Dovetail has confirmed an infusion of fresh capital from a lead investor group. The $63 million round (Series A) was driven by Accel and closed by Australian software company Dovetail. The business has now received a little more than $70 million cumulatively while adding the fresh money at a $700 million (and northwards) valuation.
The numbers indicate that this is not your typical Series A funding round. Rather, it represents an investment at the late stage by Accel. The venture capital company has always invested handsomely in tech firms that have raised smaller amounts or have bootstrapped themselves, till raising sizable funds sometime later in their journeys.
The deal deserves careful examination, beginning from the inception of the company and also its current focus, taking into account the uniqueness of the funding round.
Dovetail Bootstrapping (almost)
Benjamin Humphrey, the CEO and co-founder at Dovetail, spoke about the fund-raising exercise, and the company’s origins. According to Humphrey, the New Zealander joined Atlassian in Australia, after working at a tech firm in the Bay Area. He stayed there for a number of years. Thereafter, he co-founded Dovetail without the goal of attracting venture funding.
Instead, he intended to model the business after Basecamp and Buffer, two well-known digital companies. They have chosen a growth strategy that aligns more with self-funding.
Although the company’s focus on software for the user research segment may seem specialized, Dovetail quickly gained enough traction to grow to a six-member team. It has also generated about $500,000 in yearly revenues. At the time, venture capitalists began approaching the company. As a result, Dovetail raised a smaller sum of approximately AUD $5 million in the year 2019.
Felicis, an investor in the company, wants to spend more money on growing the business by end-2020. Dovetail’s CEO claimed that the company was not in need of funding. Hence, it went for funding at a valuation surpassing $100 million in its seed round. This reflected the company’s position in the segment. (The moral of the story: Being somewhat profitable and expanding is the true sweet spot for start-ups)
That’s all there is, as of now. Before they had the opportunity to invest, Dovetail had only burned through 50% of its total financing, according to new investors like Arun Mathew and Rich Wong of Accel.
In the current market, software firms don’t frequently expand without incurring costs. Thus, Dovetail had to rely on customers to come in and buy what it was creating. According to Humphrey, the company’s sales and clientele increased last year. The business only recently hired its first account executive. It is pursuing a product-driven growth model likewise.
