As 2021 kicked off, I reformulated a series of posts we published last year focused on startups that had reached the $100 million ARR (annual recurring revenue) mark. In our refreshed effort, we cut the target in half and dug up companies around the $50 million ARR threshold. The goal was to figure out what those firms were going through as they reached material scale, not after they had achieved effective pre-IPO status.
And the results were a bit medium.
While it was fun to chat with OwnBackup, Assembly, SimpleNexus and PicsArt, ultimately we were getting similar notes from each company: Hiring is incredibly important as a company scales, founders have to cede decision-making, and as startups grow from $30 million ARR to $50 million or more, they must harden internal systems and build business infrastructure.
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All that made sense, but it wasn’t entirely scintillating. I meant to keep the project going; I had publicly made noise about the effort and had a few interviews in the bag that were collecting dust (and emails from various PR folks).
But they wound up in the Google Docs graveyard as the news cycle somehow managed to keep accelerating, meaning that the time required to execute the somewhat effort-intensive series dried up as I held on for dear life as the early, middle, late and IPO-stage startup market stormed.
And so after some reflection, it’s time to admit defeat.
For now, I’m hitting pause on the $50 million ARR series and whatever might have come from the $100 million ARR legacy effort. I may bring it back at some point, but for now, there are just more pressing and interesting things to work on.
What follows is what I believe to be the remainder of my notes from interviews that never saw the light of day. So, one last time, let’s discuss some big startups that are scaling quickly: Appspace, Synack and Druva. We’ll proceed in alphabetical order.
Appspace
The Exchange caught up with Appspace a bit ago, chatting with a few of its executives, including CMO Scott Chao and CEO Brandon Miles. It’s an interesting company that sells a software platform that powers in-office displays and kiosks. You’ve seen office sign-in screens at a welcome desk, screens outside conference rooms showing how booked they are, or company messaging and the like on various large screens? That’s what Appspace’s software does.
And the company has an interesting vibe. Unlike nearly every other startup I’ve met, Appspace doesn’t think it is saving the world. In our chat, the company joked that its culture is to move quickly, but with the cognizance that they aren’t curing cancer.
Such modesty might feel odd, but it was actually refreshing. Appspace’s job is to white-label itself, let its customers speak to their workers through its various apps (including mobile) and services, and simply feature rock-solid uptime.
Appspace bought The Marlin Company earlier this year, expanding its customer base in a more industrial direction and implying that it can rack up growth through inorganic methods. In 2020, the company grew around 10% or 12%, it said. Not bad, frankly, for a company that helps power in-person experiences during a year in which offices around the world shuttered. Perhaps the Marlin buy will help speed up its 2021 top-line expansion.
What can we learn from Appspace? One thing that stood out was how the company responded to the pandemic. It reduced spending and stayed focused on an earnings-biased Rule of 40 approach to operating results. Now, the company said, it’s flipping that around to have a more growth-weighted Rule of 40 income-expansion balance.
The Exchange asked why Appspace doesn’t simply yank all near-term profits and plug ahead at a Rule of 40 ratio comprised entirely of expansion. You sleep better at night, Miles explained, with some earnings in the mix.
Appspace is around the $50 million ARR mark and expects to reach $100 million ARR in three years, profitably without external capital. The group did allow that, if they buy other companies, they might reach nine-figure revenues more quickly.
What else? The company talked about its culture, emphasizing employee retention rates and how culture can limit staff churn. We’ve often heard startups discuss the importance of culture, but not often in how that work can be directly tied to personnel retention.
Regardless, it was good to chat to a Dallas-based software firm backed by private equity, a mix we don’t run into every quarter.
Druva
Druva is a company that’s really too big for either of our two ARR lists, but let’s discuss it anyway, because we ran it through our usual process. We spoke with CEO Jaspreet Singh and Mahesh Patel, its CFO, about its data backup and protection work.
