- Database startup Couchbase, an upstart rival to giants like Oracle and Microsoft, closed a $105 million round of venture funding, it said on Wednesday.
- CEO Matt Cain described a wild couple of months to land this funding in the middle of a pandemic, filled with 20-hour days on the phone and twice-a-day, hour-long exercise workouts to relieve stress.
- Cain is a first-time CEO, so not only was this his first time on the venture capital pitch circuit, it was all done while in lockdown, during an economic crises with business conditions changing daily.
- He tells Business Insider how he convinced investors to open their wallets.
- The secret came down to this: honesty with investors about the company’s short-term, mid-term, and long-term prospects — backed up by customers willing to speak privately to the investors.
- Visit Business Insider’s homepage for more stories.
Database startup Couchbase closed on a $105 million round of venture funding in a round led by GPI Capital, it said on Wednesday. Getting that deal done took a wild three months of long days and non-stop hustle, CEO Matt Cain tells Business Insider.
“Unlike firms who recently announced funding, we did not have a term sheet before the pandemic,” Cain said.
This deal marks several milestones for Couchbase: It’s the first outside funding the startup has obtained since 2016, which also means that it’s the first time that Cain himself — who joined in 2017 as a first-time CEO — closed this kind of deal. So far the company has raised about $234 million from venture capital, plus another $50 million in debt, according to PitchBook’s estimates.
While Cain wouldn’t comment on Couchbase’s new valuation, he did tell Business Insider it was “an up round,” meaning investors bought in at a higher price per share than in any of its previous investment rounds.
That means this funding is also a comeback story of sorts.
When Couchbase raised that funding in 2016, it was a dramatic down round; shares sold at nearly half the price of its previous round, according to Pitchbook’s estimates. With that round, Couchbase had sold about 70% of its equity to investors for $129 million and investors valued the company at a relatively meager $300 million, PitchBook says. Even less promising, that funding came during a time of record VC spending, when many startups were achieving $1 billion-plus valuations, or so-called unicorn status.
The following year, Couchbase changed CEOs. Cain was brought in, and quickly set about beefing up the company’s enterprise sales efforts. Couchbase charged in to take on giants Oracle and Microsoft, as well as MongoDB, the $12 billion company that is its most direct competitor in its niche of noSQL databases.
A new kind of database
The traditional database, pioneered by Oracle, is powered by a programming language called “structured query language,” or SQL (commonly pronounced “sequel”). These databases want the information they store to be neat and organized.
The cloud computing era gave rise to the noSQL database, which can handle messy, unorganized kinds of data – photos, videos, social media posts — that don’t fit nicely into a SQL database. But noSQL databases have now matured to the point where they can do much of what a more traditional database can do and are increasingly used for things like tracking financial transactions or customer info.
Couchbase, like MongoDB and other open source-based software companies, offers a free version of its database. But Cain’s plan over the last three years was to make Couchbase more appealing to larger, deep-pocketed enterprises.
And his efforts had been paying off, the company says, with 2019 marking a record year.
It grew to 500 enterprise customers, including names like GE, Comcast, Wells Fargo, United and Marriott. Customers were signing bigger contracts and it had nearly $100 million in annual recurring revenue under contract, it says.
The pandemic impact
When 2019 ended, Cain was ready to shop for investors. But life had other plans.
“We went from high-fiving and celebrating at our sales kickoff the first week in February, to literally a pandemic three weeks later,” Cain remembers.
Cain sent his entire workforce home in mid-March, where they remain today. The company went remote overnight, he said.
“We did it before any mandate in any cities globally,” he says proudly. It worked out pretty well, and today he can say that his workforce handled the change with “zero dip in productivity whatsoever.” But back in March, when it all first began, he had no idea how this would impact business.
In fact, all the business projections he planned to share with investors were out the window. Some industries have been devastated like airlines, hospitality, oil. But IT budgets in 2020 are being slashed across the board as companies manage their cash flow through the economic turmoil, market researchers like Gartner say.
The entire software industry is, for the first time, under pressure to reduce and renegotiate their subscription contracts. Revenue that software companies thought was locked in for years, is now being cut.
Getting less money, or possibly no money at all, from big customers is not good under any circumstances, but especially so when trying to woo investors.
Cain spent between 15 and 20 hours a day on the phone with his team, he says, creating every possible financial model based on an ever-changing conditions.
“You are thinking of down scenarios…running every possible variation…at rates so far below what could even been within the imagination a week earlier,” he said. “You do have this moment of, how did the world change so fast?”
On a personal level, he turned to exercise to cope. As a self-described fitness fanatic, he decided that one workout per day was no longer enough.
“I’m a two-a-day guy now,” he said. “I don’t know when that’s going to change. It’s been good for calorie loss,” he laughed.
How he convinced investors to buy in
It turned out that all those of those business projections was the key to raising money during a pandemic.
He had to be brutally honest with investors — a nerve-wracking concept, under normal circumstances.
Rather than pitching them just the rosiest of all possible futures, he showed investors the not-so-great short-term projections to set their expectations, but also the reasonably high likelihood of a bounce back before too long, plus many reasons to be confident about a healthy long-term outlook.
But it wasn’t the projections on a pitch deck that secured the deal.
Investors couldn’t visit the offices as part of their due diligence, and they never met with Cain and team in person. So they doubled up on talking to customers to validate his numbers.
That was another scary moment for him, as he couldn’t possibly know what the customers would say about their own IT budgets and what that would imply for their business with Couchbase.
“We have over 500 enterprise customers and as you can imagine, we have some that are challenged by this environment and others that are thriving,” he said.
It worked out well, though: The customers said exactly what Couchbase had projected that they would. For a first-time CEO, that validation felt good.
The final thing Cain did to convince investors to open their wallets and make a good offer, was to show a path to future growth.
Cain told investors that the bull case for the company is that while its customers are hurting now, Couchbase’s technology is key to their survival, and the foundation for their own business-critical applications. Even if they can’t pay as much today, they’ll likely end up ramping up their spending after things stabilize.
After all, even before the pandemic, companies were looking for alternatives to pricey database products from likes of Oracle and Microsoft — which, incidentally, is why Amazon Web Services has had so much success with its own line of database products.
The trend of more affordable databases will almost certainly accelerate because of the economic crises, Cain believes, which will only drive more companies to Couchbase. “People are moving workloads off legacy solutions from Oracle and Microsoft,” he said.
Another opportunity comes from a new shift in strategy. Couchbase is one of the only popular database vendors that hasn’t yet launched its own cloud service. Right now, its customers run its database on clouds from vendors like Amazon, Google, Microsoft, or on their own data centers, but they have to manage it themselves.
That will change this summer, when Couchbase finally launches its own cloud service, helping take some of the burden of maintaining database services away from its customers.
That won over new investor GPI Capital, who led the round. Cain says that it was an “oversubscribed round,” meaning investors wanted more shares than the company was offering. Existing investors also bought-in including Accel, Sorenson Capital, North Bridge Venture Partners, Glynn Capital, Adams Street Partners, and Mayfield.
Are you an Oracle or enterprise software insider with insight to share? Contact Julie Bort via email at jbort@businessinsider.com or on encrypted chat app Signal at (970) 430-6112 (no PR inquiries, please). Open DMs on Twitter @Julie188.
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