According to a recent Gartner report, global spending on SaaS or cloud application services will grow 20% to reach $46.3 billion in 2017. The resulting rise in subscription economy has benefitted Mountain View, California-based Zuora, which helps companies deal with the billing and pricing complexities involved in running subscription-based businesses.
Zuora was founded in 2007 by K.V. Rao, Cheng Zou, and CEO Tien Tzuo, industry veterans from WebEx and Salesforce.com. They were convinced that organizations were migrating to a business model where they would offer services through subscriptions instead of a single-use sale. They wanted to establish Zuora as the platform that could offer an end-to-end subscription management services to help businesses in automating recurring billing and collections, configuring, pricing, and quoting for recurring revenue businesses.
Zuora’s platform is a SaaS solution that addresses the complex issues surrounding subscription billing that were not being addressed by traditional, legacy financial systems. The platform tracks subscription payments, invoices, pricing, product catalogs, and taxation. Its services replace existing invoicing solutions with a subscription service that is well-integrated with other business applications and can be customized to an organization’s needs and scale. Zuora’s customers include startups like Box, Marketo, and Zendesk as well as manufacturers such as Schneider Electric and Honeywell.
Zuora is continuing to expand its portfolio. Last year, it released a predictive data product called Zuora Insights that allows its customers to combine financial, demographic, and behavioral data to provide useful insights regarding the customer. The product allows organizations to proactively make use of this data to find issues and understand the customer better.
In May this year, Zuora has announced its plans to buy Leeyo, a leading company in revenue-recognition automation, for an undisclosed price. Leeyo was founded in 2009 to help companies automate their complex revenue accounting and forecasting processes. It has more than 100 customers and 100 employees.
The acquisition will help Zuora deal with the new accounting rules for subscription-based companies that will be implemented in fiscal 2018. Leeyo’s RevPro will become a division of Zuora, and CEO and co-founder Jagan Reddy will become that division’s general manager.
Last year, when I interviewed its CEO Jagan Reddy for our Entrepreneur Journey series, he disclosed that the price point for the annual subscription fee ranges from $300,000 to $500,000 for billion dollar companies and $100,000 for mid-sized companies. In 2015, when they forayed into the SMB sector, 75% revenue came from large enterprises and 25% from SMBs. Its revenue was about $15 million in 2015 and it was targeting revenue of $20 million to $25 million in 2016. Read more about how CEO Jagan bootstrapped the company to that level.
Zuora earns revenues by charging its customers a percentage of their subscription revenues billed through its platform. Details of its financials are not disclosed, but it is reported to have more than $100 million in annual revenue. In 2015, analysts estimated that it was managing nearly $42 billion in invoices.
Zuora has been venture funded so far with $242.5 million in venture funding from investors including BlackRock, Wellington Management, NextWorld Capital, Northgate Capital, Vulcan Capital, Benchmark Capital, Marc Benioff, Shasta Ventures, Lehman Brothers, Redpoint Ventures, Tenaya Capital, Index Ventures, Greylock Partners, and Dave Duffield. Its last round was held in March 2015 when it raised $115 million at an undisclosed valuation. In early 2011, it raised $36 million at an estimated valuation of over $300 million. Analysts estimate that it is presently valued at more than $1 billion.
In early June, Zuora added Magdalena Yesil, the first investor in Salesforce, to its board. This move is seen as an initial move for the company to go public.
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This segment is a part in the series : IPO Prospects