As with nearly every single tech startup, it has an interesting backstory, including founder time spent working in data storage at Veritas, financial groups needing better backup tooling ahead of the introduction of the Sarbanes-Oxley Act in 2002, and a move across the world from India to the United States in its early days. Why the shift in location? Singh said that back then it was hard to be a small software company from India and an investor agreed to invest, but only if the startup relocated to the United States.
Times have changed.
Regardless, building data backup tools in the cloud for other companies’ various information buckets (data centers, cloud work and various endpoints), first for the financial world and later selling to a more broad market, has worked out for Druva. The company crossed the $100 million ARR mark back in 2019, and Druva reached unicorn status the same year on the back of a $130 million raise. Other investors include Sequoia Capital India, Nexus Venture Partners and Riverwood Capital.
Regarding recent growth, the pair of executives told The Exchange that the company has “almost tripled its annual revenue in three years.” Not bad.
Singh said Druva allows customers to commit to a single fee for storage, moving data around and the like. Customers are charged on a consumption basis, which means that Druva is already on the cutting edge of the SaaS pricing question.
But what’s fun is that Druva maintains software-like margins by “knowing how to work in the cloud,” Singh said. It tries to use nonpeak compute resources and works to de-dupe and compress data when possible. The result is margins that the company described as “software-like.” Of course, Druva pays Amazon quite a lot for AWS, but like some other companies, it has found a way to make that work for its own economics.
From a single-product company around five years ago, Druva now has a suite of services at its command and the ability to serve customers of any size, Patel said. And now with well over $100 million ARR, I’m more perplexed about why we haven’t seen the Druva S-1 than curious if the company is ready.
Synack
Finally, there’s Synack, a graduate of the TechStars Boston program back in 2013. It’s always fun to see former accelerator startups reach material scale. At the time, the Boston Business Journal wrote that the company had built the “first-ever system to safely crowdsource software security testing.” I share that because it’s still what the company is doing.
What’s very fun about Synack is that it’s a tech company, but one whose product is shot through with humans. The goal of Synack is to provide security software that uses modern tools like AI and continuous testing, and then layers on cybersecurity denizens when needed.
Most companies leverage automatic security scanning, explained Jay Kaplan, Snyack’s CEO, but the result of that is a lot of noisy data. Synack’s systems work to reduce that noise with intelligent software, and then humans pore over what comes out of the sifted signal.
Synack charges customers based on how often they need to scan their networks and endpoints and how many of those there are. Past that, it’s hard to get any sort of grip on what Synack costs; a seemingly out-of-date Amazon AWS page notes that one service from the company started at $25,000, which is a spare bit of information but somewhat useful all the same.
The company has picked up an interesting cohort of investors during its life, including Kleiner Perkins, M12 (Microsoft’s venture arm) and GGV Capital, among others. The company’s most recent round, a $52 million Series D in 2020, valued the company at $402 million on a post-money basis, according to PitchBook data. That round was led by B Capital Group and C5 Capital.
Kaplan was a bit coy on scale, but did allow that Synack is around $50 million ARR, which makes the price that its investors paid in 2020 appear a bit low. The company did have a 2020 that landed merely in line with its expectations, it said. Kaplan cited some headwinds from COVID in general, and some tailwinds from the pandemic changing healthcare IT more narrowly, coming together to mostly keep the company on track.
However, according to the company’s CEO, 2021 is going to be big for Synack. The SolarWinds fiasco has been a driver of consumer interest, he explained, and Synack expects to grow faster this year in percentage terms compared with last year. That should reprice the company nicely in case it needs to raise more private capital ahead of an IPO in a few years. Kaplan said that the company is already beefing up its internal CFO function. Good.
I honestly found Synack to be super cool, even if the CEO had to walk me through its tech stack in pretty minute detail so that I could catch up. It will sport an S-1 to look forward to, provided it meets its 2021 growth goals.
And, whew. We’re all caught up. Maybe more later on this concept.
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