Dovetail has raised $63 million in order to expand its researcher-focused software business
Dovetail has raised $63 million in order to expand its researcher-focused software business
It was announced today that Dovetail, an Australian software company specializing in user research, had raised $63 million in a Series A round led by Accel Partners. The company has now raised slightly more than $70 million in total, with the new capital valued at "north" of $700 million, according to the company's website.
It should be obvious from the numbers that this isn't your typical Series A. Rather, it is a late-stage investment by Accel, a venture capital firm that is well-known for making significant investments in technology companies that have raised little capital or have self-funded until they are able to raise a large sum of money later on.
Considering that this transaction differs from our usual Series A fare, let's take a moment to walk through the transaction from start to finish, beginning with the company's early history and the products it is currently developing.
Boostrapping(ish) Dovetail
To learn more about the capital raise, TechCrunch spoke with Benjamin Humphrey, co-founder and CEO of Dovetail, who also took us back to the company's founding in 2003. According to Humphrey, after working for a technology company in the Bay Area, the New Zealander relocated to Australia and joined Atlassian, where he remained for several years before retiring. Later, he co-founded Dovetail with no intention of raising venture capital. Instead, he wanted to build the company in the manner of Buffer and Basecamp, two well-known technology companies that have grown through a more self-funded approach.
While Dovetail's focus on software for user research may appear to be a niche market, the company gained enough traction in its early years to grow to a team of six employees and generate approximately half a million dollars in annual revenue on its own terms. The firm did receive interest from venture capitalists at the time, according to Humphrey, and Dovetail raised a modest round of funding in 2019 of approximately AUD$5 million.
Felicis, one of the company's investors, expressed a desire to make additional investments in the company by the end of 2020. Dovetail's CEO asserted that the company did not require the funding, and as a result, the company raised a seed-1 round at a valuation in excess of $100 million, a figure that reflects the company's competitive position. If you want to raise money for your startup, being profitable (or at least profitable-ish) and growing is the true sweet spot.
That brings our discussion to a close for today. According to new investors Rich Wong and Arun Mathew of Accel, Dovetail spent less than half of its total fundraising before they were given the opportunity to become investors in the company.
Software companies rarely grow without incurring material costs these days, which means that customers came to Dovetail's website to purchase the product that they were building.
What services does Dovetail provide?
In their description of Dovetail's work, the Accel team called it a "new category," specifically a "system of record for user research."
More directly, Humphrey told TechCrunch that Dovetail's product is a productivity tool for researchers, which he described as follows: Engineers make use of GitHub, whereas designers make use of Figma. He went on to say that user researchers are required to have their own software. He went on to say that Silicon Valley and the broader startup scene have made significant investments in tooling for the "D" in research and development, but have made far less investments in the "R" component of the equation.
Users' feedback can be collected through NPS (net promoter score) surveys, audio, video, and text responses, all of which are available through Dovetail's software platform. The data is then tagged, machine-analyzed, and made available to other members of the organization. In his explanation, Humphrey stated that the goal is to develop a relational database in which businesses can store their institutional knowledge about customers in order to make faster business decisions.
He used the example of a product manager (PM) leaving a company and taking a significant amount of knowledge with them to illustrate his point. Rather than having that knowledge stored and protected, new PMs will be forced to race around the company asking questions in order to catch up. Dovetail may be able to assist businesses in retaining data and knowledge gleaned from research, making them more accessible while also making them more permanent.
Growth
Dovetail's capabilities are still being explored by me; therefore, expect more information in the coming months as we investigate the research software market. What I can report today, however, is that Dovetail is spreading like wildfire across the globe. During the previous year, according to Humphrey, the company's revenue and customer base more than tripled. All services are self-serve, and the company only recently hired its first account executive to help with customer service. That is true product-driven growth at its finest.
As a result of the concept of product-market fit (PMF) being rebranded as "product-led growth," the belief that one's actual service or good will attract customers, is essentially a more pure definition of what PMF should mean. Product-led growth is a term that refers to the belief that one's actual service or good will attract customers. Investors have expressed confidence in the company's ability to match or exceed its projected growth rate for 2021 this year, despite its relative youth. As a result, it is already on the verge of becoming a unicorn.
Because Humphrey is unlikely to contact us with new capital information during the next few months, we will pursue growth data from him later this year.
