Notion, the profitable startup that had to go to great lengths to avoid aggressive VCs, explains why it chose now to raise $10 million at an $800 million valuation
- For the buzzy enterprise startup Notion, one of the trickiest parts of running its profitable, high-growth business has been politely turning down meetings with would-be investors.
- "We're not anti-VC," Notion CEO Ivan Zhao told Business Insider in February. "It's more about helping us focus on product and less on meetings."
- That's why it came as a surprise that Notion recently raised a $10 million "angel round" at an $800 million valuation.
- Here's why Notion - which has been obsessive over staying lean and growing intentionally - decided to raise right now. It has to do with the financial structure of the company, as well as a desire to give three individuals who have been "remarkably helpful" to Notion the opportunity to invest, says its COO.
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For the buzzy enterprise startup Notion, one of the trickiest parts of running its high-growth, profitable business has been how to politely avoid coffee meetings with would-be investors.
In fact, in February, Notion CEO Ivan Zhao told Business Insider that the company decided against listing its new office address on Google Maps so that perspective VCs wouldn't come knocking - something that happened regularly at its previous workplace.
"We're not anti-VC," Zhao said at the time. "It's more about helping us focus on product and less on meetings."
That's why when The Information broke the news this week that Notion - an "all-in-one workplace" that acts as a replacement for documents, wikis, and other task management tools - was raising a new funding round, it came as something of a surprise. Doubly so, that the company was raising a relatively modest $10 million (in what it calls an "angel round") at a relatively high valuation of $800 million.
Notion's ethos since its inception over six years ago has been to grow its product, and its team, thoughtfully. In fact, in an interview with Notion's COO Akshay Kothari on Friday, the head operator told Business Insider the startup's small team, which now numbers 25 in total, had been a key to its success.
"Staying small is not just because it sounds nice," Kothari said. "Staying small is actually helpful for us to move fast."
Kothari also said that for "several months now," Notion - which reportedly has over one million registered users - has been profitable.
So why raise now?
Notion's reasons for raising
Kothari said the reasons were mostly practical.
Early on, Notion had given its investors convertible notes - a form of debt financing that act similarly to loans, often used by early stage startups - and those notes actually needed to be converted. Some of them, Kothari said, carried interest and so the team wanted to "close those out."
The team also wanted to give three individuals who have been "remarkably helpful" to Notion the opportunity to invest, Kothari said. The $10 million "angel round" was entirely comprised of investments from those three: Daniel Gross (former partner at Y Combinator), Lachy Groom (Head of Stripe Issuing), and Elad Gil (a self-proclaimed "startup helper").
Groom and Gil were previous investors in Notion. For Gross, this was his first investment in the company.
Hiring for growth
Beyond sharing the goods with those who have been good to them, Kothari said the funding would be used to hire for roles that have become a necessity as Notion's customers become larger and larger. Some, like the messaging platform Intercom and Hearst Media, have over one-thousand users, and in those cases, Notion wants to have more hands-on account management.
Also, thus far, the company has never used paid marketing, like Google or Facebook ads, to gain new customers. But part of the raise, Kothari said, will be used to experiment with paid acquisition channels.
When asked if growing its operations teams and venturing into paid advertising will compromise the company's almost-obsessiveness over staying lean and growing intentionally, Kothari said: "It's a worry that I've had myself."
"We're not looking to hire a sales army here," Kothari said. "We're thinking about it very much from a systems perspective. We feel good about the way we're building products. We feel good about how we have community and support. One of the things we're investing in on the marketing side and sales side is to continue to have that systems approach in building these teams out."
As for how Notion settled on its $800 million valuation, Kothari told us that part of it was to avoid the "craze" that inevitably comes from reaching unicorn status, which comes with a valuation of $1 billion or more. The head operator also said his team considered the valuations of other, comparable software-as-a-service companies - especially Zoom and Slack, which recently went public.
Regarding how such massive valuation could come from an "angel round," Kothari downplayed the importance of such titles.
"Some of the names of these rounds," Kothari said. "Seeds have become pre-seeds. Pre-seeds have become something else. I guess it should be called a $10 million round with three individuals who have been deeply helpful."