Emerging Companies Beyond the IPO Spotlight

While much attention is given to the initial public offerings of large, well-known startups, a significant number of companies are experiencing substantial growth and preparing for future expansion. These businesses, often well-funded, are progressing steadily toward potential public offerings, but still have a period of time before that stage.

We've designated these companies as falling within the $50 million annual recurring revenue (ARR) range, though we maintain some flexibility regarding this specific revenue threshold.

Spotlight on SimpleNexus and PicsArt

This series began with examinations of OwnBackup and Assembly. Today, we are continuing our analysis by focusing on SimpleNexus and PicsArt. Future profiles will include Synack, and we have scheduled an interview with Kaseya.

It’s worth noting that Kaseya may be somewhat larger than the typical company in this cohort, but we will determine how to best utilize the insights gained from our discussion with them.

Focusing on the $50 Million ARR Range

Our focus on companies around the $50 million ARR mark stems from a previous exploration of $100 million ARR businesses in 2020. That research largely involved companies, such as Lemonade, that were rapidly approaching an IPO.

We will continue to occasionally cover larger firms, but our primary emphasis this year is on these smaller, rapidly developing companies.

Therefore, we present our findings on SimpleNexus and PicsArt, based on publicly available information regarding their funding and product offerings, as well as interviews conducted with representatives from both organizations. Let's examine the key factors driving their growth!

SimpleNexus

Based in Utah, SimpleNexus is a technology firm specializing in digital mortgage solutions. The company secured $108 million in funding during a Series B round in January, although the specific valuation remains undisclosed.

The organization is experiencing rapid expansion, with co-founders Matt Hansen and Ben Miller projecting an increase in revenue from $30 million to $58 million within the coming year, as reported to TechCrunch. This growth firmly positions them within a noteworthy category of companies.

SimpleNexus markets its product to banks and financial institutions, offering a centralized platform – a true simple nexus – that allows consumers to manage their entire home-buying journey, from initial search to final purchase, through a single login. This software is delivered as a Software-as-a-Service (SaaS) offering, frequently customized and branded for individual banks.

Despite current successes, SimpleNexus’s leadership envisions broader capabilities. In a discussion with TechCrunch, Hansen indicated potential for extending the service beyond the purchase phase, potentially assisting customers with utility connections, locating appraisers, and overall home management.

TechCrunch inquired about the recent funding round and its impact on achieving the projected revenue of nearly $60 million by January 2021. The company clarified that they weren’t actively seeking capital, but after fielding acquisition offers that didn’t align with their vision, they opted to pursue additional external investment. Insight Partners, leading the investment, expressed enthusiasm based on the company’s growth in both customers and revenue.

The favorable market conditions also played a role in the decision, as the founders reasoned that securing capital during a period of market strength was a prudent move.

Currently, SimpleNexus generates positive free cash flow, a situation that may shift as they deploy the new capital towards expanding their workforce. However, with what they describe as “tremendous SaaS fundamentals” – including a 124% net revenue retention rate – the company believes it is well-positioned to manage increased spending.

Go-to-Market Strategy

Regarding strategies that have proven effective for companies of this scale, and those that have required adjustments, Hansen highlighted significant changes in SimpleNexus’s go-to-market (GTM) approach. A recent executive hire, bringing extensive scaling experience, has been integrated into the leadership team to support these revenue objectives.

Hansen further noted the constant evolution within SimpleNexus, while Miller added that the company established a robust corporate infrastructure with department heads during the 2018-2019 timeframe, coinciding with their $20 million Series A funding. This foundational structure was already in place to accommodate further growth.

Further expansion is planned, specifically increasing the sales team from its current size of seven or eight individuals to thirty. This substantial growth will necessitate new processes, supporting personnel, and additional resources.

The pace of change at the firm doesn’t appear to be slowing, with the founders observing that a 20% increase in workforce size triggers significant organizational shifts – a sentiment with which I concur, based on prior experience.

