Monday, February 26, 2024
HomeVenture CapitalFast S-1 Teardown: Klaviyo – Matt Turck

Fast S-1 Teardown: Klaviyo – Matt Turck

Is that this it? Are we again? Everybody within the startup and enterprise world has been ready for months for the re-opening of the IPO window. After a file breaking 2021 (1035 IPOs, beating the earlier file of 480 in 2020), 2022 noticed a dramatic decline (181 IPOs) and 2023 to date has not been significantly better.

Widespread knowledge out there over the previous few months has been that This fall 2023 can be the time the IPO window would cautiously re-open for expertise firms (current non-tech IPOs like restaurant chain Cava being thought of non-representative). And it might be essential that a few of the absolute best firms (the same old suspects being Stripe, Databricks and Instacart) would exit first, to pave the way in which for an even bigger wave of high quality firms proper behind them.

Properly, this week has been an thrilling one – on Monday, ARM filed its F-1 (right here) and simply at the moment (Friday August 25), each Instacart (right here) and Klaviyo (right here) filed their S-1s. It’s going to be thrilling to see what occurs this Fall in IPO land.

New IPO filings additionally imply contemporary alternatives for the time-honored VC custom of S-1 breakdowns, regardless that timing is unlucky given summer time trip schedule – right here and right here.

In line with my common investing give attention to information and ML/AI, I’m going to choose Klaviyo for this primary breakdown of 2023, because it’s a closely data-driven enterprise. As I did previously (see the S-1 fast teardowns for Snowflake, Palantir, Confluent, C3, nCino), that is meant as a QUICK breakdown – largely unedited notes and off-the-cuff ideas, in bullet level format.

Let’s dig in.


  • The enterprise: information and ML/AI on the core. Klaviyo is a advertising automation platform, used primarily for e mail advertising and SMS advertising.  It is usually, and maybe foremost, a knowledge infrastructure enterprise with robust predictive analytics/ML/AI capabilities:
    • Klaviyo really didn’t begin as an e mail automation play, however as an alternative as an e-Commerce targeted database to retailer disparate information varieties — occasions, paperwork and object information fashions.
    • Because it developed into advertising automation, the entire premise of Klaviyo has been to empower e-commerce manufacturers to personal their buyer information, and create data-driven, customized expertise by owned channels (e mail and SMS). That is in distinction to promoting by giant retailers or marketplaces that don’t give manufacturers entry to the underlying client information and always change their algorithms.
    • Leveraging one’s buyer information in an omni-channel, complicated world shouldn’t be getting any simpler: “Companies at the moment wrestle to ship impactful client experiences as a result of they can not successfully harness more and more complicated client information. […] As consumer monitoring guidelines change, third-party information has develop into unreliable, difficult, and costly to make use of. In the meantime, the proliferation of first-party information has made it troublesome for companies to combination, synthesize, and use these disparate information units.
    • From the start of the S-1, Klaviyo clearly defines itself as being closely pushed by information, ML and AI: “Our trendy and intuitive SaaS platform combines our proprietary information and utility layers into one vertically-integrated resolution with superior machine studying and synthetic intelligence capabilities“.
      • The time period “synthetic intelligence” is barely talked about 17 occasions within the S-1, a modest quantity given we’re at (or barely previous) the highest of the Generative AI hype cycle
    • The Klaviyo platform has two core elements:
      • Information layer: Klaviyo has constructed from the bottom up a highly-scalable platform optimized for big volumes of information, sub-second-level accessibility, and excessive ranges of personalization and attribution. It may course of information from over 300 native integrations and open APIs and synchronize unaggregated, historic profile information with real-time occasion information in a single system-of-record.
      • Software layer: Klaviyo constructed an utility layer on prime of their information layer, which allows clients to create and handle focused advertising campaigns and flows, observe buyer habits, and analyze marketing campaign efficiency –  with out the necessity to rent in-house engineers, as Klaviyo has a robust no-code element. The appliance layer additionally gives built-in superior information science and predictive analytics capabilities to estimate client lifetime worth, predict a client’s subsequent order date, and calculate potential churn danger.
  • Winner doesn’t take all?
    • The final consensus is that any class in SaaS obeys a “winner take all”, energy regulation dynamic the place the market chief reaps all of the rewards, with maybe a #2 firm trailing behind, however everybody else struggling and in the end disappearing
    • Nonetheless, apparently, the success of Klaviyo and its IPO appears to go towards that consensus view. The ESP (e mail service supplier) market is extremely crowded, with an entire vary of huge gamers from MailChimp to Adobe to Salesforce, in addition to a bunch of newer startups (see this Gartner record of e mail advertising firms). Whereas the massive gamers don’t essentially break down the dimensions of their advertising automation companies of their public paperwork, we all know that at the least MailChimp was greater in revenues in 2021 (when it was acquired by Intuit) than Klaviyo is at the moment – about $1B for MailChimp then vs $585M for Klaviyo at the moment (not an ideal comparability, however directionally useful). But Klaviyo, whereas not being the 800 pound gorilla within the area, has nonetheless been performing impressively properly (see metrics under). Perhaps it has to do with the significantly giant measurement of the ESP / advertising automation market; possibly it has to do with the truth that obstacles to entry and aggressive benefit might or might not final and compound within the SaaS world as a lot as incumbents would hope – in any case, the very fact is that that market has produced a number of very giant gamers.
  • Shopify & Platform dependency: Klaviyo has been very a lot targeted on the Shopify ecosystem of small to medium-sized manufacturers, and it’s been an attention-grabbing dance to observe:
    • Whereas it has constructed a lot of partnerships through the years (BigCommerce, Woo Commerce, Wix and many others), Klaviyo has *main* overlap with Shopify: 77.5% of its complete ARR in 2022 got here from clients who use the Shopify platform, so it’s majorly depending on how Shopify treats it.
      • “Shopify” is talked about 198 occasions within the S-1.
    • It clearly highlights Shopify as a danger issue within the S-1: “Our enterprise and success rely, partially, on our capability to efficiently combine with third-party platforms, particularly with eCommerce platforms comparable to Shopify, and our enterprise can be harmed because of any disruptions to those third-party platform integrations or {our relationships} with third-party platform suppliers
    • On the similar time, Shopify has a transparent curiosity within the continued success of Klaviyo:
      • Shopify has been positioning itself for properly over a decade as a platform on prime of which different companies may thrive, and Klaviyo is without doubt one of the crown jewels of that effort
      • Shopify can be a serious investor in Klaviyo (see under), with a strategic partnership besides. The S-1 supplies some particulars (p 108) concerning the partnership settlement they entered in July 2022 – it includes a income sharing settlement, frequent inventory warrant settlement, and a inventory buy settlement.
  • Bootstrapping origins. Whereas it has raised some huge cash ($454.8M in main), and was most valued at $9.5B, Klaviyo shouldn’t be your typical Silicon Valley story.
    • Andrew Bialecki (who goes by “AB”) and Ed Hallen based Klaviyo in Boston in 2012 and bootstrapped the enterprise for 3 years as a worthwhile firm. Then for the following 3 years, they solely raised a complete of $8.5M ($1.5 in a seed in 2015 and $7M in a Collection A in 2017), in response to Crunchbase. Klaviyo did find yourself elevating large rounds of funding (beginning with a $150M Collection B in 2019), however the enterprise was already thriving by then, commanding increased valuations and resulting in decrease dilution for the founders.
    • In consequence, it largely bypassed the normal Silicon Valley ecosystem. Whereas it did increase from Boston VC agency Confederate (which owns 5.7% of the corporate earlier than the IPO) in early rounds, most of its funding got here from personal fairness agency Summit Companions (which owns 22.9% of the Class B shares earlier than the IPO) and strategic investor Shopify (which owns 11.2% earlier than the IPO).
    • As a serious good thing about its bootstrapping origins, the most important shareholder remains to be CEO Andrew Bialecki, who controls 38.1% of the Class B shares earlier than the IPO.


