Vendr Secures $60 Million in Series A Funding

This morning, Vendr publicized a $60 million Series A funding round, a substantial investment spearheaded by Tiger Global. Participation in the round also included Y Combinator, Sound Ventures, Craft Ventures, F-Prime Capital, and Garage Capital.

Previous Funding and Profitability

The significant Series A follows Vendr’s prior $4 million seed round raised in mid-2020. Reports from TechCrunch indicated the company was already profitable at that time. Prior to this latest investment, Vendr had accumulated a total of just over $6 million in funding.

Rapid Growth and Business Model

TechCrunch inquired about the speed at which Vendr secured such considerable capital. According to Vendr CEO Ryan Neu, the startup experienced nearly 5x growth in 2020. Furthermore, the company maintained a cash flow-positive status throughout the previous year.

Vendr’s business model, which positions the company as an intermediary between SaaS purchasers and vendors, facilitates faster transactions while simultaneously reducing costs. This approach proved particularly well-suited to the trends of increased software dependence and cost optimization observed in 2020.

Revenue Potential

Vendr’s revenue is derived from a commission charged to its customers, ranging from 1% to 5% of their total software expenditure. Neu explained to TechCrunch that a typical company with 500 employees might allocate $2 million to $3.5 million annually to software.

Applying Vendr’s 1% commission, this translates to $20,000 to $35,000 in revenue for Vendr. At the midpoint of 2.5%, this figure increases to $50,000 to $87,500.

Value Proposition for Customers

These pricing levels allow Vendr to accumulate revenue rapidly. Customers are willing to pay Vendr’s fees because of the potential for savings. As long as the savings exceed the fees charged, customers benefit financially.

Additionally, by streamlining the purchasing process, Vendr enables its customers to reduce the time spent on acquiring necessary software tools.

Impact on Software Sellers

The benefits appear to accrue to both buyers and Vendr, but what about software sellers? Are they disadvantaged by losing the opportunity to negotiate higher prices with less experienced buyers? Neu countered that Vendr’s model actually benefits selling companies by accelerating deal closures and improving closure rates.

This increased efficiency could save sales teams valuable time, potentially offsetting any price reductions. When questioned about potential future plans to address the needs of the selling side of the software market, Neu refrained from disclosing any details.

Rationale for Raising Capital

Given the company’s existing financial stability, why did Vendr choose to raise additional capital? The company stated that it has expanded its workforce from 10 to 60 employees in the past year and sought to strengthen its balance sheet.

It’s reasonable to assume that the company would accept a substantial investment from Tiger Global, given the implied valuation increase for Vendr. Therefore, the decision to raise funds is not particularly surprising.

Market Opportunity

Recent analysis by TechCrunch has highlighted the immense size of the software market. Considering the total addressable market (TAM) for software, Vendr may be well-positioned to sustain the rapid growth anticipated by its investors.

The company’s performance in 2021 will be a key indicator of its ability to capitalize on this opportunity.

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