Fuze raises another $104m
It’s impressive when a startup raises $100 million in venture funding. But doing it twice puts Fuze Inc. in rarefied territory.
Cambridge-based Fuze, which makes phone, videoconference, and messaging software, said Wednesday that it had raised $104 million. The new investment round, led by Boston financial giant Wellington Management Co., comes about a year after Fuze raised $112 million from private investors.
The company, which has about 1,500 corporate customers, has raised more than $300 million since its founding in 2006. Fuze, which has about 700 employees, said it was laying the groundwork for a potential initial public offering, possibly next year.
“This fully funds our plan and puts us in a great position,” chief executive Steve Kokinos said. “It’s up to us. We’re not going to be in a rush to do anything.”
The big investments in Fuze stand out in the Boston tech sector. Only one other company, fantasy sports operator DraftKings Inc., reported an investment round of more than $100 million in 2016, according to research firm PitchBook. Its big fund-raising also underscores the trend of fast-growing companies remaining private longer than years past, choosing to load up funds to bankroll expansion plans while avoiding the quarterly scrutiny of Wall Street.
In fact, Fuze’s latest investment round tops the IPO proceeds of the two Massachusetts tech companies that went public last year: Burlington’s Everbridge Inc., which raised $90 million, and Maynard’s Acacia Communications Inc., which raised $103.5 million.
“The markets are providing a way for companies to mature and get to a larger scale as private companies before they get into the public markets,” Kokinos said. “I think it’s a positive for folks like us, for sure.”
The shift toward big rounds of private investments has been driven by large reserves of money in the private equity sector. Bulger Partners, a boutique Boston investment bank, estimates that private equity investors started this year with about $500 billion ready to invest in software companies alone.
Firms like Wellington, which traditionally have invested more heavily in public stocks, also have been seeking later-stage private investments as a cure for a sluggish IPO market.
Wellington’s involvement in the Fuze deal could signal increased confidence that more tech companies will be able to go public soon, Bulger Partners managing director Douglas Melsheimer said. “They don’t really want to hold a private investment for three years,” he said.
Big corporations also have large cash stockpiles, which make acquisitions an attractive alternative to going public for investors who want to cash out their investments. Mergers and buyouts topped $2.1 trillion in Europe and North America last year, the highest amount recorded by research firm PitchBook.
Jeffery Bistrong, who heads the technology unit at merger-focused investment bank Harris Williams & Co., expects dealmaking to remain strong this year, especially if Republicans in Washington, DC deliver tax reform that frees up cash parked in overseas corporate accounts.
“The corporations are sitting on tremendous amounts of cash. And with any decrease of friction in the way of taxes and regulations, we should see an ebullient M&A market in 2017,” Bistrong said.
Fuze’s competitors include big business technology suppliers such as Google, Microsoft, and Cisco, all of which offer some combination of phone, videoconferencing, text-based chat, and other messaging services.
The company also could butt heads with better-known startups trying to reinvent software used in business communications. Slack, a San Francisco-based company that sells an instant messaging and file-sharing application, has raised a total of $540 million since it was founded in 2013.
Fuze declined to disclose detailed sales figures, but said an average customer spends about $400,000 per year on its software products. The company’s 10 largest contracts last year had a total value of $71 million, Kokinos said.