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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.

Protocol | Workplace

The Activision Blizzard lawsuit has opened the floodgates

An employee walkout, a tumbling stock price and damning new reports of misconduct.

Activision Blizzard is being sued for widespread sexism, harassment and discrimination.

Photo: Bloomberg/Getty Images

Activision Blizzard is in crisis mode. The World of Warcraft publisher was the subject of a shocking lawsuit filed by California's Department of Fair Employment and Housing last week over claims of widespread sexism, harassment and discrimination against female employees. The resulting fallout has only intensified by the day, culminating in a 500-person walkout at the headquarters of Blizzard Entertainment in Irvine on Wednesday.

The company's stock price has tumbled nearly 10% this week, and CEO Bobby Kotick acknowledged in a message to employees Tuesday that Activision Blizzard's initial response was "tone deaf." Meanwhile, there has been a continuous stream of new reports unearthing horrendous misconduct as more and more former and current employees speak out about the working conditions and alleged rampant misogyny at one of the video game industry's largest and most powerful employers.

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Over the last year, financial institutions have experienced unprecedented demand from their customers for exposure to cryptocurrency, and we've seen an inflow of institutional dollars driving bitcoin and other cryptocurrencies to record prices. Some banks have already launched cryptocurrency programs, but many more are evaluating the market.

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Protocol | Workplace

Founder sues the company that acquired her startup

Knoq founder Kendall Hope Tucker is suing the company that acquired her startup for discrimination, retaliation and fraud.

Kendall Hope Tucker, founder of Knoq, is suing Ad Practitioners, which acquired her company last year.

Photo: Kendall Hope Tucker

Kendall Hope Tucker felt excited when she sold her startup last December. Tucker, the founder of Knoq, was sad to "give up control of a company [she] had poured five years of [her] heart, soul and energy into building," she told Protocol, but ultimately felt hopeful that selling it to digital media company Ad Practitioners was the best financial outcome for her, her team and her investors. Now, seven months later, Tucker is suing Ad Practitioners alleging discrimination, retaliation and fraud.

Knoq found success selling its door-to-door sales and analytics services to companies such as Google Fiber, Inspire Energy, Fluent Home and others. Knoq representatives would walk around neighborhoods, knocking on doors to market its customers' products and services. The pandemic, however, threw a wrench in its business. Prior to the acquisition, Knoq says it raised $6.5 million from Initialized Capital, Haystack.vc, Techstars and others.

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Protocol | Workplace

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Cisco's EVP and chief people, policy & purpose officer shares how the company is creating a more conscious and hybrid work culture.

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Amber Burton (@amberbburton) is a reporter at Protocol. Previously, she covered personal finance and diversity in business at The Wall Street Journal. She earned an M.S. in Strategic Communications from Columbia University and B.A. in English and Journalism from Wake Forest University. She lives in North Carolina.

Protocol | Fintech

The digital dollar is coming. The payments industry is worried.

Jodie Kelley heads the Electronic Transactions Association. The trade group's members, who process $7 trillion a year in payments, want a say in the digital currency.

Jodie Kelley is CEO of the Electronic Transactions Association.

Photo: Electronic Transactions Association

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Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.

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