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Comment by sillysaurus3 | Hacker News Reader

I see a lot of "Congrats" type sentiments in this thread. Maybe I should just say congrats too, but I can't help but wonder: Isn't it a terrible idea to raise $60M as a series A?

That means you'll either need to be bought for ~$100M just to break even, or IPO, which seems very rare nowadays.

Could anyone help me understand what the calculus looks like for these decisions? It's a series A too, not even a series B or C. I get that the founding team genuinely believes in the vision of the company, but you can still believe in the vision without removing your ability to exit.

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If you take any amount of VC money the expectation is that you're going for >$1bn exit.

Also remember that the Series of the investment doesn't necessarily reflect the stage of the company but rather the number of rounds of investment it's had. In this case MessageBird expect to hit $100m of revenue this year.

They’re probably within spitting distance of a $1B valuation. Probably 5-8x at this point?

The fact that they’re there this quickly is absolutely mind boggling.

They're saying they expect to generate $100M revenue this year. I think that places them a bit further off the $1B _exit_ than 8x, although if they raised further funding potentially that could be done at an amount that suggests a $1B value.

I wouldn't want to be competing against AWS Pinpoint, and the problems Twilio have suggests this is a technically difficult space. Seems like quite a big bet from the VCs involved.

Revenue to market cap multiples in technology on the public market are often in the 6x range even at slower growth rates than private companies. So if they're doing $100M they could easily be worth over $1B now.

"and the problems Twilio have"

Care to expand on this? When I visited their site to find out what they offer, I immediately said to myself.. "So this is just a Twilio competitor".

Don't dwell on the letter of the round. Some companies raise 10M in Series E because they don't require as much capital. Others raise more in Series A because they do.

Telecom is a capital intensive industry, which is why startups need to raise such large amounts of money. This is also why Twilio needed so much money (>$200mm) though they did take it in later rounds.

Venture and Growth Investors are only looking for $1 billion plus exits, so the $100M breakeven doesn't bother them. Instead, they ask, "What's a new telecom company going to be valued at?" and "What are the chances this can get there?" and "What will our ownership be then?". They multiply the three #s, and then do some discounting.

> Telecom is a capital intensive industry

These companies aren't really telecom companies though. Twilio owns no physical switches or telecom equipment, or at least they didn't when I worked there and I would be very surprised if they do now. There is no physical capital required to implement the business model of Twilio or MessageBird.

Note that there are still good reasons to take on large amounts of venture capital despite not needing to spend it on traditional telecom equipment.

You are not wrong, if you raise $60M then you have set certain constraints on your future. That said, as a primarily bootstrapped company with good traction and a reasonably world wide 'touch' if they aren't operationally cash flow positive yet I would be surprised. They have hit an interesting sweet spot between transactions (always a useful volume business) and an aged infrastructure (SMS). It was a space I would have expected Twilo might compete in.

So in this case it could simply be the cash they need to either prep for an IPO or to solidify their lead so that if they are taken out it is expensive (and thus a good return to the Series A investors).

I think they already had revenue and they were profitable before taking the money https://www.inc.com/profile/messagebird. Maybe their growth in terms of revenue and profits, really got investors excited. However they do have to payout telecoms so that revenue may not mean too much.

I am curious why they decided to join YC? Was it a ego thing. What proof do they have that their service is better than Twilio?

On the bad side: Often times VCs demand board seats in a large round and put in terms in the contract so they can block acquisitions. The ballpark is that VCs would like to get back ~5x valuation. I don't know what the valuation in this Series-A was but I assume it was north of 200m, meaning they would need to exit as a unicorn.

On the good side: It's not unusual for founders to demand a secondary sale to take some money off the table when VCs come in, especially in successful startups that raise lots. This is the counter "de-risk" move that the founders can (and probably should) pull so everybody can swing for the fences and the founders aren't the ones holding the bag if things go wrong.

I presume that their traction suggests they could get to IPO and/or a stellar exit within a short time frame. If you have the magic formula for growth, taking down a huge round makes a ton of sense.

My guess is that the VCs are betting on this being another Twilio, which did go public. And it seems like the founders are okay with hedging their bet by taking so much money so early.

Perhaps a genuine (and still rare) example of 1999 style startup bubble investing.

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