Featured Article

When raising at a 40x multiple makes sense

Webflow’s fascinating new round is a great time to discuss 2022 venture capital valuation dynamics

Comment

Image Credits: Nigel Sussman (opens in a new window)

Webflow, a well-funded no-code startup that helps customers build websites, raised a new round of capital this week.

Per Forbes reporting, Webflow landed $120 million in fresh funds at a $4 billion valuation. Forbes also writes that the company will reach the $100 million annual recurring revenue (ARR) mark shortly, has more than 200,000 customers, and currently earns around 8% of its total top line from enterprise customers.


The Exchange explores startups, markets and money.

Read it every morning on TechCrunch+ or get The Exchange newsletter every Saturday.

The above comes a little over a year after Webflow raised $140 million at a $2.1 billion valuation, giving the company a roughly 2x valuation bump with its new capital.

But what we care about more than the company’s raw valuation is the revenue multiple that the figure represents. Why? Because while nine-figure startup rounds are still getting done, we’re hearing from investors and founders alike that terms are tightening.

Even more, the public market has dramatically cut the value of software revenues, leading to some concern that late-stage startups are going to suffer when they go back to raise more capital. (This sentiment, for example, was echoed this morning in CNBC.)

A few days ago we noted that the era of startup valuations at 40x ARR was fading and that more conservative metrics were becoming common. With a $4 billion valuation and roughly $100 million ARR, however, Webflow is valued at precisely the number that we cast as a figment of yesteryear.

Are 40x ARR multiples still fair game for startups that have reached revenue scale? The answer is that they may prove increasingly rare, but that Webflow has a few things going for it that are likely affording it a valuation premium. It’s worth weighing Webflow itself in the context of its rich multiple — but perhaps not presuming that other startups will be able to follow its example this year.

So let’s do that.

Webflow and the 40x question

To understand Webflow’s latest round and resulting ARR multiple, we have to do a little historical digging. Pulling from our coverage of the company’s previous round, and a set of notes from an interview with Webflow CEO Vlad Magdalin, the following:

  • Webflow roughly doubled its customer count since its last round, from 100,000 to 200,000; this means that its most recent round was effectively priced at the same value per customer. That said:
  • Webflow’s enterprise revenues are now material, meaning that its average customer is worth more than one year ago. Back in early 2021, when Webflow raised its preceding round, Magdalin said that enterprise customers were worth less than 5% of his company’s revenues at the time. That number has scaled to more than 8% as of today, and will likely continue to expand as the company builds out more features for larger customers.

Doubling customers while seeing their average customer value — we presume — rise means that Webflow is now effectively cheaper per customer than it was before. Fair enough. But while doubling customer count with an increasingly upmarket customer base is bullish, does the company set fire to bundles of cash to power its growth?

  • Not historically, per the company’s telling of its own history, though we doubt that Webflow raised new capital to frame it. Even more, Magdalin said that his company was cash-flow positive in 2020 back when it last raised.
  • What matters isn’t whether Webflow is still cash-flow positive, but the fact that it was, rather recently, not incinerating cash. That allows us to hazard a guess that the company is not a complete train wreck today when it comes to capital consumption.

All this is looking pretty good so far. But we still need to discuss growth. Collecting the data once again:

  • Forbes reports that in 2019 the company had “more than $10 million in annualized revenue.”
  • Magdalin told TechCrunch in early 2021 that in 2020 its business had doubled.
  • And then, today, we learned that the company is within a few weeks of $100 million worth of ARR.

I am not going to try to over-scry the tea leaves, but it seems clear that Webflow is growing at a good clip even as it reaches IPO scale. This means that its revenue multiple is rather de-risked.

With years of capital now in the bank, if Webflow grew at 50% for the next two years, it would wind up with $225 million worth of ARR in early 2024. That would afford it a revenue multiple of around 18x, hardly shocking for a software company still in its growth curve. And one that at 50% growth would likely be defensible.

The company may be growing more slowly than our above estimate, but that would simply extend its private lifecycle and delay its IPO. Either way, something massive would have to happen to derail the company. And that’s why it managed to get a 40x multiple. Your mileage, as always, may vary.

More TechCrunch

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

12 hours ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

14 hours ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies

OpenAI has reached a deal with Reddit to use the social news site’s data for training AI models. In a blog post on OpenAI’s press relations site, the company said…

OpenAI inks deal to train AI on Reddit data

X users will now be able to discover posts from new Communities that are trending directly from an Explore tab within the section.

X pushes more users to Communities

For Mark Zuckerberg’s 40th birthday, his wife got him a photoshoot. Zuckerberg gives the camera a sly smile as he sits amid a carefully crafted re-creation of his childhood bedroom.…

Mark Zuckerberg’s makeover: Midlife crisis or carefully crafted rebrand?

Strava announced a slew of features, including AI to weed out leaderboard cheats, a new ‘family’ subscription plan, dark mode and more.

Strava taps AI to weed out leaderboard cheats, unveils ‘family’ plan, dark mode and more

We all fall down sometimes. Astronauts are no exception. You need to be in peak physical condition for space travel, but bulky space suits and lower gravity levels can be…

Astronauts fall over. Robotic limbs can help them back up.

Microsoft will launch its custom Cobalt 100 chips to customers as a public preview at its Build conference next week, TechCrunch has learned. In an analyst briefing ahead of Build,…

Microsoft’s custom Cobalt chips will come to Azure next week

What a wild week for transportation news! It was a smorgasbord of news that seemed to touch every sector and theme in transportation.

Tesla keeps cutting jobs and the feds probe Waymo

Sony Music Group has sent letters to more than 700 tech companies and music streaming services to warn them not to use its music to train AI without explicit permission.…

Sony Music warns tech companies over ‘unauthorized’ use of its content to train AI

Winston Chi, Butter’s founder and CEO, told TechCrunch that “most parties, including our investors and us, are making money” from the exit.

GrubMarket buys Butter to give its food distribution tech an AI boost

The investor lawsuit is related to Bolt securing a $30 million personal loan to Ryan Breslow, which was later defaulted on.

Bolt founder Ryan Breslow wants to settle an investor lawsuit by returning $37 million worth of shares

Meta, the parent company of Facebook, launched an enterprise version of the prominent social network in 2015. It always seemed like a stretch for a company built on a consumer…

With the end of Workplace, it’s fair to wonder if Meta was ever serious about the enterprise

X, formerly Twitter, turned TweetDeck into X Pro and pushed it behind a paywall. But there is a new column-based social media tool in town, and it’s from Instagram Threads.…

Meta Threads is testing pinned columns on the web, similar to the old TweetDeck

As part of 2024’s Accessibility Awareness Day, Google is showing off some updates to Android that should be useful to folks with mobility or vision impairments. Project Gameface allows gamers…

Google expands hands-free and eyes-free interfaces on Android