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Mux raises $37M Series C as its API-based video streaming service scales
This morning, Mux, a startup that provides API-based video streaming tooling and analytics, announced that it has closed a $37 million Series C round of capital.
Andreessen Horowitz led the round, which included participation from Accel and Cobalt. Prior to this funding round, Mux most recently raised a roughly $20 million round in mid-2019. In total, the company had raised a hair under $32 million before its Series C, according to PitchBook data.
The Mux round lands amidst a number of trends that we’re tracking here at TechCrunch, namely API-based startups, which are hot as a group at the moment, and startups that are serving an accelerating digital transformation.
Let’s explore a bit of Mux’s history, and then dig into how the startup’s current pace of revenue growth explains its fresh infusion of capital.
From exits to analytics to APIs
TechCrunch spoke with Mux’s founder Jon Dahl about the round, curious about how the company came to be. Dahl was a co-founder of Zencoder back in the early 2010s, which sold to Brightcove. When Zencoder launched, TechCrunch said that it wanted “to be the Amazon Web Services of video encoding.” It wound up selling for $30 million, a figure that stood a bit taller in 2012, when the transaction was announced.
Dahl stuck around Brightcove for a few years while angel investing. Then in late 2015 he founded Mux. The new startup first built an analytics tool called Mux Data. Dahl said the analytics product was needed because more conventional tooling like Google Analytics don’t work well with online video.
Mux Data is a SaaS product. But what made Mux even more interesting is its on-demand infra play, namely Mux Video.
Mux Video is delivered via an API, supporting both live and on-demand video for other companies. The startup likes to argue that it’s doing for video what Stripe has done for payments, namely take a bundle of complexity and headache, wrestle it into shape, then offer it via a developer-friendly hook.
Delivering video, we’ve seen via the bootstrapped growth of Cloudinary and recent Daily.co round, is growing work in 2020.
That fact shows up in Mux’s numbers, which are somewhat bonkers. The company’s aggregate revenue numbers are growing at a pace that Dahl described as 4x, while Mux Video’s revenues are growing at a pace of 8x, he said. Dahl shared a few other metrics — startups: if you want folks to care about your funding round, follow this example — including that Mux Video’s LTV/CAC ratio is somewhere around 5x-6x, and that its net retention is around 160%.
The collected performance data that Mux shared explain why a16z wanted to put its capital into the company.
But to better understand that all the same, I caught up with Kristina Shen, a general partner at the venture firm. Shen stressed that Mux was heading in the right direction before the pandemic, but that COVID has accelerated the importance of video in how humans interact with one another — an accelerating secular shift for Mux to surf, in other words.
COVID has bolstered Mux, with a release regarding its new investment, noting that its “social media customers [have seen] an increase of 118% in video streaming since mid-February while fitness and health streaming surged by 162%, e-learning grew by 230% and religious streams jumped nearly 3 orders of magnitude.”
Shen said during our call that Mux is one of the fastest-growing enterprise SaaS companies that her firm has seen.
Finally, when asked about Mux’s gross margins, Shen said the company would eventually look similarly to other companies in the infra space, like Twilio and Stripe. This matches what Dahl told this publication, though the founder included a fun wrinkle. Remember Mux Data, the analytics product? Its margins more closely resembles SaaS economics, while Mux Video is more similar to other API, infra plays. So Mux has a bit of SaaS and a bit of infra in it, which should give it a super interesting blended gross margin profile.
Fun. The next time we talk to the firm we’ll be curious to see how far into the double-digit millions it can stretch its run rate.
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An unsurprising wave of video-focused startups is trying to make video calls better
As Zoom and Microsoft and Google hammer it out for video-chat hegemony, startups are developing apps and services that either add on or compete with the major players.
There hasn’t been enough activity — yet — to call it a boom, but there’s enough going on to warrant our attention. Call it a boomlet, if you will, of startups looking to ride the wave of demand that video-conferencing has seen during the COVID-19 pandemic.
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The big players are not sitting still. Zoom has spent lots of 2020 on platform security after a surge in popularity exposed some frayed ends. Google has been working to make Meet, its own video-chat service, better and easier to find. And Microsoft has been hammering Teams’s abilities into stronger form as it uses the same product to fend off both Slack and Zoom, which is a tall order.
Other giants are getting into the mix. Reliance Jio, the Indian telecom subsidiary of megacorp Reliance, recently launched JioMeet, which has turned heads for looking rather similar to Zoom. It also quickly raced to millions of downloads. (That Google just put billions into JioMeet’s parent is an odd twist in the video-chatting wars; Google has effectively helped fund a competitor in the country, it appears.)
TechCrunch’s parent company, Verizon, recently bought BlueJeans, giving the American telecom company its own video chatting service. (It’s also eyeing the Indian market.)
But that’s only part of the action. More recently we’ve seen interesting rounds for video-chat software startups Macro and Mmhmm. And we’ve seen money go into companies like Daily.co, which want to let any company bake video-chatting capabilities into their service. And Y Combinator-backed Sidekick has been in the press lately, after building a hardware solution in mind for today’s remote workers who need video comms.
