While the list of VCs on the company’s cap table is long, there are three investors and funding rounds that made a big difference to the company’s fortunes.
In 2011, Accel Partners put in $1 million. It was Accel’s first SaaS investment in India and was made when Freshdesk had only a few small customers, but Mathrubootham’s pitch was compelling enough to convince them. While a million dollars might not sound like a lot today, in that day and age, it went a long way in helping the company seed its marketing efforts.
Best of times
In 2012, Tiger Global led a round of $5 million. As with Accel, it was Tiger’s first SaaS investment in India and came when the company only had a few dozen small customers, but again, Mathrubootham was able to present a narrative that convinced Lee Fixel, then a partner at Tiger Global, that this could be a big company. Raising a Series B is tough at the best of times, but being able to do so on “future potential” rather than “past performance” is a rare skill. Tiger’s involvement not only helped Freshdesk double down on its marketing budgets, but it also allowed the company to hire talent in Silicon Valley.
Finally, in 2014, Google Capital led a round of $31 million in the company. By this time, Freshdesk already had more than 20,000 customers but Google’s involvement helped the company fine-tune its SEO and SEM efforts and optimize marketing spend.
Crucially, unlike B2C companies where funding is used merely for Hail-Mary deep discounting and doesn’t guarantee customer loyalty or retention, in the case of Freshdesk, funding was used to create a virtuous flywheel. For each dollar spent in marketing, the company could tell the business that would be generated and the time it would take for this revenue to exceed the initial marketing dollar spent.
This measure, known as the payback period, is a key metric for SaaS companies and one in which Freshdesk excelled in. While competitors like Zendesk had payback periods of 18 to 24 months, Freshdesk had a figure of just 6 months. This was a function of both efficient marketing spending as well as having an army of low-cost marketing resources in Chennai—fresh engineering graduates trained for two-three months in the craft of SaaS marketing.
Expanding it in both ways
Freshdesk’s expertise in marketing helped it get from $1 million to $10 million ARR, but to go from that point to $100 million, it had to expand both longitudinally and latitudinally.
Freshdesk morphed from a single product company to Freshworks, a full suite of enterprise solutions spanning IT services management product (Freshservice), customer relationship management (Freshsales), customer messaging (Freshchat), call center (Freshcaller) and human resources management (Freshteam).
In terms of customer segments, the company now services the entire spectrum from small and medium enterprises to multinationals. The company has also expanded from pure inbound marketing to a mix of inbound and outbound sales techniques, hiring heavy-hitters to drive direct enterprise sales to complement the customers who come on their own to the website.
End of the journey
In Mathrubootham’s worldview, the $100 million ARR mark is a milestone rather than an end to the journey. His eye is now set on the $1 billion ARR mark, with an IPO somewhere along the way.
These rarefied heights are a new world for Mathrubootham, populated as they are only by a handful of the top SaaS companies in the world such as Salesforce, Workday, and Zendesk. There is no prior playbook to read from, and the rules of this game need to be improvised and made up along the way.
But 2019 is altogether different from 2011. The markets for SaaS products might have grown ten times but the competition has grown by multiple factors. Staying relevant in such a competitive environment is a daunting challenge.
Today, Freshworks is said to spend tens of millions of dollars each year on Google ads, correspondingly, the payback period has increased from six months to fifteen months, still respectable but not as big a competitive difference as earlier.