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Term Sheet — Wednesday, April 12

April 12, 2017, 2:16 PM UTC
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Qualtrics, the Provo, Utah-based enterprise software company famous for bootstrapping in its early years, has raised $180 million in new venture funding, valuing it at $2.5 billion. It’s a surprising move for the 15-year-old company, which has openly talked about its IPO plans in recent years and was widely expected to go public amid this year’s flurry of enterprise tech IPOs. As recently as Monday, a TechCrunch headline blared: “Is Qualtrics about to go public?”

Answer: Nope. Or at least, not right away. With $180 million in fresh capital, led by existing investors Insight Venture Partners and Accel with participation from Sequoia Capital, Qualtrics is poised to go on an acquisition spree instead. The investment also allowed some early employees to cash out on their shares, according to CEO Ryan Smith. “We don’t want so much pressure built up on the IPO,” he says. (Fortune profiled Smith and his company in 2016 as part of our 40 Under 40 issue.)

“Great companies that go public have a lot of optionality,” Smith says. In other words, he’s confident Qualtrics can pull off a successful IPO regardless of whether the so-called “window” is open. “We made some good decisions early on that are allowing us to write our own story. It’s awesome. It’s working,” he says.

Namely, the company’s decision to grow profitably from the start. This year, Qualtrics is on track to do more than $250 million in revenue. Raising venture capital – $400 million in total now – has not changed Smith’s perspective on the matter. “It’s part of our DNA. We just refuse to not be cash flow positive,” he says. “It’s hard when you’re trying to scale and you have a bunch of dry powder.”

Qualtrics’ investors are happy to keep providing more of it: Accel Partners has now co-led all three of its funding rounds. Ryan Sweeney, a partner at the firm, isn’t worried about an IPO. “There’s no reason to race and try to time the window because it just doesn’t matter for them,” he says. “Their growth is accelerating. They’re cash flow positive. The window will be there for them even if the market takes a turn.”

Regarding acquisitions, Quatrics is seeking companies that can fit into its recently launched Qualtrics XM Platform, which gives companies data on their customers’ experiences. (Smith believes every company will eventually have an “experience” software platform and executive focused on customer experience, just like they have a human resources platform and head of HR.)

A number of software startups startups focused on marketing and employee engagement-type problems are that haven’t figured out a go-to-market strategy are now putting themselves up for sale, according to Sweeney. “For Qualtrics to be there to buy some of these makes sense,” he adds.

Statwing, a company that Qualtrics acquired in 2016, was like “Qualtrics for statistics,” Smith says. “We plugged that right into the Qualtrics platform.” Qualtrics currently operates in 10 countries and may also look at international acquisitions.

Qualtrics still needs to “get its house in order,” before going public, Smith says. That includes adding a few more appointments to its board of directors. Alongside the funding, the company announced the addition of Murray Demo, CFO of Atlassian and former CFO of Adobe, to its board of directors and audit committee. The company also recently hired Zig Serafin, a 17-year Microsoft veteran, as its COO. And as Term Sheet noted yesterday, Qualtrics is one on a long list of tech companies seeking to bring on an experienced CFO, which Smith says is a possibility if it can find the right person.

Sweeney says he sees parallels between Qualtrics and Atlassian, another Accel-backed enterprise tech company that bootstrapped itself in its early days and went public amid a difficult IPO market. Both companies faced questions over the size of the markets they operated in when they were starting out. But each proved the markets they address are much bigger than anyone thought, Sweeney says. And both had strong go-to-market strategies. “To be able to scale a business in the hundreds of millions of dollars in the SaaS world, but to be cash flow positive quarter-to-quarter, is not like something we’ve seen,” he says.

Bonus material: In November I moderated a debate between Smith and Dave McClure of 500 Startups at Web Summit titled “Do entrepreneurs need a God complex to drive innovation?” November feels so long ago that I don’t even remember who won, nor do I know if what we discussed is still relevant given all that’s happened in the interim, but anyway they’ve just uploaded an audio recording of it on Soundcloud or iTunes, if you’re inclined to listen.


