Socialtext Gets $4.5M Funding

On March 31, 2009, collaboration vendor Socialtext closed a new equity fund-raising of $4.5M.

Products, Facilities, and Competitors:

  • Socialtext provides hosted and appliance-based wikis, integrated weblogs, and social networking for workplace communities.
  • The company is especially recognized for pioneering the enterprise wiki technology.
  • The company has around 5,000 customers.
  • Customers include BASF, Boston College, CondeNet, Epitaph Records, IKEA, Intel, MicroStrategy, MWW Group, Nokia, SAP, SunGard, and Symantec.
  • Socialtext is based in Palo Alto, Calif., and also has offices in New York and London.
  • Main competitors are Jive and Atlassian.

Trading Performance:

  • The business was founded in 2002, and has 40 employees.
  • Socialtext revenues are estimated by Ferris Research at $6M-$8M.
  • The company has yet to reach profitability, but it expects to achieve this without further funding.

Funding History: Socialtext has had four funding rounds, with total money raised of $17.5M.

  • 6/2004. $450K from angels and Omidyar Network.
  • 4/2005. $3.1M. First institutional round: Draper Fisher Jurvetson, SAP Ventures, Utah University Venture Fund.
  • 11/2007. $9.5M. Draper Fisher Jurvetson, Omidyar Network, SAP Ventures, Utah University Venture Fund.
  • 03/2009. $4.5M. Draper Fisher Jurvetson, Omidyar Network, Utah University Venture Fund.

This latest funding will be used predominantly for further product development and marketing. The company believes this funding will be sufficient to take it to the cash-flow-positive stage.

Fund-Raising Process. CEO Eugene Lee describes this as:

  • Socialtext V3--a new, expanded offering--appeared to be a good basis for a new round.
  • In May 2008, once a solid demo was in place, fund-raising commenced among the traditional West Coast VC community.
  • V3 shipped in September/October 2008.
  • The launch was coincident with first major stock crash, and much venture spending was suspended.
  • By the end of October, it was clear VC funding would not be forthcoming.
  • Thus Socialtext had to go to its internal investors.
  • Terms agreed in January 2009; closed in February.

CEO Eugene Lee's advice to other companies seeking funds:

  • Make what cash you have last as long as possible, because the fund-raising process will take longer than you expect.
  • You will need to talk to more potential investors than before the crunch.
  • Go to any existing investors early on.
  • Equity valuations are down, of course, but investors still want to see management motivated. Thus management stock and options will be favorably treated compared to external investors.
  • Later-stage investee companies are more attractive at present to most VCs because they are nearer to the exit point.
  • Everyone is now very value-conscious. Make sure your product has a value proposition for your customers that they can clearly recognize.
  • Consider one or two strategic corporate partnerships as a way of accelerating your company’s growth.

Ferris Research Comments:

  • Socialtext was an early player in the enterprise wiki marketplace.
  • Socialtext believes the opportunity for standalone wikis is limited, and thus has recently broadened its offering to encompass blogs, social networking, Twitter-like messaging, and connections with SharePoint and Lotus Connections.
  • The technology is interesting and innovative.
  • We presume a major motivation for investors was to protect an investment that has a reasonable chance of success. Since no new sources were forthcoming, Socialtext's future would otherwise have been in jeopardy.

... Mike Stackpoole

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