Zapier’s CEO Reveals How His Automation Startup Reached A $5 Billion Valuation Without Jumping On The VC ‘Hamster Wheel’
Zapier CEO Wade Foster avoids thinking about fundraising as much as possible. Profitable for years, his startup, which provides automation tools that connect apps together, gets plenty of interest from venture capitalists. Foster prefers thinking about his customers, he says: museum tour guides, Etsy sellers and coffee shop owners who don’t have time to follow the latest buzzword on tech twitter, or whom VCs have anointed the next big thing.
“If you interviewed them and said, ‘do you think you’re a no code expert,’” says Foster, invoking one such funding magnet term, no code software, “they would probably be like, ‘I don’t know what you’re talking about.’”
But just because Zapier hasn’t played the game — raising just $1.3 million in funding, going fully remote long before the pandemic made it commonplace, and targeting a customer set left overlooked by many software companies — doesn’t mean it hasn’t built a big business. Last summer, Zapier reached $100 million in annualized recurring revenue; it’s passed $140 million by now. And in January, investors found a way into the business, just not through Foster. Sequoia and Steadfast Financial bought shares at a $5 billion valuation from some of Zapier’s original investors.
The Information published first word of the round in a January report. Details of the raise were first reported in Forbes’ Midas Touch newsletter on Sunday.
Speaking about it for the first time, Foster says the transaction took some pressure off the company founded in 2012 to pursue a liquidity-creating event like an IPO or sale just yet. (The amount sold and sellers were not disclosed; Bessemer Venture Partners, Threshold, Salesforce Ventures and Missouri-based Permanent Equity, where Foster is from and recently moved back, had numbered among its original shareholders, according to PitchBook.) None of the founders in the company participated in the sale, Fosters says: “I personally believe a lot in what we’re doing, there’s no other thing I could do with this money. If I were to take money out, the first thing I would do is find more Zapier shares.”
With more than 300 app partners and connecting to 3,000+ apps, Zapier’s charted a different growth trajectory than the typical software unicorn. One example: customer support. A team of about 100 employees well-versed in a range of work apps work closely with Zapier’s small customers to make sure everything’s running correctly — an unusually big commitment for a company of Zapier’s size, or customer of its typical contracts, which starts free and runs up to $599 per month for the full bells and whistles like live support, still a far cry from software licenses that can run into the millions for large businesses. (Foster says that while teams within large companies now make up about 25% of revenue, most customers pay $19.99 or $49 per month.)
Zapier also set up a $1 million small business assistance fund for struggling customers a year ago as the pandemic spread. Foster predicts that coming out of Covid-19, a new wave of mom-and-pop style small businesses of $5 million to $10 million in revenues will flourish having made the digital jump.
Zapier’s hiring and expanding software tools are also a rarity in that they’re fueled entirely by the company’s sales. Employees are eligible to receive bonuses from the company’s profits should they hit certain milestones twice a year. “We’ve never felt like our balance sheet has been the thing that was holding us back from reaching our goal,” says Foster. The company announced its first acquisition, of a no-code education business called Makerpad, on Monday.
Now with Sequoia and Steadfast on board, Foster plans to take advantage of some of those firms’ networks and support for portfolio companies, even if he spent years politely turning aside investors like Andrew Reed and Karan Mehandru, the lead partners for each who bought up shares in this raise. Asked if he’d consider a primary funding round or even an eventual IPO, Foster says “never say never.”
“For us, we’ve always looked at financing events, whether they’re primary, secondary or public markets, as a tool in the tool belt. It’s something that you can reach for as a person who runs a business that can help you when you need it,” says Foster. “I think that’s a much healthier approach to things than sort of getting on a hamster wheel that is difficult to get off.”
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