then it spends all that money on growth. Then it makes some more, and spends that. That’s fine by me.

What’s ahead, aside from more revenue milestones? More secondaries. The company told TechCrunch that it will execute “another secondary round soon,” giving more liquidity to existing shareholders. Cloudinary also reprices during the transactions, going through what it described as a normal, venture-style pricing exercise.

More when Cloudinary crosses the $100 million mark. Which won’t be too long from now, provided that the CEO’s projections hold up.