Hot Silicon Valley startup Notion shocked the tech world yesterday when it announced it had raised $50 million at a $2 billion valuation on Wednesday, in the middle of the pandemic that is causing mass layoffs at other companies.Notion CEO tells Business Insider that he didn't need the money. Notion is profitable, he says, and the remote work mandates have improved his business.But he and is cofounder decided that a healthy headline-making investment would help him reassure his growing customer base that Notion was stable and would remain so for years, no matter the economy.He called up a VC that had been hoping to buy a stake, Index Ventures Sarah Cannon, and had won his good graces by helping him with things like recruiting.Two days and a handful of Zoom meetings later, he had term sheet in hand that was everything he hoped for and nothing he didn't.
Visit Business Insider's homepage for more stories.
As the coronavirus pandemic has forced the world to work from home, Silicon Valley startup Notion swung into action.
Under the direction of its young, 33-year-old CEO Ivan Zhao, Notion quickly added a bunch of new features for remote workers, like the ability to see notes typed in realtime and improved notifications, and saw its usage in China triple, and grow by 50% in Italy and South Korea, Zhao told Business Insider.
Notion is profitable, he said, so the rise in usage meant the business was doing more than ok, and he didn't need to raise money to sustain the growth.
And yet, Zhao and his founder Akshay Kothari, COO, also made a decision that shocked the close-knit San Francisco startup world. They decided to do another round of fund raising right now, in the middle of the pandemic.
So they called up a VC who has been pursuing them for a good year, Sarah Cannon at Index Ventures, and in two days they got the term sheet: $50 million at a $2 billion valuation. The deal was conducted via Zoom meetings with partners, which included a pitch about their goals, and the usual due diligence on the business.
Sarah Cannon, Index Ventures Index Ventures The term sheet was everything Zhao and Kothari wanted and nothing it didn't. Notion sold off only 2% of the company.
"The dilution was very minimal. We didn't give up any control," he said, and the raise didn't alter its ability to provide shares to employees, even as it increases hiring.
"We don't need the $50 million. We're still profitable," he said. While his business is growing, even if the uncertain economy tanked it Notion would be fine, he said. "Even if we lost half our business we'd be alright."
He said the funding was strictly about perception. "Right now so many companies are doing layoffs. Our customers want a company that is stable that will stick around for a long time."Â
The investment gives nervous customers the reassurance that if they depend on Notion, it's got the resources right now, in the bank, to last a decade, Zhao said.
By Silicon Valley standards, Notion has hardly accepted any venture investment. It took a small seed round at around $2 million when it launched in 2016 and then, not another penny until it raised $10 million in mid 2019 from three angel investors at an $800 million valuation. Its investors in that round were Daniel Gross (former partner at Y Combinator), Lachy Groom (Head of Stripe Issuing), and Elad Gil (cofounder of Color Genomics, formerly of Twitter and a very active angel investor).
That's a 150% leap in valuation in about 8 months.Â
VCs have been pounding on Notion's doors for years, trying to buy a stake of the startup which makes an online software suite that combines documents, collaboration, task management, database and allows anyone to customize without programming skills.
That's because Notion's founders decided early on to get and stay profitable.
In its early history, after Notion was founded in 2016, the startup stumbled with a poorly built product and had to lay off all its staff. That experience stuck with Zhao.
His philosophy: It's better to be stay small and nimble so he can react quickly to changing conditions than to try to predict the future. For example, it took his team about a week to roll out a bunch of remote work features last month.
"We can be more in sync, move quicker. That's a better effect in a macro-uncertainty climate," he says.Â
His focus on being nimble and profitable is the secret to how he raised $50 million in this climate. As to why he chose Index's Cannon: she's been wooing Notion by making herself useful, such as helping him hire, he said.Â
Zhao is now focused on hiring, especially in sales, and to build a 'go-t0-market team," he says. The company employs about 30 people now and has a couple of dozen jobs open. Remembering how painful it was to layoff his staff years ago, he's especially open to recommendations from other startup founders trying to find jobs for great people they have to let go.
