Weekly Wrap #11: IPO Chops, Commerce and Crazy Caps

Welcome to our Weekly Wrap, where we cut through the noise to bring you our favourite insights from the technology and startup world.

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Enabling eCommerce

🔮 Turns out we’re clairvoyants… or we just excel at making it our business to know everything tech. Either way, in last week’s wrap we predicted that BigCommerce would IPO soon - and on Monday, it filed to do just that.

There’s really no time like the present for BigCommerce to IPO. eCommerce is experiencing explosive growth as a result of the pandemic, and that’s great news for the companies fuelling eCommerce from behind the scenes.

BigCommerce’s biggest competitor, Shopify is getting enormous airtime at the moment and its market cap has shot through the roof as analysts further increased its buy price this week. Shopify’s share price increased more than 150% in 2020 and has been trading around 50x current forecast revenue(!)

If you’re not in the eCommerce or tech world, you may not have heard of BigCommerce or Shopify. But it’s very likely your online shopping adventures have been supported by their tech. Shopify alone powered US$17.4 billion in gross merchant sales in the first three months of 2020. BigCommerce serves about 60,000 online stores across 120 countries, including Ben & Jerry’s, SC Johnson and Sony.

Check out these stats from Built With, which shows what tools websites have been… wait for it… built with!


Idea credit: Jonathan Drake

Side note: Built With is an awesome under-the-radar bootstrapped Aussie startup.

More than just a digital storefront, tools like Shopify and BigCommerce aim to own the entire sales journey. You can run an entire commerce business using their core platforms and extensions via App stores - SEO, optimising conversions, retention, inventory management, credit card processing, tax calculation, in-store point of sale, sales reports, fulfilment, customer support, managing listings on Amazon. You name it.

They’re both great examples of the power of well-executed SaaS platform strategies.

Semi-related: Happy birthday for yesterday Tobi (Shopify’s founder and CEO). Adding a few billion to your net worth this year is a pretty great birthday present.

An Aussie success story

BigCommerce was founded by Eddie Machaalani and Mitchell Harper in Sydney in 2009.

Like many great founder stories, the pair met in a chat room geeking out over content management systems (CMS). They first founded Interspire in 2003, a PHP-focussed development company that produced email marketing, content management and knowledge management software for SMBs.

Off the back of customer feedback, they developed a shopping cart product in 2007. According to Harper, the new product (which became BigCommerce) sold over $250,000 in licenses before launch, and a further $2-3 million in 2008.

In 2009 BigCommerce debuted as a SaaS product and its growth soon outstripped Interspire’s other products. The co-founders relocated the company to Austin, Texas and BigCommerce became their sole focus.

The founders bootstrapped BigCommerce using Interspire profits for the first few years. In a 2018 interview Harper explains this gave them the upper hand when they did decide to raise capital:

When we went to raise, we weren’t desperate and we could do it on our terms… we purposely mitigated the risk before we pitched.

In 2011 and almost every year since, BigCommerce raised capital - totalling over $200 million to date, led by General Catalyst, SoftBank Capital and Goldman Sachs.

In 2015, former PayPal Europe exec Brent Bellm took over as CEO. The co-founders now sit on BigCommerce’s advisory board. Big Commerce now has offices in Sydney, Austin, San Francisco, London, Singapore and an engineering base in Kiev, Ukraine.

We love this story because it’s a great example of:

  • Obsessing over your customers: BigCommerce exists today because Machaalani and Harper listened to their customers’ needs and pain points.

  • Conviction and focus: At one point Interspire had nearly a dozen products on offer. Deciding to dedicate all resources and efforts to ruthlessly focus on just one product is always easier said than done for most founders.

  • Bootstrapping: We often remind founders that raising venture capital isn’t your only option. Bootstrapping using funds from services or other product lines is a great alternative that allows you retain control over your pace of growth. Once you’re on the rollercoaster ride of VC it’s very hard to get off - raising capital every year is a hugely time-consuming distraction and it can force you on a very different trajectory than you may have ever anticipated.

  • Finding true product-market fit: Your first idea might not always be your best or biggest idea. To start, Machaalani and Harper were convinced that their email marketing tool would be their goldmine, but the numbers started to show a different story when they released what’s now known as BigCommerce. We see this happen all the time. Another well known example is Burbn a location based check-in app (like FourSquare), better known as Instagram, which sold to Facebook in 2012 for US$1 billion.

    Art in the Age of Instagram

    Reminiscing on OG moody Instagram filters. Amaro was a personal favourite.

Do you have the chops (metrics) to go public?

Once you have a well-proven business model, a good market following and consistent revenue, an IPO or listing is a great exit strategy provided the timing is right.

But going public is not the best option for the majority of startups, particularly now that there is so much capital around these days. Why?

  1. Cost and compliance: Going public is expensive - typically costing $250,000 to $1 million. And once you’re public, complying with listed company obligations can be a heavy burden and distraction for small teams.

  2. Scrutiny: You’re under constant pressure to increase earnings consistently. Yes, this might be the case when you have investors too, but you have a much better chance of justifying poor results to close private investors who understand your business intimately and who should have your back in rough times.

  3. Transparency: If you struggle to hit numbers in a period or your cash runway becomes tight, you have to tell the market. Telling the market means telling your prospects and customers, which can easily scare them away - right at the time when you need them most.

  4. Limited influence over share price: Your share price and valuation is often at the whim of ‘mum and dad’ investors who don’t always understand the nuances of high-risk startup investing.

  5. Risk: Execs and directors are criminally and civilly liable for false and misleading statements. As a founder, this means that almost every statement you make needs to be carefully considered and some people *cough* Elon Musk *cough* simply aren’t cut out for restraining impulsive tweets.

    This tweet saw Tesla shares surge by 27% (up from around $350), costing short sellers $3 billion and launching an SEC investigation. Tesla shares are now trading around US$1,500.

So what should your metrics look like when you aim for IPO? Lucky for you (and us), the team at Redpoint analysed 36 recent SaaS IPOs and came up with some targets. Here they are alongside some of BigCommerce’s S-1 filing data:

  1. ARR Target: $200M ARR (minimum $100M)
    BigCommerce: As of 31 March 2020 US$137.1M
    Translation for our non-SaaS readers: Annual recurring revenue

  2. ARR growth: 50%+ YoY
    BigCommerce: Increased from 22.3% in 2018 to 25.8% in 2019

  3. Gross margins: 72%
    BigCommerce: 75.9% in 2019

  4. Net revenue retention: 121%
    BigCommerce: 106% for accounts greater than $2,000
    Translation for our non-SaaS readers: Net revenue, less any churn, plus any expansion revenue from upsell, cross-sell, etc.

  5. LTV:CAC: 25 months gross margin adjusted CAC payback
    BigCommerce: Not quite the same measure but BigCommerce estimates a 4.4:1 LTV:CAC ratio in 2019
    Translation for our non-SaaS readers: Average lifetime value a customer to the average expense of gaining a customer.

We can all name public SaaS companies that have gone belly-up because they’ve listed too early. We don’t like to name names. Don’t be like them.

The tweets got hacks

Not really related to this week’s wrap theme, but anywhoo you should know this: Twitter got hacked this week in the most catastrophic security breach in Twitter’s history, silencing the influencers - including Elon Musk, Kim Kardashian, Chrissy Teigen, Barack Obama and Marc Andreessen.

That’s a wrap! We hope you enjoyed it.

Watch Gavin live on AusBiz at 2pm on Mondays, when he opens the Startup Hour of Power.

The team at Ignition Lane


p.s. we love feedback - if you have any, please let us know.