Sammy is the Founding Managing Partner at Blossom Street Ventures. Founders should email him at firstname.lastname@example.org
UiPath went public last week at a fantastic valuation, so we read through the S1. The business has some unique attributes and plenty of learnings; we summarize the S1 below.
The road was long. The company started with 10 people in Romania in 2005. It got to $50mm in ARR by 2018, then exploded to $580mm in ARR as of 2020. Nonetheless, the CEO’s letter highlights humility as a key theme.
PATH makes automation. “Our platform enables employees to quickly build automations for both existing and new processes. Our software robots perform a vast array of actions as a human would when executing business processes. These actions include, but are not limited to, logging into applications, extracting information from documents, moving folders, filling in forms, and updating information fields and databases. Our robots’ ability to learn from and replicate workers’ steps in executing business processes drives continuous improvements in operational efficiencies and enables companies to deliver on key digital initiatives with greater speed, agility, and accuracy.”
Retention is excellent and drives growth. “Our dollar-based net retention rate was 153% and 145% as of January 31, 2020 and 2021, respectively. Our ARR was $351.4 million and $580.4 million in the fiscal years ended January 31, 2020 and 2021, respectively, representing a growth rate of 65%. Approximately 30% of this growth rate was due to new customers and 70% of this growth rate was due to existing customers. Furthermore, our dollar-based gross retention rate, which is the percentage of ARR from all subscription customers as of the year prior that is not lost to customer churn, was 96% and 97% as of January 31, 2020 and 2021, respectively.” It is notable that in 2020, PATH underwent an “internal reorganization of the customer success team that shifted their objectives from customer and product support to sales related activities. We grow with our customers as they identify and expand the number of business processes to automate, which increases the number of robots deployed and the number of users interacting with our robots.”
Cohort performance is absurd. “Each cohort represents customers that made their initial purchase from us in a given fiscal year. For example, the 2016 cohort includes all customers that had their initial purchase within the fiscal year 2016. This cohort increased their ARR from $395,368 as of January 31, 2016 to $22.7 million as of January 31, 2021, representing a multiple of approximately 57x since fiscal year 2016. Additionally, the ARR from our top 50 customers as of January 31, 2021 increased by a median multiple of approximately 81x, as measured from the ARR generated in each such customer’s first month as a customer.”
Design an addictive product. “Our products are designed to be additive, with most of our capabilities designed to increase the deployment of automations that drive the need for additional robots, to be modular, and to be used individually or as a unified solution.”
25% of employees are devs. “As of January 31, 2021, we had a total of 2,863 full-time employees. Of our employees, 714 were engaged in research and development.”
Customer base is broad. “As of January 31, 2021, we had 7,968 customers, including 80% of the Fortune 10 and 63% of the Fortune Global 500. As of January 31, 2021, customers located in the United States represented 36% of our total ARR.”
The numbers are crazy. “Our ARR was $351.4 million and $580.4 million in the fiscal years ended January 31, 2020 and 2021, respectively, representing a growth rate of 65%. We generated revenue of $336.2 million and $607.6 million, representing a growth rate of 81%, and a net loss of $519.9 million and $92.4 million in the fiscal years ended January 31, 2020 and 2021, respectively. Our operating cash flows were $(359.4) million and $29.2 million and our free cash flows were $(380.4) million and $26.0 million in the fiscal years ended January 31, 2020 and 2021, respectively.”
Large market. “We estimate our current global market opportunity to be more than $60 billion, which we expect will grow. According to the Wall Street Journal, in 2019 the number of software applications deployed by large firms across all industries worldwide had increased by approximately 70% over the previous four years. These applications, which were generally not designed for interoperability, run in tandem with long-running, legacy technologies. The increasing volume of applications has a compounding effect on the complexity of business processes and the IT environments that support them.”
Low code, many integrations, multi-tenant. “Our platform is built to be intuitive and easy to use with low-code, drag-and-drop development tools, and interfaces that knowledge workers can understand. We offer hundreds of out-of-the-box, native integrations with a wide range of enterprise applications and productivity tools from our technology partners. We have built our platform to be multi-tenant and deployable across on-premises, private and public cloud, and hybrid environments.”
1 year contracts are the norm. “Our license agreements primarily have annual terms, and some of our license agreements have multi-year terms. We generally do not sell standalone licenses with a term of less than one year.”
CEO is a cofounder and controls the company. Daniel Dines is the CEO and co-founder. His salary is only $106k. He controls the company: “Our Class B common stock has 35 votes per share and our Class A common stock, which is the stock we are offering hereby, has one vote per share. Our Chief Executive Officer, Co-Founder, and Chairman, Daniel Dines” owns all the Class B and “will have the ability to control the outcome of matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or our assets.”
The CEO seems awesome. He did “reduce our executive salaries from March through May 2020” for covid. Additionally, “Ever mindful of our role as global citizens, we began to offer customers in critical industries and situations on the frontlines of the pandemic promotions enabling them to utilize our platform for free for a limited time in order to assist them in responding to the world crisis. In furtherance of our values and this goal, we are joining the Pledge 1% movement, and are committing to donate 2,810,082 shares of our Class A common stock (representing approximately 0.5% of our fully-diluted capitalization immediately prior to this offering) over the next ten years to fund our social impact and environmental, social, and governance initiatives.”
Employees are worldwide. “As of January 31, 2021, approximately 72% of our full-time employees were located outside of the United States.”
Main investors. Accel, Sequoia, CapitalG. The company was funded through 9 rounds from A-1 to E.
Customer concentration is unclear, but customers are large. “We derive a substantial portion of our revenue and ARR from sales to our top 10% of customers. As of January 31, 2021, we had 1,002 customers with ARR of $100,000 or more and 89 customers with ARR of $1.0 million or more, which accounted for 75% and 35% of our revenue. Customers outside the United States generated 66% and 61% of our revenue as of January 31, 2020 and 2021.”
Seasonality; Q4 is the company’s best quarter. “typically we enter into a higher percentage of license agreements with new customers and renewals with existing customers in the fourth quarter of our fiscal year. We believe that this seasonality results from the procurement, budgeting, and deployment cycles of many of our customers, particularly our enterprise customers.”
Channel partners are important here. “For the fiscal years ended January 31, 2020 and 2021, we derived a substantial amount of our revenue from sales through channel partners. Our business partners include more than 3,700 global and regional system integrators, value-added resellers, and business consultants”
PATH rushed to patent everything. “As of January 31, 2021, we held four issued patents, three U.S. patents, and one South Korean patent. We also had 129 pending patent applications in the United States, including one allowed U.S. patent application, 60 PCT pending patent applications, and 148 pending patent applications in other jurisdictions.”
Not insignificant layoffs, before Covid. “On October 24, 2019, we announced a restructuring plan focused on reducing our global workforce. We implemented this restructuring plan through the end of fiscal year 2020 and incurred one-time employee and non-employee termination benefits of $9,942,000 relating to workforce reductions.”