This newsletter got long quickly, so here are five very quick things:

Wish did indeed close its round of funding from Temasek, Term Sheet sources say. The valuation was “higher than flat.” As I noted on Monday, not announcing funding is all the rage these days.

Speaking of CFOs, yesterday’s Term Sheet included cybersecurity startup Tanium on a list of IPO-bound tech startups that are trying to hire CFOs. Shortly after we published, the company announced it hired Fazal Merchant, a veteran of DreamWorks and DirecTV, for the role. Read more at Fortune.

My “rough math” on Bain Capital’s return on its sale of CCCTK did not take leverage into account. REMEMBER THE LEVERAGE!, my inbox screamed. Since we don’t know how much leverage Bain used and I still haven’t heard a peep from the firm’s PR person on that front, here are some of your estimates for the $800 million acquisition:

If Bain used $200 million of equity and $600 million of debt, sold the company for $1.2 billion and repaid the debt, that leaves $600 million, or a 3x return on the $200 million equity check.

If Bain used a more conservative deal structure with $400 million in equity and $400 million in debt and paid down the debt upon exit, they’d have $800 million from the equity, or a 2x return.

Amazon considered buying Whole Foods last fall, according to Bloomberg. It would have been the largest ever acquisition for the e-commerce giant, and bad news for grocery delivery competitor Instacart. Now, activist investor Jana Partners is aggravating for Whole Foods to sell, sparking speculation that private equity firms may be interested in the asset.


Snap lawsuit claims the company misled investors.

A crazy lawsuit against Yahoo over a political dissidents fund.

Panera might get dragged into a bidding war.

More trouble for Zenefits over licenses.

Bain Capital-backed Gymboree planning to file Chapter 11.

Uber’s PR head Rachel Whetstone is leaving.


VC interest in AI hits a fever pitch. Disappearing messages on Instagram. Male stock analysts write more favorably about companies led by men. Casinos get into esports. Tesla’s employee parking problem. Trump’s trademark crusade.


Lyft a San Francisco-based on-demand ride company, confirmed previous media reports that it had raised more than $500 million in funding at a $7.5 billion valuation. The company closed a $600 million round, which includes new investors KKR (NYSE:KKR), Baillie Gifford and AllianceBernstein, and PSP, along with existing investors Rakuten and Janus Capital Group. Read more at Fortune.

NetEase Cloud Music, a Chinese online music platform owned by NetEase (Nasdaq:NTES), raised RMB 750 million ($108 million) in funding at a RMB 8 billion ($1.16 billion) valuation. Shanghai Media Group led the round, and was joined by Mango Cultural, Creative Industry Private Equity Fund, and CICC Jiatai Fund.

Actility, a French AI communication platform, raised $75 million in Series D funding. Investors include Creadev, Bosch, Inmarsat, Idinvest, Bpifrance, Ginko Ventures, KPN, Orange Digital Ventures, Swisscom, and Foxconn.

Tegile Systems, a Newark, Calif. provider of flash-driven storage arrays for databases, raised $33 million in funding. Western Digital led the round, and was joined by Meritech Capital, Capricorn Investment Group, and Cross Creek Capital.

Synack, a Redwood City, Calif. cyber security company, raised $21.25 million in a Series C funding. Microsoft Ventures led the round, and was joined by Hewlett Packard Enterprise and Singtel Innov8. Read more at Fortune.

Orbital Systems, a Swedish maker of water-saving showers, raised £15 million ($18.7 million) from angel investors including Skype co-founder Niklas Zennstrom, according to Reuters. Read more.

Neyber, a London fintech startup providing employees with loans, raised £7.5 million ($9.8 million) in Series B funding, according to Tech City News. Investors include Henry Ritchotte, and Gaël de Boissard. Read more.

Metamaterial Technologies, a Halifax, Canada smart materials and photonics company, raised $8.3 million in Series A funding. Radar Capital led the round, and was joined by Innovacorp, among other investors.

Cleanly, a New York-based on-demand laundry and dry cleaning service, raised $5 million in Series A funding, according to TechCrunch. AddVenture led the round, and was joined by Initialized Capital, Altair Capital, and Millhouse Capital. Read more.