An upstart boomlet, then, amid a war of the majors. But should we have expected anything less from the huge wave of demand that COVID-19 kicked off? Zoom was growing quickly before the pandemic. Now the public company and a host of rivals, big and small, all want a larger slice of an expanding pie.
Video-conferencing startups
The two most interesting recent venture rounds for video-conferencing startups are those belonging to Mmhmm and Macro.
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API startups are so hot right now
Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.
A cluster of related companies recently caught our eye by raising capital in rapid-fire fashion. TechCrunch covered a few of them, and I read coverage of others. Looking back through my notes and the media cycles that they generated, it feels safe to say that API -based startups are hot right now.
What’s fun about this trend is that the startups we’re considering are all relatively early-stage, so they aren’t limping unicorns staring down a closed IPO window. Instead, we’re taking a peek at startups that mostly haven’t raised material external capital — yet. They have lots of room to grow.
And the group is somewhat easy to understand. Sure, I don’t fully grok their underlying tech — that’s a bit of the point with API startups; they take something complex and offer it in an easy-to-consume fashion — but I do get how they make money. Not only are their business models fairly easy to understand, there are public companies that monetized in similar ways for us to use as a framework as the startups themselves scale.
This morning let’s look at FalconX and Treasury Prime and Spruce and Daily.co and Skyflow and Evervault, all API-focused startups to one degree or another, to see what’s up.
What’s an API-based startup?
Simply: a high-growth company that delivers its main service via an application programming interface, or API.
APIs help services communicate with other apps, allowing them to execute tasks or request information quickly and easily. These services are sometimes highly valuable because they can offer something complex and difficult, easily and simply.
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Daily.co raises $4.6M video chat API service
API-powered startups are having a good year, with Plaid’s mega-exit to Visa still fresh in mind. And digital video-powered startups are also having a good year, as the world stays home more than before and work shifts to a more remote-friendly landscape. What about a company that does both?
Well, they’d probably raise money and see their usage spike, right? That’s precisely the case with Daily.co, a startup that has both raised new capital this year and has seen usage of its product rapidly rise.
New capital
In simple terms, Daily.co is a startup that provides an API that lets users and customers quickly integrate video chat into their product or website.
Today’s news is that Daily.co put together a $4.6 million round that was led by Jenny Lefcourt from Freestyle. The round was closed in January, but announced this week. (It’s common for venture rounds to close and then ripen in a dark cellar before they are uncorked and shared with the world, though increased Form D vigilance is changing the game.)
Freestyle was not alone in the new round. The investment was funded by a bevy of investors, including three new institutional investors (Moxxie, Slack Fund, SV Angel), and a host of angels (April Underwood, Sarah Imbach, Ellen Levy and Elizabeth Weil, among others). Three prior investors also took part: Haystack, TenOneTen and Root.
If the round didn’t have a lead investor the deal would feel like a unicorn-era party round. Daily.co previously raised $2.5 million in 2016, co-founder Kwindla Hultman Kramer told TechCrunch in an interview. TechCrunch’s first question was how the startup lasted so long on just a few million dollars. The answer was a surprise.
Hardware is … easy?
Daily.co’s path to an API-powered service was not as simple as you’d imagine. In fact, it’s the first startup I’ve ever spoken to that used a hardware product as a temporary method of funding itself.
According to Kramer, his company built and sold a video-conferencing hardware box that it sold for a few hundred dollars and a regular stream of SaaS payments (you can read more about it here, and here, if you want to go spelunking). The income its boxes generated helped the startup keep at its longer-term plan of building a WebRTC-powered API.
According to the firm, handling a “non-trivial” number of minutes via that first product was also an important learning mechanism.
Daily.co’s thesis that the live video tooling that large companies built into expensive conference rooms would come to everyone’s pocket now feels somewhat obvious. But back in 2015 when the company got started (it went through Y Combinator in 2016) the future wasn’t as clear.
A few market trends came together to make the company’s original vision bear out, including growing device power (your new iPhone has more oomph than your old iPhone), better, faster internet penetration, and the uptake of the WebRTC protocol. As each trend matured, Daily.co’s product wager has gone from possible to likely to existing in the market.
After moving away from the hardware world, Daily.co launched its video chat API in 2019, a year in which the company did not grow its staffing. However, 2020 has seen the startup’s headcount quickly expand (recall that this round was closed in January) and its usage skyrocket — according to Kramer, Daily.co has seen 12x usage growth in the last six weeks.
Daily.co charges a hybrid price for its service, including a small SaaS fee and usage costs. Given that it is a SaaS company, effectively, TechCrunch was curious about its margins. According to Kramer, the firm’s margins are attractive, and there are ways for the startup to actively manage its bandwidth costs (thus lowering revenue costs, and bolstering its gross margin profile). So, the startup should be valued at a SaaS multiple during its life.
Looking ahead, Daily.co is seeing increased attention from larger companies, it told TechCrunch, something that could power future growth. But those clients will require hand-holding, we presume, which means an ever-larger staff. It will be interesting to see how much Daily.co can grow in people and revenue terms in 2020 while the rest of the global economy slips into negative territory. More when we have it.
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