Looking forward, Miller emphasized that the primary challenge for SimpleNexus lies in operational execution, not financial constraints. They possess ample capital and now must effectively deploy it. Both founders expressed optimism, citing positive indicators from their sales pipeline and progress in scaling various functions, including sales and professional services.

In conclusion, SimpleNexus represents a startup nearing profitability, aiming for nearly 100% revenue growth this year, and bolstered by substantial new funding and a large addressable market. It will be interesting to observe their progress over the next year; achieving a doubling of revenue would place them within 18 months of potential IPO consideration, marking another success for Utah’s growing startup ecosystem.

PicsArt

PicsArt is a noteworthy organization that has been consistently featured by TechCrunch over the past six years. This includes coverage of a $15 million funding round in 2015, multiple reports throughout 2016, and announcements regarding its achievement of 100 million monthly active users (MAUs) in 2017. Further coverage in 2019 detailed reaching 130 million MAUs that year.

For those unfamiliar, PicsArt functions as both a mobile and desktop photo editing platform. It provides a comprehensive suite of tools for image manipulation. Tammy Nam, PicsArt’s COO and CMO, recently discussed the company’s trajectory and evolution.

To date, PicsArt has secured $67.2 million in funding, including a $22 million investment in July 2019. Initial reports from PitchBook indicated this round valued the company at $345 million. Update: The company clarified that the valuation was actually “in excess of $600 million.”

From this initial investment, PicsArt has exceeded $50 million in annual recurring revenue (ARR) and anticipates reaching $100 million this year. The company has expressed its intention to pursue an initial public offering (IPO) in the near future, a development that generated considerable interest. We spoke with Nam to gain insights into the company’s current status and recent advancements.

A key area of expansion is the desktop environment, a segment PicsArt began to prioritize after establishing a substantial user base on mobile devices. The rationale behind this move, according to Nam, is the increasing demand from businesses, including educational institutions and small to medium-sized enterprises. These users currently represent approximately 30% of PicsArt’s customer base.

The importance of web-based editing is also linked to PicsArt’s vision of being at the “epicenter” of what it terms the “digital hustler movement.” Nam clarified this concept as being synonymous with the creator economy. This encompasses individuals leveraging digital platforms to generate income, either on a part-time or full-time basis. PicsArt aims to provide the necessary tools for these micro, small, and medium-sized businesses to create and edit digital content.

PicsArt projects significant growth within the creator economy. Nam cited South Korea as a leading example, where traditional news broadcasts are being replaced by content created by independent individuals. She believes South Korea foreshadows similar trends in other regions. (As an avid esports follower, I concur with this assessment.)

The company’s strategy is heavily focused on attracting Gen Z users. Nam stated that PicsArt possesses a strong understanding of this demographic and their unique media consumption habits, which differ significantly from previous generations.

This combined focus on mobile and desktop platforms, coupled with its understanding of generational trends, has fueled substantial growth for PicsArt. Nam indicated the company is on track to achieve $100 million ARR within a few quarters. While PicsArt has experienced periods of profitability, its current emphasis is on accelerating growth; our assessment suggests the company is managing its cash flow responsibly, a factor that will be closely scrutinized during its IPO.

As PicsArt scaled beyond $50 million ARR and targeted $100 million, Nam highlighted the challenge of maintaining rapid growth without disrupting existing operations. She also emphasized the critical importance of assembling the right team at each stage of the company’s development, recognizing that not all individuals are suited for every phase of growth. This theme is increasingly prevalent in our discussions with companies exceeding $50 million ARR.

This sentiment mirrors the strategic approach in Formula 1 racing, where selecting the optimal tire compound at the precise moment is crucial for success.

In summary, Nam asserted that the key to success lies in having the right people, focused on the right priorities, at the right time. Given PicsArt’s impressive growth trajectory, her perspective carries significant weight.