Growing a Great SaaS Business

You may have seen the news today that Marketo raised $25 million to help customers grow revenue; the round was led by Institutional Venture Partners (IVP), the leading later-stage VC firm that has also invested in industry leaders such as Twitter, Zynga, and Netflix.

With this round, Marketo has raised a total of $57 million of investment capital. Of that, we have used approximately $20 million to date building our business, and thus more than 60% of the total cash we have raised is liquid and in the bank to fuel future growth. I should also point out that not a penny of the cash we have raised has gone to “cashing out” earlier investors, founders, or employees. 100% is being invested in the business.

The commentary on some other blogs suggests that our plan has been to spend heavily. In fact, the opposite is true: our operating plan has always been to be a very frugal and capital efficient company until we proved that we had a product that worked, that we could make customers successful, and that we could scale our marketing and sales model. Only after we had put these proof points on the board have we turned on the afterburners.

Also, it’s worth noting that we have a keen eye on profitability, and don’t take use of venture capital lightly. Already, the substantial majority of the cash that we use in the business comes from operations (i.e., the money we earn from our customers), not from the venture capital we have raised. Marketo is a real business.

Putting this fund-raising into context

We think the revenue performance management market that we’re pioneering is very large, and that we have the opportunity to build a great, substantial, and valuable business at Marketo.

Common wisdom is that it is “expensive” to build a great SaaS business, and indeed this is true. So far, Marketo is growing as fast as any of the best known public SaaS companies did during their early years: Salesforce.com, Success Factors, Netsuite, Omniture (now part of Adobe, acquired for $1.8billion), etc. No one argues with the success of these companies, yet each used well more than $100 million of investment capital before they achieved profitability! We think that we have the opportunity to follow in these very big footsteps, yet use less than half of the capital that these earlier successes required.

How can we hope to do this? The answer is that Marketo has an extraordinarily efficient revenue engine, fueled by…our use of Marketo! This stuff really works, and in a very real way, our own business is a huge customer success story for the transformation that Revenue Performance Management can bring to a company.

If indeed Marketo can follow in the footsteps of the companies I mentioned above, people will look back at the $57 million that we raised and say, “Holy cow…it’s incredible that Marketo got it done for such a little amount of invested capital.”  That’s the plan. It’s a wonderful journey.

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