How VCs Got Into Notion’s New Round, Newark’s New Fund And A Women’s Angel Investor Group
Today we’re diving deeper into Notion’s new funding round at a $10 billion valuation to see how Coatue and Sequoia won the deal, checking in with Newark’s local VC firm as it raises a new fund, checking the data on VC-backed media exits in the wake of Ozy’s crazy week, and catching up with women-focused angel group Golden Seeds as it crosses a major milestone. Let’s get going.
On Friday, we broke the news that note-taking app Notion had reached a $10 billion valuation after raising $275 million from investors Coatue, Sequoia and Base10 Partners. It’s the latest in an accelerating fundraising cycle for the San Francisco-based startup, which was founded in 2012 but went years raising very little money — $2 million in 2013, and a $150,000 loan from CEO Ivan Zhao’s family in 2016, per PitchBook — before recent investments of $18.7 million in 2019, $50 million in 2020 and now the new round, dwarfing them all. (This is probably why Notion doesn’t bother to name its funding rounds as Series A, B or the like.)
You can read more about Notion’s recent growth, including how going viral on TikTok has proven a blessing and a challenge, here. But for Midas Touch, let’s look a bit more closely at the funding round itself, with help from the round’s lead investors, Coatue’s Caryn Marooney and Sequoia’s Mike Vernal.
The why: Last year, Notion COO Akshay Kothari told reporters after the company’s $50 million raise that the startup now had ample financing for the next ten years. This past week, he stood by the remark, claiming that Notion had spent little of that funding as it grows alongside meaningful revenue. So why raise so much? According to Notion, the answer is to invest more heavily in product, where it’s building a “platform” play that connects Notion to more fellow work apps, and to lean into international growth, which the company says accounts for 70% of its revenue today, without much local support.
The easiest explanation: more money will usually go a longer way with hiring. Notion has simply tried to be capital efficient and mindful of dilution, and its numbers can justify SoftBank-sized checks without SoftBank-style dilution now. “You can invest more aggressively in product and engineering, in certain kinds of marketing opportunities, than you could otherwise,” says Vernal. Another factor: proving you’re not going anywhere. “Sometimes as you move up market with enterprise customers, people pay attention to things like how big the company is, how much you’ve raised in funding.”
The who: In the courtship to lead Notion’s round, as one of Silicon Valley’s buzzier businesses, Coatue got a leg up through a land and expand approach worthy of the software startups it backs. The firm put a small check in Notion’s 2020 raise led by Index Ventures, then went to work. Since David Schneider joined the firm from ServiceNow, where he was once president, Schneider has met with Kothari twice a month, Kothari says, for coaching. Notion chief resource officer Olivia Nottebohm, a Google and Dropbox veteran, met Kothari and Zhao through Coatue, initially to advise as a go-to market expert. Sequoia, meanwhile, knew Notion through its portfolio company Inkling, where Zhao once worked, and whose former CEO Matt MacInnis had written Notion a small Scout check on Sequoia’s behalf early on.
Through MacInnis, Notion met Vernal, an executive at Facebook and angel investor who later joined Sequoia in 2016. Vernal’s close colleague at Facebook: Marooney, the social giant’s former longtime head of communications. The two are neighbors; Coatue’s also an investor in startup Rippling, where MacInnis now serves as COO. “This was probably the fastest round to come together in my time at Sequoia, definitely top two or three,” Vernal says.
The other notable new investor in the round: Base10 Partners, the firm founded by Adeyemi Ajao. Notion’s general counsel, Hasani Caraway, introduced the startup to Base10. The firm’s values — it’s pledged to donate half of the carried interest from its most recent fund to support scholarships at historically black colleges — helped make Notion want to partner with it, according to Kothari.
The lesson: Notion’s executives repeatedly brought up the company’s community as a differentiator; its investors turned to the same in justifying such a large investment and valuation. For other entrepreneurs, Vernal notes that Notion spent three to four years at seed-stage focused on its product. Only more recently has the company appeared an overnight success, meaning it’s reached $300 million-plus investment with less dilution than typical. “If an entrepreneur can build an organic, product-led growth product like this, then they definitely should. It’s hard,” Vernal says.
And at Notion, Kothari says his message for employees after reaching a $10 billion valuation has been to quote his former boss at LinkedIn and mentor, Jeff Weiner. Weiner, Kothari retells it, is fond of invoking a line from legendary Duke University basketball coach Mike Krzyzewski: “Next play.” “I feel it very much explains this moment where it’s like, ‘okay, great, that was a good play. Now we’ve got to focus on the next play, and we’ve got to continue to invest and continue to make sure our customers find value.’” Or as Vernal put it separately: “I don’t know to what degree customers care deeply about the round you’ve raised, or valuation. Customers care about having a product that is great.”
Six years ago, Don Katz started Newark Venture Partners to fulfill his belief that Newark, New Jersey could be a successful startup hub. Katz founded audio company Audible in the city of nearly 300,000 people back in 1995, before scaling and selling it to Amazon in 2008. With a bustling international airport and corporations like Prudential and Panasonic located there, Katz envisioned a local fund that could incubate entrepreneurs and invest in their businesses, while giving back to the broader community and helping tackle local issues of housing and infrastructure.The firm launched with cofounders Dan Borok and Tom Wisniewski and raised a debut $44 million fund in 2019. Fund I amassed a notable portfolio of early-stage stakes in its five year history, producing nine exits like agtech AeroFarms, which is set to go public through a SPAC in 2021 with a $1.2 billion valuation.
The fund rode that success to raise nearly double for Fund II — $85 million — with the help of new managing partner Vaughn Crowe. Also from Newark, Crowe was involved in the firm initially as a limited partner in its first fund, through his previous role as a managing director at Wesray Social Investments, the family office of Ray Chambers. “On a personal note, it was absolutely the right move to transition from the family office to join as a partner; I couldn’t be more thrilled,” he tells Midas Touch. “This unbridled commitment that we each have to outsized returns and commitment to our community rings true through the entire team.”
The strategy: Newark Venture Partners invests in B2B software companies, leading or co-leading seed rounds with checks up to $2 million. The latest fund has enough reserves for the firm to make follow-on investments at the Series A stage, Borok says. The firm is sector agnostic, but is particularly interested in areas like healthtech, supply chain and audio/voice, industries that Borok thinks play to Newark’s strengths. Companies don’t have to be based in Newark, but the firm hopes they will contribute to that market. “We do have a real commitment to the community in Newark and we’ve broadened that…