Qualtrics is profitable and doesn't need more cash. But its $150M Series B is all about going big

By Michael Carney , written on September 24, 2014

From The News Desk

How’s this for a fundraising sales pitch? “We’ve grown 90 percent per year for the last five years, we’re massively profitable, and we’re dominating our category.”

Pretty good, huh? And it would have been compelling had the company it describes been looking for capital. But as was the case with its $70 million Series A, the company wasn’t in the market for a Series B either. (It’s a rare luxury available to founders who are in hyper-growth mode and still adding cash to their bank accounts daily.) Not surprisingly, it got plenty of inbound interest.

Provo, Utah-based Qualtrics, which offers what it describes as an enterprise insights platform – think surveys, polling, and market research aimed at both customers and employees – today announced $150 million in “opportunistic" Series B funding. The round was led by Insight Venture Partners, a vaunted growth stage investor that should bring new expertise and perspective to the table, and included participation from existing investors Accel Partners* and Sequoia Capital.

“Our investment in Qualtrics reflects our confidence in the company’s continued growth and innovation in this market,” Insight MD Jeff Lieberman said in a statement today.

It’s easy to be confident when things are going up and to the right, including cash on the balance sheet. But the question is, why did Qualtrics CEO and founder Ryan Smith and his board decide to take on the extra dilution?

The answer is really two-fold. First, like any CEO facing a giant market opportunity, Smith points to “going faster” as his number one motivation taking on new investment.

“We added 300 employees just this year. We just opened a Dublin office and added 55 employees there. We’re about to open an office in Sydney, Australia and a development office in Seattle. We haven’t even done any acquisitions yet,” he tells Pando. “So this was primarily about creating a big warchest and allowing us to feel comfortable going even faster.”

Second, fundraising is an opportunity to add additional smart people to help guide any company’s growth.

“Even in our Series A round, we didn’t raise from Accel and Sequoia because we needed money. We wanted to have the smartest people around the table,” Smith says. “This was no different. When you have thoughtful investors who are very close to the details, it’s not that hard of a decision. This round literally happened in a weekend. It’s not like we decided we were going to run a Series B process.”

In a weekend. Wake up, take the dog for a walk, raise $150 million, go to brunch with the family. Must be nice.

But Qualtrics' seemingly easy road to fundraising is hardly an accident. From the time the company launched in 2002 until raising its first outside dollar in 2012, Smith and his team bootstrapped themselves to $50 million in revenue and profitability. It’s an exceedingly rare feat, especially in the SaaS category. And yet, somehow the company is one of three billion dollar businesses on a single street in Provo.

“This is an incredible business, we’re very lucky to be able to invest in this asset,” Accel's Sweeney tells Pando. “There are very few other businesses that have been profitable, with north of $100 million in 100 percent recurring revenue. Atlassian is one of the few others and we were fortunate to be involved there as well. SolarWinds is another. There’s a reason this is Accel’s largest software holding in firm history. Based on the numbers they’ve generated, it should be.”

About those numbers: Today, Qualtrics, which is taking on the giants of the market research industry, has 6,000 enterprise customers (totaling 1.9 million seats) in 75 countries, including half of the Fortune 100 and 99 of the top 100 business schools. Across this user base, the company hosts 2.1 million active surveys per day. As noted above, the company has been profitable and growing at a 90 percent CAGR over the last five years. Box and every other high-growth, high-burn-rate startup could learn something from this story.

I asked Sweeney, given this narrative, why Accel or Sequoia didn't lead this subsequent round. If there ever was an opportunity to keep things in-house and double down on a winner, Qualtrics seems like it. First, the two existing investors contributed meaningfully to this new round, he notes; this wasn’t some token pro-rata participation. But beyond that, it goes back to adding smart people and also to transparency.

“From a fiduciary duty perspective, it’s a lot cleaner to have an outside person come in and value things,” Sweeney says. “But make no mistake about it, we absolutely would have led this. The guys at Insight are good friends of ours, we do a lot of deals together. So from that perspective, it made things really easy."

Qualtrics’ road to fundraising was nothing if not atypical. But the company spent years laying the groundwork to make this round possible. The plan now is to use this new capital to accelerate growth and take the company from “north of $100 million” to half a billion or $1 billion in revenue before turning to the public markets, according to Smith.

“We want to be around for a really long time, and we have the opportunity to do something really great and be a category defining company,” Smith says. “We’re a data company, and when we started in 2002, data wasn’t at the center of everything. Today, it is. The market is really responding to it and everyone is talking about big data – we like to talk about fast data. Insights are becoming currency. It’s like gold.”

“I tell them, we’re going 150 mph in a 100 zone today,” Sweeney says. “Now it’s time to go 200.”

[*Disclosure: Accel is an investor in Pando.]