The high-profile capital raising by online design and publishing platform Canva is a timely reminder of the power of digital marketing to transform a great idea into a global business. Canva could easily become Australia’s national start-up champion given its long list of achievements in such a short space of time. The $US1 billion valuation of the company inherent in its latest $US40 million series A funding round caps an amazing period of growth. Chanticleer is reluctant to drag in the political class, but there are several noteworthy features of this company’s success that ought to be celebrated by the federal government and the opposition.
Perhaps Canva’s success will be the catalyst for both sides of politics and the crossbenchers in the Senate to come to some sort of agreement about policy settings that create globally significant companies. It is notable that Canva eschewed the outsourcing of its primary software engineering work to low-cost providers in offshore markets. It experimented with this idea in the very early days and found it was full of false economies. The idea that five software engineers in India would be more valuable than one in Sydney because they cost the same amount to employ was a seductive proposition, but proved completely untenable. Software needs to be scalable and the products produced by Indian software engineers for Canva’s earlier iteration, Fusion Books, did not fit that description.
Canva does have an office in the Philippines conducting operational activities. Part of the rationale for this is that the company has a large customer base in that country.
Take a look at the Canva website and it immediately becomes clear this is a proud Australian company with a diverse and highly skilled workforce. It hardly needs to be said the founders and staff are major shareholders in the company and have their personal wealth riding on the company’s success. One of the best decisions that Canva’s Melanie Perkins and Cliff Obrecht made was to employ a disgruntled Google engineer working in Sydney, Cameron Adams. He brought to the company the technical software engineering expertise needed to convince Silicon Valley venture capitalists to get on board. Canva would not have gained the support of Silicon Valley or have survived its early years without a $1.67 million grant under the Commercialisation Australia scheme. This scheme has morphed into the R&D tax credit plan that has proved vital to the tech sector and helped many a start-up survive the ever present cash flow crisis. R&D tax credits were important to the Silicon Valley venture capitalists because they could see their capital being matched by a government entity. The involvement of the government sent a powerful message to the risk-takers.
Rick Baker, a partner of Canva shareholder Blackbird Ventures, said the government has been good at supporting the start-up sector but it could do better. He believes there is a lack of leadership from Canberra promoting an area that has a proven ability to create jobs and, even better, global businesses. In its four years since it opened for business in August 2013, Canva has had extraordinary success by Australian tech standards. Its success is just as impressive when set against the standards set by Silicon Valley. There are very few fast-growing tech companies in the world that have reached the level of revenue achieved by Canva in such a short space of time. Baker says there are very few if any start-ups in the US in recent years that have experienced both high growth rates in revenue and simultaneously moved to being cash flow positive. When you compare Canva’s growth with other software-as-a-service companies such as Shopify, Box and Twilio, its progress from $1 million in revenue to $10 million in revenue has been impressive.
It took these three companies between one year and three years to lift annual recurring revenue from $US1 million to $US10 million. Canva started in August 2013 and achieved $10 million in revenue in three years. Its growth accelerated significantly in the year to June 2017. It lifted revenue threefold to $23.4 million as its subscription model gained traction. Valuing a company that lost $3.3 million in 2017 at $US1 billion could be bamboozling for those used to the conventional valuation methodologies for publicly listed companies. But the fact that Sequoia Capital, one of the top five venture capital funds in the US, joined the Canva share register in the latest series A funding says that the company is on the right growth path. One aspect of the capital raising that could cause confusion is that Canva raised $US15 million in September 2016 and yet none of that money has been spent as of today. Baker says the best time for a start-up to raise capital is when it does not need it. Canva went back for another $US40 million because the demand was there. He says there is a tremendous amount of liquidity in venture capital markets and that explains why there was so much interest in Canva’s latest capital raising.
The latest valuation for Canva says that the company sold about 4 per cent of the issued capital. Venture capitalists were willing to pay top dollar for shares in Canva because its growth is so strong. About 34 million designs are being completed on its platform each month, up from 3 million a month in March 2015. Perkins, Obrecht and Adams have knocked back many offers to buy the company. They believe that they have only scratched the surface with the progress so far. Perkins summed it up in the following way: “Design is no longer a niche requirement – every single profession today needs design to help communicate their message.” “In years gone by someone in sales could draft a letter, but now someone has to create an engaging presentation to win customers. Non-profits have to create designs to spread their message to fundraise. Even the start-up staple of business plans have been replaced by graphic pitch decks.”
She argues that design is part of virtually everything in business because of the importance of digital marketing through tech platforms and social media. Canva’s tools allow just about anyone to design their own presentation or document. Canva has once again shown that the tyranny of distance is no longer a barrier to success for Australian companies based here and offering a service to customers everywhere. Canva now serves customers in 190 countries using 100 different languages. It is a role model for the more innovative and agile nation once talked about by Prime Minister Malcolm Turnbull.
by Tony Boyd