Webflow, a well-funded no-code startup that helps customers build websites, raised a new round of capital this week.
Per Forbes reporting, Webflow landed $120 million in fresh funds at a $4 billion valuation. Forbes also writes that the company will reach the $100 million annual recurring revenue (ARR) mark shortly, has more than 200,000 customers, and currently earns around 8% of its total top line from enterprise customers.
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The above comes a little over a year after Webflow raised $140 million at a $2.1 billion valuation, giving the company a roughly 2x valuation bump with its new capital.
But what we care about more than the company’s raw valuation is the revenue multiple that the figure represents. Why? Because while nine-figure startup rounds are still getting done, we’re hearing from investors and founders alike that terms are tightening.
Even more, the public market has dramatically cut the value of software revenues, leading to some concern that late-stage startups are going to suffer when they go back to raise more capital. (This sentiment, for example, was echoed this morning in CNBC.)
A few days ago we noted that the era of startup valuations at 40x ARR was fading and that more conservative metrics were becoming common. With a $4 billion valuation and roughly $100 million ARR, however, Webflow is valued at precisely the number that we cast as a figment of yesteryear.
Are 40x ARR multiples still fair game for startups that have reached revenue scale? The answer is that they may prove increasingly rare, but that Webflow has a few things going for it that are likely affording it a valuation premium. It’s worth weighing Webflow itself in the context of its rich multiple — but perhaps not presuming that other startups will be able to follow its example this year.
So let’s do that.
Webflow and the 40x question
To understand Webflow’s latest round and resulting ARR multiple, we have to do a little historical digging. Pulling from our coverage of the company’s previous round, and a set of notes from an interview with Webflow CEO Vlad Magdalin, the following:
- Webflow roughly doubled its customer count since its last round, from 100,000 to 200,000; this means that its most recent round was effectively priced at the same value per customer. That said:
- Webflow’s enterprise revenues are now material, meaning that its average customer is worth more than one year ago. Back in early 2021, when Webflow raised its preceding round, Magdalin said that enterprise customers were worth less than 5% of his company’s revenues at the time. That number has scaled to more than 8% as of today, and will likely continue to expand as the company builds out more features for larger customers.
Doubling customers while seeing their average customer value — we presume — rise means that Webflow is now effectively cheaper per customer than it was before. Fair enough. But while doubling customer count with an increasingly upmarket customer base is bullish, does the company set fire to bundles of cash to power its growth?
- Not historically, per the company’s telling of its own history, though we doubt that Webflow raised new capital to frame it. Even more, Magdalin said that his company was cash-flow positive in 2020 back when it last raised.
- What matters isn’t whether Webflow is still cash-flow positive, but the fact that it was, rather recently, not incinerating cash. That allows us to hazard a guess that the company is not a complete train wreck today when it comes to capital consumption.
All this is looking pretty good so far. But we still need to discuss growth. Collecting the data once again:
- Forbes reports that in 2019 the company had “more than $10 million in annualized revenue.”
- Magdalin told TechCrunch in early 2021 that in 2020 its business had doubled.
- And then, today, we learned that the company is within a few weeks of $100 million worth of ARR.
I am not going to try to over-scry the tea leaves, but it seems clear that Webflow is growing at a good clip even as it reaches IPO scale. This means that its revenue multiple is rather de-risked.
With years of capital now in the bank, if Webflow grew at 50% for the next two years, it would wind up with $225 million worth of ARR in early 2024. That would afford it a revenue multiple of around 18x, hardly shocking for a software company still in its growth curve. And one that at 50% growth would likely be defensible.
The company may be growing more slowly than our above estimate, but that would simply extend its private lifecycle and delay its IPO. Either way, something massive would have to happen to derail the company. And that’s why it managed to get a 40x multiple. Your mileage, as always, may vary.