

Twilio announces $130M series E round - philnash
https://www.twilio.com/blog/2015/07/announcing-twilio-series-e-funding.html

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jakozaur
Several years ago, they would just IPO. They seems to be in a great shape to
do that:

[http://techcrunch.com/2013/06/07/twilio-
raises-a-70m-series-...](http://techcrunch.com/2013/06/07/twilio-
raises-a-70m-series-d-as-they-consider-an-ipo/)

[http://blogs.wsj.com/venturecapital/2015/02/20/twilio-
positi...](http://blogs.wsj.com/venturecapital/2015/02/20/twilio-positions-
itself-for-an-ipo-after-logging-100m-in-2014-revenue/)

Yet another case of late stage private capital.

~~~
ChuckMcM
The tech crunch article has some good details, and no, I don't think they
would be able to successfully IPO just yet, the reason is in the Tech Crunch
article :

 _" In February of this year, Twilio noted that it was adding $1 million in
recurring revenue every seven days, having ended 2014 with a revenue run rate
of $100 million. But like many quickly growing cloud startups, Twilio loses
money.

In the first half of 2015, the company booked $71.74 million in sales, with
cost of revenue of $32.32 million. Those figures leave a gross profit of
$39.42 million for the period. Deducting operating expenses and other costs,
Twilio had a net loss of $16.370 million in the first six months of 2015."_

So the first half of the year was $71M in sales, and they are running at an
operating loss.

They are adding $1M in recurring revenue a week. And we know that it costs
them roughly $450K to in costs to service that revenue (cost of revenue).

If we add in $1M in recurring revenue a week, for 6 months that is and
additional $26M in revenue, maybe $14.3M in additional income (subtracted off
the $450K/million cost of revenue), their 'burn rate' or costs for the first
half were 39M + 16M or $55M (that is $39M in gross margin and a $16M net
loss), if they keep costs constant (don't add head count, same level of
capital investment they had in the first half, etc) then we can guess that
their costs for the full year would be about $110M, subtracted from their
gross revenue (after paying cost of revenue) of $88M they end up losing about
$22M for the year.

You have a hard time IPO'ing if your business isn't paying for itself. And if
it isn't paying for itself, you can't IPO if you can't clearly explain why it
eventually _will_ be paying for itself.

So the multi-million dollar question which the CEO is no doubt mulling over,
is that given the cost of revenue, and the company's costs to get that
revenue, is there a point where they make money? In my napkin analysis I made
a very charitable assumption that their additional revenue won't incur any
additional costs, but that may be incorrect. They may (or may not) write off
their equipment against revenue which is not unusual in accrual based
accounting but their corp infrastructure and things like leased space come out
of G&A. So either they have a story of how they reduce their costs to make
money on existing revenue, or they have a story that new revenue adds more
gross margin than costs it consumes, and plot an intercept path to
operationally cash flow positive and then net cash flow positive. At THAT
point they can IPO and stop thinking like a startup.

~~~
shostack
Is "cost of revenue" typically inclusive of recurring revenue? Or just new
revenue (ie. cost of sales)?

~~~
ChuckMcM
Disclaimer, I'm not an accountant, but I've been audited by one :-). In web
services company its cost of providing the services, so for example a $6,000 a
month bill for IP transit services to Cogent or Level 1 would be a 'cost of
revenue' and depreciation of the servers, or telephone access fees. Anything
which has a monthly recurring cost, and is providing the infrastructure to
deliver the service. It is an analog to the cost of goods sold.

And sorry I didn't answer the basic question.

Recurring revenue would be revenue that you get every month, like subscription
revenue, memberships etc. Cost of revenue would be expenses you pay every
month. Over the month you accrue revenue and you accrue costs associated with
providing that revenue, you subtract the costs from the revenue to get the
gross margin on that revenue. Example if you pay 100/month to run an EC2
instance and that EC2 instance is providing a service to 300 subscribers
paying $1 a month, then your recurring revenue is 300 a month, your cost of
revenue is 100 a month, your gross margin is (300 - 100) / 300 or 66%.

