Six months back, B2B SaaS vendor Freshworks, formerly known as Freshdesk, raised $100 million at a post-money valuation of $1.5 billion, marking its entry into the Billion Dollar Unicorn Club. It recently reported profitability in FY2017-2018 ending March 2018. Unlike most other unicorns, Freshworks has an eye on fundamentals, a byproduct, I should like to believe, of my badgering them for years. After my recent Bootstrapping to an Exit article, I have been analyzing the acquisition strategies of Indian companies like Zomato and CarDekho. Freshworks is a unicorn that has expanded its product portfolio with nine strategic acquisitions of capital-efficient startups.

Freshworks’ Journey

Freshdesk was originally founded in 2010 as an affordable alternative to Zendesk by CEO Girish Mathrubootham and CTO Shan Krishnasamy. Today, with the help of nine small but strategic acquisitions, Freshdesk expanded its portfolio to offer IT services management software Freshservice, CRM software Freshsales, call center software Freshcaller, applicant tracking software Freshteam for recruiters, customer messaging software Freshchat, and conversion optimization suite Freshmarketer. Consequently, it rebranded itself as Freshworks.

All the nine acquisitions by Freshworks have been for undisclosed amounts. Cloud-based video collaboration platform 1CLICK, acquired in 2015, was founded in 2012 and had raised an undisclosed seed round from Blume Ventures and The Chennai Angels in 2014.

Online social discovery platform Frilp, acquired in 2015, was founded in 2012 and had raised $500K in funding from angel investors, including Freshdesk CEO Girish Mathrubootham in August 2014 and an undisclosed venture round with Microsoft Accelerator. It had over 100K users.

App customer support offering Konotor, acquired in 2015, was founded in 2013 and had raised $155,000 in seed capital from Accel Partners, Qualcomm Ventures, and Target Accelerator. Its platform supported more than 40 million users and has customers such as Zomato, BankBazaar.com, and Faasos Food Services Pvt. Ltd.

Online collaboration platform Framebench, acquired in 2016, was founded in 2012 and had raised seed capital from Blume Ventures and Anand Ladsariya. It had over 17,000 registered customers and its clients included HBO, Unilever, Isentia, and Scancafe. With 6-20 employees, its revenue was less than INR 10 lakh (~$16,000).

Real-time customer support provider Airwoot, acquired in 2016, was founded in 2013 and had raised angel funding in 2013 from Kae Capital and angel investors like Rajan Anandan, Sunil Kalra, and Samir Sood. With less than 10 employees, it was estimated to have annual revenue of $10 million. It was acquired primarily for its Artificial Intelligence technology following Zendesk’s release of the Satisfaction Prediction feature in March 2016.

Social chat platform Chatimity, acquired in 2016, was founded in 2011 and was bootstrapped with less than 10 employees. It started out as a social chat application aimed at helping people discover others based on locality and interests and grew to over 3 million users across various platforms. Later, it started catering to enterprise use cases like sales and support and started to build chatbots specialized in verticals like travel and e-commerce.

Bangalore-based Pipemonk was acquired in January 2017. It is a data integration platform founded in 2014. Formerly known as ZapStitch, it had secured seed funding of $2.1 million from Helion Venture Partners, Orios Venture Partners, and Anupam Mittal. It claimed to serve over 400 clients across the world. All the thirteen employees joined Freshdesk, essentially giving it an in-house data integration team.

Marketing software provider Zarget, acquired in 2017, was founded in 2015 with an angel investment from Freshworks founder Girish Mathrubootham and some of the early Freshdesk employees who were friends of the Zarget founders. Zarget went on to raise $7.5M in two rounds of funding from Accel Partners, Matrix Partners India, and Sequoia Capital India.

Chatbot platform Joe Hukum, acquired in 2017, was founded in 2015 and had raised undisclosed seed funding from TracxnLabs and a group of angels led by Citrus Payments founder Jitendra Gupta and HealthKart founder Prashant Tandon.

Zarget has now become Freshmarketer. The 2015 Konotor acquisition has become Freshchat. The 2016 Chatimity acquisition is powering the infrastructure for chat and some of its machine learning capabilities.

Freshworks now caters to over 150,000 businesses, including enterprises such as CapGemini, Pearson, Honda, Bridgestone, Hugo Boss, University of Pennsylvania, Toshiba, Cisco, and global SMBs across 127 countries. Its global headquarters is in San Bruno, California. About 1,400 people still work on product development out of Chennai, and it has additional offices in London, Berlin, and Sydney.

Freshworks’ Financials

Freshworks is headquartered in San Bruno, California and has subsidiaries in UK, Europe, India, and Australia. It is a private company and does not disclose its global consolidated financials. In June 2018, Freshworks had announced that it had crossed its milestone of $100 million in annual recurring revenue run rate (ARR) for 2017-2018 but did not reveal its revenue forecast for the year ending March 2019. According to latest news articles that sourced the Indian Ministry of Corporate Affairs filings, revenue for fiscal year 2017-18 ending March 2018 was INR 259.3 crore ($36.5 million), up 30% from INR 199.2 crore (~$28 million) in 2016-2017. Revenue growth rate has slowed down from 109% in 2016-2017. Freshworks swung to profitability of INR 20.9 crore ($3 million) in FY 2017-2018 from a loss of INR 62.20 lakhs (~$90K) a year ago. It had reported a profit of INR 8 crore ($1.1 million) two years ago. Read our previous coverage here.

Freshworks has so far raised $249 million in funding from investors including Google Capital, Accel Partners, Tiger Global Management, and Sequoia Capital India. In November 2016, it raised $55 million from Sequoia Capital and Accel Partners at an estimated valuation of $700 million. In its latest round in July last year, it raised $100 million at a valuation of $1.5 billion. The company will use the new capital to improve its SaaS platform and expand sales globally.

Last year, Freshworks hired AppDynamics Vice President of Finance & Treasury Suresh Seshadri as its Chief Financial Officer. It also indicates its plans to go public soon.

Apart from Zendesk, it competes with Salesforce, Helpshift, and ServiceNow. Rival Zendesk went public four years ago at a list price of $9 and is currently trading at $64.52 with a market cap of $6.9 billion.

Freshworks was incubated at 1Mby1M, and I am pleased to see the company maintain a focus on scaling in a somewhat disciplined way. It has slowly but surely reached all its goals: $100 million ARR, unicorn status, and most importantly, profitability. It is now in a good position to go public.

There’s one issue I am interested in investigating, especially with the founders of the companies that Freshworks has acquired. What has been your experience with integration post acquisition? How are the products being brought onto the Freshworks stack? Do you have to rewrite code? This question is particularly interesting with respect to Airwoot which brings in a revenue generating product. Where the acquisitions are largely acquihires, the integration, of course, is very simple.

One final point: Girish Mathrubootham has positioned himself as an active angel investor in the Indian startup ecosystem. Presumably, he is investing with an eye towards plugging holes in Freshworks’ long term product roadmap, and expanding its footprint. On the above list of acquisitions, if you look closely, you will see Girish’s name appear multiple times as an angel investor. As an investor, Girish is investing with a Bootstrapping to Exit strategy, and I expect, he will accumulate huge personal wealth doing so. It’s very intelligent leverage of his strategic position as the CEO of a fast growth startup that is able to attract large chunks of VC money, and creates win-win all round. Girish, and other founders in similar enviable positions, have control over both investment and exit in small, capital-efficient startups designed for early exit.