Klaviyo has spectacular metrics throughout.


  • Massive income quantity: Whole income was $585.1M, for the 12 months ended June 30, 2023
  • Spectacular development (at this scale and given the more durable surroundings): income grew at 56.5%, for the 12 months ended June 30, 2023
  • Gross margin: 75%
  • In contrast to most of its SaaS friends, Klaviyo is worthwhile: it had internet revenue of $15M on income of $321M for the primary six months of the yr, in contrast with a lack of $25M on income of $208M for a similar interval final yr.
    • Free Money Movement margin: 8%
    • Profitability appears to be a current factor (at the least since its bootstrapping years), nevertheless: on an annual foundation, it had a $9.5M GAPP internet loss for the 12 months ended June 30, 2023.
  • Money: $439.8M on the steadiness sheet as of June. That is significantly spectacular given $454.8M raised in main over the corporate’s historical past because it signifies that, on a internet foundation, the corporate solely burned $15M of capital, pointing to very excessive enterprise effectivity.


  • Excessive internet retention, significantly given the variety of SMBs in its buyer base (see under): 119% NDR, as of June 30, 2023
    • Land-and-expand technique is essentially targeted on product-led development
    • Increase in three main methods.
      • As clients enhance their utilization, they transfer to increased subscription tiers.
      • Klaviyo cross-sells further communication channels, comparable to SMS to clients who began with e mail providing, in addition to add-ons, comparable to evaluations and their CDP providing.
      • For bigger clients, Klaviyo sells its platform to their clients’ different manufacturers, enterprise items, and geographies.
  • 130,000 clients at an ACV of about 5k
  • 1,458 clients at greater than $50k ARR as of June 30, 2023, representing development of 94% year-over-year. That is the results of a gross sales push upmarket in direction of bigger clients.
  • CAC payback interval of solely 14 months for the quarter ended June 30, 2023. 
  • 42% of income on S&M during the last 12 months
  • Wonderful rule of 40 at 65%
  • World group of 1,500+ staff (not that prime a quantity given income, a part of the effectivity constructed into the enterprise – $390k of income per worker?)
  • Large quantities of buyer information: “As of June 30, 2023, we assembled over 6.9 billion client profiles throughout our buyer base, and within the twelve month interval ended June 30, 2023, we processed over 695 billion occasions, that are information on how customers interact throughout channels, comparable to opening an e mail, searching a web site, or inserting an order.


  • High-quality firm with spectacular metrics
  • Profitability and total effectivity of the enterprise very a lot aligned with present market temper and expectations
  • Whereas (arguably) much less of a generational firm in comparison with a Stripe or Databricks (or Snowflake), it ought to have a really profitable IPO, assuming macro cooperates, and strongly contribute to re-opening the IPO window for others
    • Does increase the bar fairly a bit for others probably following, given profitability and effectivity whereas rising strongly



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