~~~
shostack
Thanks for clarifying on the terminology. I work at a SaaS company so am
familiar with the dynamics, but less so on the financial terminology side of
things ;)

So basically, based on your estimates, they are still running negative despite
that recurring revenue, and with their current COGS, there may not be an
intercept point yet where they are profitable with current figures even as
that recurring revenue continues to grow?

~~~
ChuckMcM
Correct, the question, which we can't answer with available data, is what is
the "marginal margin" or more clearly for each million dollars of increased
revenue does the cost of revenue stay the same? Or go down? If it stays the
same, and their over heads don't go down, then they need basically another
year and a half of growth at their current rate to break even. On the outside
looking in we can't know of course, somewhere though, there is a spreadsheet
:-)

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djloche
Interesting to see that Bessemer Venture Partners isn't listed as
participating in this round. They've been involved in all the previous
funding.

~~~
RobSpectre
Rob from Twilio here - the firms listed in the first two paragraphs are the
new folks who are joining in this round, not the exclusive list of all
participants.

BVP did participate in this round - great team to work with.

[edit] typo.

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pkaye
How many rounds of funding can a startup have? For example, has any company
ever reached H round?

~~~
stingraycharles
Twitter has had a series G round: [https://www.crunchbase.com/funding-
round/6e6bf5db8245ac7b960...](https://www.crunchbase.com/funding-
round/6e6bf5db8245ac7b96059e4e0b99e08a)

~~~
tricolon
Supposedly, Palantir's latest is a Series I:
[http://siliconangle.com/blog/2015/06/24/report-cia-backed-
bi...](http://siliconangle.com/blog/2015/06/24/report-cia-backed-big-data-
analytics-firm-palantir-raising-500m-series-i-on-20b-valuation/)

And Alien Technology raised a Series L:
[http://blogs.wsj.com/digits/2014/10/09/alien-technology-
rfid...](http://blogs.wsj.com/digits/2014/10/09/alien-technology-rfid-
specialist-lands-series-l-funding/)

~~~
rory096
>Alien is not setting a record for venture fundings. VentureSource counts four
U.S. companies since 1992 that had raised 13 equity rounds through the second
quarter of this year.

So at least 4 series M, too.

------
rjv
Do early-round investors bank off of later ones? I don't really know anything
about fundraising, so my perception is that money it just getting shifted
around from one investor to the next.

~~~
jonathanjaeger
Sometimes a small portion of a round is used to buy out previous investors or
sell some founder/early employee shares, but that's not the point of a round
like this. If it's not for growth of the company, that would be a bad sign.

~~~
grinich
Sometimes it's a much larger portion. For example, when Twitter raised its
last pre-IPO round of $800 million, half of that immediately went to cash out
early employees and investors. FB also did this when DST invested. Most
venture funds aren't set up for the current timeline to liquidity (I'm sure to
VC's chagrin).

[http://www.wsj.com/articles/SB100014240531119035202045764823...](http://www.wsj.com/articles/SB10001424053111903520204576482351255849460)

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anantzoid
Let's hope they use this to stabilize their systems and make it more reliable.
Have been extensively using their service, and there are times when the SMS
doesn't get delivered.

~~~
dazbradbury
I had the same issues. Ran a side by side analysis with Nexmo and Nexmo were
winning. Contacted Twilio customer support with the data and they "changed
some routes" and deliverability was much better, outperforming Nexmo by some
margin.

Lesson learned: Create a test case, then contact support with evidence. It's a
lot more effort of course, but now I have a system which can flawlessly switch
between services if one begins to fail, and Twilio were much more inclined to
help!

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eonw
Twilio is a great product in my opinion, i have used them in a number of large
projects. I am surprised they aren't in the black yet. I figured streamlining
and then reselling access to telephony and mobile networks would be pretty
profitable.

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andyidsinga
that announcement is phony ;)

seriously though, twillio is a great product, cheers to them!

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gchokov
Keep pumping.. all the way until series Z and then pop the balloon.

