A $1.5 billion series A? Here’s what’s behind those giant rounds.

It's not just an out-of-control funding market.

Illustration of an entrepreneur raining money into the air.

It's raining money. (Hallelujah?)

Illustration: Nuthawut Somsuk/Getty Images

Perch raised a "historic" $775 million on May 26. Transmit Security raised the "largest cybersecurity series A round" ever of $543 million a month later. On Thursday, Articulate is announcing "one of the largest series A rounds in history" — a whopping $1.5 billion for a company that makes software to create online training apps.

No, it's not a sign of an out-of-control funding market (although the funding market is out of control and cash is easy to come by). There's more to these mega-rounds than meets the eye.

Take Articulate, which on Thursday announced that it had raised a cool billion and a half from General Atlantic, Blackstone Growth and ICONIQ Growth for its series A round. The paperwork was all labeled series A because it's the first institutional funding that the company has raised, but it doesn't fit the profile of your typical series A company that raises around $9 million.

Instead, Articulate was founded in 2002 and has been bootstrapped since Adam Schwartz started it with his life savings. The nearly 20-year-old company employs over 300 people in a fully-remote workforce and builds software that enables people to easily build online learning apps. It's profitable and has over 106,000 customers, including all of the Fortune 100, Schwartz said.

Yet despite operating a profitable and growing business, Schwartz and Articulate President Lucy Suros decided it was time for the company to finally raise some cash, pointing to a confluence of trends like remote work and the consumerization of the enterprise. It was less about the money and more about just having investors around the table who had seen growth before and knew the scaffolding needed to take it to the next level, Suros said.

"You don't generally go from high school sports to the pro leagues," Schwartz added. "This is in some ways like our college years. "

Its growth had already caught the eye of General Atlantic's Anton Levy, who had been close to the company for years. The growth equity firm led the investment alongside Blackstone and ICONIQ. The deal didn't include debt, but it is a mix of primary and secondary funding that values Articulate at $3.75 billion.

The company plans to use the cash to expand hiring and try to grow its sales both in the U.S. and internationally. It can also invest more aggressively in R&D, or, as Levy pointed out, consider M&A as a way to grow and scale.

"It's a great opportunity because those things haven't been done yet, simply for the fact he didn't have that kind of big large capital base around," Levy said. "So for us, it's an exciting opportunity to use capital strategically to flex a growth rate and really try to grow a platform."

Articulate wasn't the only giant series A. Just two weeks ago, General Atlantic announced a similar investment of $543 million in a series A round for Transmit, touted as the largest series A for a cybersecurity firm ever. The company similarly started out bootstrapped in 2014, before it started seeing the downsides of not taking venture money.

"We are in a highly competitive human capital race," Transmit co-founder Mickey Boodaei told Geektime. "Today, when we recruit, we're always compared to other companies that raised this and are valued at that. They often don't understand that unlike a company which has raised $100 million at a $500 million valuation, the bootstrap story we tell them offers so much more opportunity."

Others, like Perch's $775 million series A led by SoftBank, are combining an equity fundraise with debt. Perch is part of a new cohort of startups that are basically acting like PE shops and rolling up Amazon sellers. It needs a different level of cash to be able to continue to buy businesses compared to a SaaS company fundraise.

So is it right to consider these "series A" rounds if the companies are profitable operations that employ hundreds of people? As Levy points out, an IPO is called an IPO whether it's Facebook going public or a company doing $30 million in revenue. It still counts as a series A if it's the first institutional capital into a company.

"These are very, very special companies when you come across some of these companies that are proven business models growing at scale," Levy said. "They don't come around all that often."

Correction: An earlier version of this story misspelled Mickey Boodaei's name. This story was updated on July 1, 2021.


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