Why are we still backing Mirakl at a $3.5B+ valuation? What’s next for our new seed-to-multicorn venture
After a great 20/21 season, where thanks to the fantastic execution of our entrepreneurs and the great market dynamics, we divested more than we invested — and we did invest a lot (check out Elaia’s 2020 year in review & the sunny road ahead for a glimpse of our current activity level) — we are very happy to start this new and exciting 21/22 season with another record fundraising in our portfolio: Mirakl just announced its massive $555m Series E round, led by our colleagues from Silver Lake, bringing its valuation in excess of $3.5B only a year after its $300m Series D, and $1.5B valuation mark (BTW, if you haven’t read it yet, find here the 10 lessons we learnt back then).
What an amazing milestone!
First for the company: this record round rewards close to 10 years of hardwork and pristine execution to transform the initial laser accurate vision into one of the best Product/Market fit you could dream of. Then for the French Tech: our ecosystem is strengthening its leadership in bringing to scale large software platforms, and is adding a few hundred million on top of the stack of the so far stellar 2021 fundraising. Finally for Elaia: it is a great outcome for us and a fantastic proof point of our invest-early-in-tech-champions strategy, with a price per share now close to 300 times higher than the one we initially paid in 2012.
However, taking our early investor’s angle, we needed to address a great-to-have but not easy-to-answer question: should we try to exit as much as we can, even maybe totally, or should we stay onboard? The latter option would mean that we strongly believe that the founders and managers will keep creating value above and beyond today’s exceptional $3.5B+ mark. This question is even more crucial in this crazy market where identifying and deciphering the underlying, true foundations of continuous, boundless and profitable growth is fundamental to avoid the excessive and opportunistic valuations, which may occur in such an overheating market.
In the case of Mirakl, we decided to massively stay; here is why.
The math is extremely simple in such a plain vanilla deal, including no weird ratchets or exotic preference formulas: to justify such a large round and healthy valuation, investors need to strongly believe in a potential liquidity at levels close to, if not above, the $10B mark.
On one hand, we could simply be optimistic on the new era of digital supremacy: there will not be any leading business left which is not a heavy consumer of digital techs and platforms such as Mirakl. Or just rely on the great dynamics of the super-hot European tech financing market, even if the trees may already have reached the sky — who cares, the Californian trees are growing now in outer space!
On the other hand, Europe has a too scarce density of multibillion M&As and IPOs for us to be overconfident…
We definitely needed to go beyond macro trends, market heat and past liquidity records, in order to define an investment thesis on why Mirakl could become a $10B+ company. Here is a summary of ours, explaining why we still kept most of our skin in the game.
I — Mirakl’s human capital is expanding both in quantity and quality
We said it already and could repeat it indefinitely: Mirakl’s founders, Philippe Corrot and Adrien Nussenbaum, are just from another world and Florian Bressand, Mirakl’s COO, is an outstanding addition, instrumental in organizing the perfectly tuned machine that over-delivers quarter over quarter.
Creating a global leader at scale (we are hoping) demands more than that. It needs to attract and retain talent at every stage of the company and at a large scale, including the most challenging ones: C and VP levels, especially with international profiles. Mirakl has been constantly attracting top talents such as Brendan Walsh, Brian Callahan, Joe Sawyer, Isabelle Bénard, Andy Barker, Sophie Marchessou, Marc Teulières etc. recently whilst also growing and retaining historical gems like Nagi Letaifa, employee #1 and now VP engineering. In a nutshell, Mirakl is now relying on a great gang of tier-1 committed and seasoned execs, from all over the world, bringing the leadership needed to keep on adding and managing hundreds of new people to the team every year.
II — Mirakl is now a platform in and of itself
Only very few companies can reach the decacorn status by just offering a couple of features to their clients, especially in the B2B sector. Stripe is one of these few examples: selling only payment gateways to the e-commerce world was enough for them to get there. They are now doing much more than that but that’s another story.
The best way to overcome this hurdle is to offer your customers a comprehensive set of products and features, with an openness to integrate third parties’ services and products, whether upstream or downstream your customer relationships. In a nutshell, becoming a platform is the name of the game.
