Zuora Nets $20 Million in C Round

Posted: November 9, 2010 in CRM, Economics, Technology
Tags: , , , , , , ,

Zuora, the subscription billing company announced that it has concluded its Series C round of financing raising $20 million and bringing its total capital investments to $41.5 million.  The round was led by Redpoint Ventures and the existing investors including Benchmark Capital, Marc Benioff, Shasta Ventures and Tenaya Capital also participated.

This strong performance says a lot about the company, its management and the idea of the subscription economy.  In a time when credit is tight and venture funds are raising much less capital than they did five or ten years ago, Zuora’s success marks a kind of breakthrough that says good ideas can still be funded and that the subscription economy is a real good idea.

Analysts refer to the just finished recession as a balance sheet recession rather than the more familiar inventory related type.  In classical economics when inventories get out of hand, production slows, causing a decline in economic activity, and inventories are sold off to rebalance the system.  Inventory recessions have become less prevalent in the last several decades as powerful analytics software has been employed for inventory management and ERP technology has better managed production.

The balance sheet recession happened when the banking system became over leveraged and credit collapsed.  Over the last two years corporations and individuals have worked to deleverage their accounts and in the process low credit availability caused a recession.

This recession precisely points out the importance of the subscription economy and may be a harbinger of recovery, albeit on different terms.  Leverage is being replaced by subscriptions as companies and individuals come to the realization that they don’t have to own everything they use if a viable subscription is available.

So far, companies like Salesforce.com, RightNow Technologies, NetSuite and many others have leveraged the subscription model to good effect with Salesforce becoming the first company to achieve billion dollar revenues based on the subscription model.

But subscriptions are not simply for software and that’s where Zuora comes in.  Many other industries could profitably take advantage of the subscription model if only they could accurately invoice and collect.  The hidden issue for many companies wanting to enter the subscription economy is that their antiquated billing systems cannot support the high transaction flows inherent in the subscription model.

Enter Zuora and its ilk.  As a leading company in the rapidly growing subscription billing industry, Zuora has figured out the business process including the transaction flows.  Zuora, or a company like it, will be at the heart of a change in the publishing industry as newspapers and magazines begin moving their subscriptions to the Web.  Periodical publishing is a great example of an industry hamstrung by its billing processes.  With billing so difficult all but a small handful of newspapers—The New York Times, The Wall Street Journal for example—give away their product.  Those papers have begun to stop the revenue drain and they are in the vanguard.

So, Zuora has twenty million dollars more in the bank this morning and because the company has been cash flow positive for most of this year, it looks forward to spending the new money on growth.  It is hiring sales people and opening up its European offices, for starters.  You can do a lot with that kind of money, including spark a business revolution, which will surely follow.

So, what did you think?

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