Klaviyo cofounders Andrew Bialecki (left) and Ed Hallen are billionaires, in part thanks to a decision to bootstrap the company for its first three years which has allowed them to together retain a 52% stake in the company.
Klaviyo
Klaviyo’s stock popped 23% in its stock market debut, pushing the company’s valuation above the $9.5 billion mark set amid venture capital’s frothy conditions two years ago. But it may not be the bellwether to kick open the IPO floodgates of the enterprise software sector.
Shares were priced at $30 and opened at around $36.75, giving Klaviyo a market capitalization of $11.2 billion and making cofounders Andrew Bialecki and Ed Hallen billionaires.
Ranked No. 6 on Forbes’ Cloud 100 list, Klaviyo sells software that allows merchants to send targeted marketing emails and text messages to online shoppers. It generated $473 million in revenue last year, a 63% increase from the year prior, and now has 130,000 customers. But the Boston-based company’s prolific rise is unusual among traditionally VC-backed software firms. For starters, it did not raise any money until it was profitable and had made a couple million of revenue — an oddity that was perhaps also reflective of being a marketing software company in Massachusetts.
Because of that, the founders both retain big stakes in Klaviyo — in particular CEO Bialecki who owns 38.1% of the company, which puts his net worth at $4.3 billion based on Klaviyo’s debut stock price. That’s nearly unheard of in Silicon Valley, where a founder typically holds less than 20% of the company by the time it goes public as a result of diluting their stake in exchange for outside investment. Hallen, the chief product officer, has a 13.9% stake worth $1.6 billion.
(Update: Klaviyo ended the day trading at $32.70, a more modest 9% jump on its IPO price. Bialecki’s net worth is now $3.8 billion, while Hallen’s is $1.4 billion.)
“We both came from families and had friends that ran small businesses,” Bialecki said in an interview with Forbes. “So, it was funny that in tech, the norm is you raise a bunch of venture capital and then you figure it out afterwards. For most small businesses outside of technology, you have to find customers to drive your business. I remember talking with Ed in the early days and deciding: let’s do it that way.”
“Regardless of what the macro economy is doing, we just have a team that loves doing things with small groups efficiently, and I can’t tell you how much that part of our culture is such a competitive edge.”
Bialecki’s ownership stake is comparable to a small handful of outliers including David Duffield, the Workday cofounder who owned 44% of the company at its 2012 IPO. Duffield sold his earlier company PeopleSoft to Oracle for $10.7 billion and was able to fund Workday partly with his own money. A closer parallel to Bialecki: Atlassian co-CEOs Mike Cannon-Brookes and Scott Farquhar, who each held 37.1% stakes when the company went public in 2015 after having bootstrapped their Australia-based company for several years.
Bialecki and Hallen shirked venture funding for the first three years after founding Klaviyo in 2012. By the time they took a $1.5 million seed investment led by local VC shop Accomplice, the startup had surpassed $1 million in revenue and was profitable, per TechCrunch. (Accomplice is one of the big winners of the IPO, thanks to a 5.7% position in the company now worth $640 million.)
Hewing to that small business DNA, Bialecki emphasized efficiency early on. But he also began taking cues from the enduring tech companies of the 1980s and 1990s, like Microsoft and Oracle. “You just realize how much there was a certain way they work and a certain culture that they kept that has to start with the people,” he said. That informed his own hiring decisions: “Regardless of what the macro economy is doing, we just have a team that loves doing things with small groups efficiently, and I can’t tell you how much that part of our culture is such a competitive edge.”
Klaviyo went on to raise a total $455 million in outside financing up to the IPO, though in doing so it still managed to skip over most of Sand Hill Road. With the exception of Accel, which led its Series C funding round in 2020, Klaviyo’s biggest backers have mostly been private equity and crossover firms including Summit Partners (whose 22.9% stake makes it the largest external shareholder), Sands Capital and Morgan Stanley’s Counterpoint Global.
Another key stakeholder is Shopify, whose vendors accounted for 77.5% of Klaviyo’s annual recurring revenue last year, according to the latter’s S-1 filing. But Klaviyo turned a dependency into a business synergy when Shopify invested $100 million in July 2022 and penned a strategic partnership that entails a revenue sharing agreement and preferential designation of Klaviyo on Shopify’s platform as its “recommended email solution provider.” The deal came with additional options to purchase more stock, which Shopify has exercised in part: it has more than tripled its position since the initial investment and now owns 11% of Klaviyo.
Shopify will figure heavily into Klaviyo’s next chapter — the strategic partnership is effective through 2029, per the filing. But Klaviyo’s success on the public market may ultimately depend on its ability to step out of the shadow of the e-commerce giant and its long tail of small business vendors. It cited growth strategies in the S-1 include growing out its enterprise base (customers currently include Mattel, Glossier and Staples) and expanding its offerings beyond e-commerce to industries such as education, restaurants and travel.
Klaviyo was profitable in the first six months of 2023, a rare achievement among both 2021’s class of IPOs and the current crop of Cloud 100 private companies looking to go public in the near future.
In keeping with the current zeitgeist, Bialecki also cited artificial intelligence, such as to help users automatically build their marketing campaigns, as key to the company’s product roadmap — and his company has an early edge, boasting in its S-1 of having data from 6.9 billion anonymized profiles of shoppers. “If we look back in five or ten years, this is going to be table stakes for the way software works,” Bialecki said.
Klaviyo achieved a $9.5 billion valuation in 2021, shortly before the venture capital frenzy reversed course. Now that capital has grown scarce, many of the most anticipated IPO hopefuls are adjusting expectations. In May, Stripe slashed its valuation nearly in half to $50 billion from $95 billion. Airtable laid off 27% of staff, or 237 people, last week as first reported in Forbes; CEO Howie Liu cited the need to reposition in a “more mature way that puts us on a path to become a public company.” And Instacart, which was valued by private market investors at $39 billion at its 2021 peak, went public on Tuesday at an IPO price shy of $10 billion (shares ended the day trading up 12%).
“If you look at all the companies that went public around 2021 and look at their valuation today, they have normalized just like ours has,” founder Apoorva Mehta told Forbes in an exclusive interview, his first since relinquishing the CEO role two years ago.
Like Airtable, Klaviyo has had layoffs of its own — about 10% of the company was let go in March, according to the Boston Globe — but the company has managed to grow into the lofty valuation it received near the peak of the market two years ago.
Klaviyo reported $440 million of cash remaining on its balance sheet, meaning that it has only burned $15 million of the investment dollars it raised, on a net basis. The company turned a net loss of $49 million in 2022, down from $79 million the previous year. It was profitable in the first six months of 2023, a rare achievement among both 2021’s class of IPOs and the current crop of Cloud 100 private companies looking to go public in the near future.
“If you build products that are just essential for companies, and you have a business that you run efficiently, I think the markets are always open for those companies,” Bialecki said.