HackerEarth, an Indian talent management platform for developers and organisations, raised $4.5 million in Series A funding, according to the Economic Times. DHI Group led the round. Read more.

Virtualitics, a Pasadena, Calif. developer of big data visualization and analytics tools for virtual and augmented reality platforms, raised $4.4 million in a Series A funding. The Venture Reality Fund led the round.

Marble, a San Francisco maker of autonomous ground-delivery robots, raised $4 million in seed funding. Eclipse led the round, and was joined by Maven Ventures, Amplify Partners, and Lemnos Labs.

LEND, a Zürich-based fintech startup, raised CHF 3.5 million ($3.4 million) in Series A funding from Polytech Ecosystem Ventures and angel investors.


Cirius Therapeutics, a Kalamazoo Mich.-based clinical-stage pharmaceutical company, raised $40 million in Series A funding. Frazier Healthcare Partners and Novo A/S led the round.

ALung Technologies, a Pittsburgh provider of low-flow extracorporeal carbon dioxide removal technologies for treating patients with acute respiratory failure, raised $36 million in Series C funding. Philips and UPMC led the round.

TargEDys, a French developer of microbiome-based products that work to regulate appetite, raised an additional €3.5 million in Series A funding from Zaluvida.


Dyal Capital Partners acquired a minority stake in TSSP, TPG’s global credit investment firm. Financial terms weren’t disclosed, but the Wall Street Journal reports Dyal acquired a 10% stake in TSSP at a $3.5 billion valuation. Read more.

Tinicum invested $40 million in PAS, a Houston-based cybersecurity company.

Alpine Investors invested in Minute Menu Systems, a Richardson, Texas developer of child care management software. Financial terms weren’t disclosed.

Anju Software, a life sciences software platform backed by Providence Equity Partners, acquired the assets of OpenQ, a provider of technology services to the healthcare and financial industries. Financial terms weren’t disclosed.


Pon Holdings has approached fellow Dutch bike company Accell Group (ENXTAM:ACCEL) with a €845 million ($895 million) takeover bid. If the deal goes through, the combined company would have sales of around $2 billion. Read more at Fortune.

Siemens AG (DB:SIE) and Bombardier (TSX:BBD.B) are are in talks to merge their rail operations, according to Bloomberg. The combined unit would be worth north of €10 billion ($10.6 billion). Read more.

Meredith (NYSE:MDP) is in late-stage talks to acquire Time Inc. (NYSE:TIME), the publisher of Fortune, Time, Sports Illustrated, and People, for roughly $2 billion, according to Bloomberg. Read more.

Jo-Ann Fabric and Craft Stores, a Hudson, Ohio-based  fabric and craft specialty retailer, acquired Creativebug, a San Francisco provider of videos on topics in the arts and crafts sector.


Insight Venture Partners acquired Zyme, a Redwood Shores, Calif.-based provider of cloud-based SaaS applications, for around $100 million. Zyme raised more than $12 million in equity funding. Investors include Artiman Ventures and Susquehanna Growth Equity.

Stripe, a San Francisco-based online payment company, acquired Indie Hackers, a San Francisco community for entrepreneurs and developers. Financial terms weren’t disclosed.

NuStar Energy (NYSE: NS) agreed to acquire Navigator Energy Services, a Dallas-based provider of infrastructure services to oil and gas producers, from First Reserve for around $1.5 billion.

ArchiMed sold its majority stake in HIS, a French “specialist in nutraceuticals,” to Group Doehler.


Converge, a Boston-based, early-stage venture capital firm headed by Nilanjana Bhowmik and Maia Heymann, has launched.

Tokio Marine Capital, a Tokyo-based private equity and venture capital firm, raised $466 million for its fifth mid-cap Japanese buyout fund.


Brian James and Nicholas Rowland joined Sheridan Capital Partners as vice presidents. James previously worked at H.I.G Capital, and Rowland was most recently at Providence Equity Partners.

Bessemer Venture Partners promoted Talia Goldberg to vice president.

Livingstone promoted Robert Tymowski to director, Mark Carl to associate director, and Nathan Pastron to associate. All three work out of the firm’s Chicago office.


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Term Sheet is produced by Laura Entis. Submit deal items here