Notion’s New Round And The Optimism Of Hot SaaS Valuations

When Airtable raised a $60 million Series B in March of 2018, it looked like a win. The firm hadn’t raised capital since mid-2015, an eternity in startup terms. But then later that year, the cloud database-spreadsheet-and-more startup stacked another $100 million into its account in the form of a November 2018 Series C.

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Capital was hungry to get into the company, pushing its venture rounds together and piling money onto the company’s desks.

Airtable isn’t alone in taking on lots of cash, quickly. Slack famously raised money it didn’t need because it could. And Brex recently raised an extra $100 million just to help reprice itself more highly. Brex, of course, isn’t a SaaS company like our other examples, but it fits our financing narrative well.

In 2019, it seems that there’s very little upper bound for capital and resulting valuations bestowed upon the hottest of tech startups. This means that companies that venture capitalists all want to put money into aren’t valued on fundamentals (always a risky concept in the venture world), but instead on an expectation of outsized returns despite paying sky-high dollars for every user, paying customer, or current ARR base.

We can see this play out in the history of Airtable. Airtable’s valuation shot from $152 million to $1.1 billion between its Series B and its Series C. That’s a bonkers pace of value creation, at least on paper. What Airtable gets out of the deal is lots of capital at a low dilution cost; investors get a long-term wager on a company that they expect to exit for billions, if not tens of billions.

Your metrics have to be pretty amazing to engender that amount of confidence in private investors. Or you’re good at scaring them into thinking that they are about to miss out on the future and a lifetime of bragging rights.

But perhaps most notable of all is the recent Notion round. The firm raised a tiny $10 million against an $800 million pre-money valuation. A sum of money so small compared to its valuation that the firm effectively suffered from zero dilution. (Notion could have secured a higher valuation, but declined as to avoid hype; the move failed.)

So what exactly is all that appealing about Notion? For one, work trends are changing.

Notion, with its merging of to-dos, calendars, notes, and team collaboration, reduces the need to switch between multiple apps throughout the day. For remote workforces, or even for office-based teams spread out across the country, reducing switching costs is a likely boon to productivity while also reducing administrative management (think password sharing, getting licenses for various products, bill keeping, training, etc.).

Notion isn’t the only startup focusing on this problem, even if it is gathering the most attention among some of Silicon Valley’s venture class (dare we call them influencers?). Swit, for instance, raised a $6 million seed round to essentially merge Slack, Airtable, and Superhuman under one application. (The joke that all of tech is just bundling, and unbundling, continues to hold.)

But is it a bet that will scale beyond freelancers and small teams to the enterprise, like Slack and Zoom have managed? Notion, after all, exists in a bit of a bubble. Remote and distributed work is not as popular as it may seem—even most of the management in the Valley tends to eschew remote work in favor of centralized offices.

Furthermore, workflow foundations are hard to change. What a company chooses to start out with—whether that be Slack, Skype, Office 365, Zoom—is usually what they continue (or end) with. To convince businesses already entrenched in their workflows usually takes a sales person or two. Word of mouth, when valuations get this large, will only carry you so far. There is also little evidence that this merging of apps actually works.

Slack and Zoom took existing, known wins (chat and video chat) and turned them into high-growth businesses despite existing market competition. But Slack, for instance, has struggled to contain all business activity to its one app, even with a robust app ecosystem and goodwill from the third-party developers. In short: It’s a tall order to contain all business activity to one app, even for public SaaS companies with the cash to attempt it.

Yet in the case of Notion, those concerns may be overwrought given the stakes.

A Good Bet?

Well-known venture capitalist Jason Lemkin threw in his two cents concerning the matter on Twitter this morning, saying that while he doesn’t know Notion’s revenue base, the investment is a “bet” that “can only lose $10 [million],” while he views the upside as high as $200 million.

From that perspective, congrats to the VCs who managed to get their capital into Notion. You won! Now the company has to grow into that valuation. Let’s see how long it takes.

Illustration Credit: Li-Anne Dias