Tenaya Capital

  • September 5, 2013
  • Subscription billing and payments pioneer, Zuora, today announced its series E funding.  The tranche of $50 million brings the company’s total capital investments to $132.5 million, much of it spent on sales and marketing.  This convinces me that the hardest thing about being a disruptive technology is the cost of getting the idea into people’s heads.  Salesforce spent a similar amount on sales and marketing while getting going and it’s reasonable to say that this is now the formula.

    The really good news is that all of the company’s original investors have ponied up repeatedly to buttress the company and that includes individuals like Dave Duffield founder and co-CEO of Workday and Marc Benioff, co-founder and CEO of Salesforce.com as well as conventional venture companies like Benchmark Capital, Greylock Partners, Redpoint Ventures, Shasta Ventures, Tenaya Capital.  You could say the smart money is on Zuora in anticipation of an IPO at some undisclosed point in the future.

    All the cash gives the company a cushion that translates as an IPO someday but on its terms, there’s no rush.  And the financial news and prognostications are nice but the underlying fundamentals say even more.  They say that Zuora got it right in 2007 when the company identified the back office of subscription companies as the place most in need of help to make the model work.  Co-founder and CEO Tien Tzuo had an intuitive understanding of the back office having seen first hand what a fast growing subscription company had to deal with each month getting its billing done right.

    At Salesforce, Tzuo was chief strategy officer and, when he recognized the need, he built a sort of version one of what would become Zuora but he didn’t stop with billing at Zuora.  The company now offers solutions for payments, or commerce, and finance but even more than this, it is innovating around the idea that the subscription business model is fundamentally different from the conventional product or service models we’ve lived with since the Medici invented double entry bookkeeping.  Keeping an eye on the business model means the company will be able to innovate around the core idea for a long time and that’s a good thing.

    Zuora makes its mark taking the broad view, which is in part why I like them.  The response from the market and the venture community tells me they’ve struck a nerve and the fact that there are many other companies plying the same waters tells me this is important.

    So, good on you Zuora.  I am looking forward to speaking at their user conference in a couple weeks in San Francisco.  It should be quite a party.

    Published: 11 years ago


    Zuora, the subscription billing company announced that it has concluded its Series C round of financing raising $20 million and bringing its total capital investments to $41.5 million.  The round was led by Redpoint Ventures and the existing investors including Benchmark Capital, Marc Benioff, Shasta Ventures and Tenaya Capital also participated.

    This strong performance says a lot about the company, its management and the idea of the subscription economy.  In a time when credit is tight and venture funds are raising much less capital than they did five or ten years ago, Zuora’s success marks a kind of breakthrough that says good ideas can still be funded and that the subscription economy is a real good idea.

    Analysts refer to the just finished recession as a balance sheet recession rather than the more familiar inventory related type.  In classical economics when inventories get out of hand, production slows, causing a decline in economic activity, and inventories are sold off to rebalance the system.  Inventory recessions have become less prevalent in the last several decades as powerful analytics software has been employed for inventory management and ERP technology has better managed production.

    The balance sheet recession happened when the banking system became over leveraged and credit collapsed.  Over the last two years corporations and individuals have worked to deleverage their accounts and in the process low credit availability caused a recession.

    This recession precisely points out the importance of the subscription economy and may be a harbinger of recovery, albeit on different terms.  Leverage is being replaced by subscriptions as companies and individuals come to the realization that they don’t have to own everything they use if a viable subscription is available.

    So far, companies like Salesforce.com, RightNow Technologies, NetSuite and many others have leveraged the subscription model to good effect with Salesforce becoming the first company to achieve billion dollar revenues based on the subscription model.

    But subscriptions are not simply for software and that’s where Zuora comes in.  Many other industries could profitably take advantage of the subscription model if only they could accurately invoice and collect.  The hidden issue for many companies wanting to enter the subscription economy is that their antiquated billing systems cannot support the high transaction flows inherent in the subscription model.

    Enter Zuora and its ilk.  As a leading company in the rapidly growing subscription billing industry, Zuora has figured out the business process including the transaction flows.  Zuora, or a company like it, will be at the heart of a change in the publishing industry as newspapers and magazines begin moving their subscriptions to the Web.  Periodical publishing is a great example of an industry hamstrung by its billing processes.  With billing so difficult all but a small handful of newspapers—The New York Times, The Wall Street Journal for example—give away their product.  Those papers have begun to stop the revenue drain and they are in the vanguard.

    So, Zuora has twenty million dollars more in the bank this morning and because the company has been cash flow positive for most of this year, it looks forward to spending the new money on growth.  It is hiring sales people and opening up its European offices, for starters.  You can do a lot with that kind of money, including spark a business revolution, which will surely follow.

    Published: 13 years ago