Mirakl is following this path by becoming the leading platform of platforms, thanks to the launch of Mirakl Connect, looking to offer a comprehensive set of added value new features to the marketplace operators and the sellers on the marketplaces, such as marketing, payment, insurances, data intelligence etc.
This important move has several consequences:
- A platform offers easy upselling: it offers more revenues from the same customer by adding new features, side products etc. in its basket with little extra efforts
- A platform offers high switching costs: customers who successfully rely on the platform cannot easily leave it
- A platform allows the operator to test new ideas via partners before deciding to integrate them in the core offering, thru a classical build or buy process
In a nutshell the platformization of Mirakl not only helps solidify its foundations, it also pushes up its market ceiling. Funny enough, this is a well-known paradigm for Mirakl since they successfully sold it to hundreds of customers worldwide for the last 9 years. But in software, you need a large size and strong maturity to become a platform. Mirakl has reached a level where they can now follow the recommendation they gave to their customers!
A boundless market size is crucial to get to the next level of valuation. No serious investor would value a company with a very high multiple post the inflexion point where the business starts to asymptotically tangent the top of the market, even with great execution, a breath-taking team and perfect financials.
III — Mirakl’s revenues grow as its customers thrive
Growing becomes more and more difficult over time but the SaaS model compounds well, even at large scale, if your churn is low and your capacity to upsell is high. Mirakl’s model makes upselling natural when you help your customer become successful. Considering the healthy net retention rate (ie the ratio between the revenues you make in year n+1 and the revenues you made in year n on the same customers), I can assure that Mirakl’s customer are quite successful!
This doesn’t only come from their product. It also strongly relies on the fantastic Customer Success team which they hired to provide and help implement best practices across the customer base. A strong human investment, but maybe one of the most lucrative possible ones!
By the way, this is not something new with Mirakl but it is great to see it work at a very large scale, with overperforming customers happy to pay more and more every year to use Mirakl’s solution.
IV — Mirakl’s business model and financial are (very) healthy
When you target decacornish valuations, the question of liquidity is crucial. The usual M&A path can always be followed in theory, but only very few private software companies get acquired above $10B, current record “only” being Mailchimp’s recent acquisition by Intuit at $12B. The current most reasonable options for liquidity at this stage are Private Equity (PE) or IPO. The first is becoming a serious alternative to IPO or M&A, even if not totally mainstream yet. In both cases, the quality and predictability of the company’s financials are fundamental, even if the recent blooming of SPACs and the current IPO frenzy are trying to show that this is not that true.
By the way, being listed is not an exit per se. Selling on the floating market is the actual liquidity and when you control a significant share of the business, believing that you can sell overnight your stake is naive. An investor should expect the company to deliver during at least 3 to 6 quarters, with still a considerable upside ahead, to be able to divest smoothly a large stake. That’s the approximate time it took us to fully divest from Criteo, and we were happy to see that one third of our multiple on invested capital (MOIC) came post IPO.
Many of the current unicorn bets are made on companies that are still too young or regional or hard to predict. Another large portion of the unicorn herd is made of heavy loss-making businesses, trying to grow like hell in order to justify their current valuation multiples, sometimes independently of the quality of the business model. From our humble Elaia experience, these kinds of businesses, if IPOed too early, could be killed in the blink of an eye on a disappointing earning call, bringing havoc to their share price. And if the price goes south before you are out, you could be stuck forever.
Mirakl is in the exact opposite case. They are best in class, globally leading their sector, they show an outstanding execution so far with an understandable, reliable, forecastable and scalable business model. Last but not least, they are and have been mostly profitable while still growing at a strong pace. Simply put, their financials are great and their dynamics are very promising. If they keep that way, finding liquidity options will not become a huge concern.
As a conclusion and without taking anything out of Criteo, our first multibillion-dollar success story, this is the first time in Elaia’s portfolio that a company has reached this level of valuation with a clear road ahead and a lot of options to strongly improve. The fact that we are still sitting at their board, with a significant ownership, is not only a source of pride and pleasure, but also a fascinating position to observe and learn on how a global leading multi billion-dollars tech company could be built out of Paris. And then try to back and help tech entrepreneurs to replicate, over and over. We’ll keep you posted!