Little known outside of Silicon Valley, Zuora has ballooned to close to $1 billion in valuation, after the company said Wednesday that it raised $115 million in fresh capital.
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"Betting on Zuora is a macro bet on the economy moving from products to services," said Mike Volpi, a partner at Index Ventures and Zuora board member. "The message is getting around to classical industrial companies."
Index, an early Zuora backer, participated in the new financing round, which included new investors Wellington, BlackRock and Passport Capital. Allen & Co. advised Zuora on the financing.
Zuora was founded in 2007 by Tien Tzuo, who was the 11th employee at Salesforce.com and ran marketing and strategy at the cloud software pioneer. When he started Zuora, the software as a service, or SaaS, business model was still in its infancy and was mostly gaining traction among a new class of enterprise software start-ups. Salesforce founder Marc Benioff was among Zuora's first investors.
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Tzuo has spent years evangelizing the benefits of subscriptions. From a business perspective, the advantage is that it's recurring revenue, meaning once a sale is made, the customer just keeps cutting monthly checks, creating a highly lucrative and predictable revenue stream. The trade-off is that the customer can turn the subscription off if the service isn't living up to expectations.
That means businesses have to invest in real customer service and constantly listen to client and partner feedback, making tweaks and improvements with regularity.
OnStar, the Web-connected diagnostic service owned by General Motors, is using Zuora for its vehicle protection and security systems that consumers buy on a subscription basis.
Schneider Electric, a French energy management and automation company with 25 billion euros ($26.7 billion) in annual revenue, tapped Zuora last year for its digital services as the company works toward selling more energy efficient solutions.