Public and private markets raced through the pandemic, and many of the breakout IPOs and newly enriched start-ups also raced above it — in the cloud. The software boom of 2020 found an unlikely and gruesome tailwind in Covid-19, and it has been the talk of Wall Street and Silicon Valley.
DocuSign, Zoom Video Communications, Fastly and Cloudflare, as well as e-commerce enablers like Etsy and Shopify rode the accelerating digitization wave to stock market gains of at least 160% since mid-March. Many players in the private market also made impressive gains, as their tech-enabled business strategies went from encouraged to indispensable, literally overnight.
"If you're not online, you're not in business," says Andrew Bialecki, founder and CEO of marketing automation platform Klaviyo, which after a $200 million Series C funding in November raised its valuation from $800 million to over $4 billion.
In a robust year for venture capital investments, Klaviyo and dozens of others rode the digitization tailwind into unicorn territory. According to CB Insights, Q3 2020 proved to be the second-strongest quarter on record for venture capital investments to U.S.-based companies. And Q4, so far, hasn't disappointed either. Of over 100 companies that achieved a $1 billion-plus valuation this year, 28 of them hit so-called unicorn status in October and November alone.
MessageBird, the nine-year-old Dutch cloud platform facilitating communications for companies like Uber, SAP, and Lufthansa across Southeast Asia, Europe, and Latin America, more than tripled its valuation to $3 billion when it raised a $200 million Series C round in October.
Unqork, a NYC-based no code software platform, also raised a mega Series C in October, bumping the three-year-old start-up's valuation to $2 billion.
Even already highly valued companies like Faire, the online wholesale marketplace that hit unicorn status in 2019, have cashed in. As of October, the three-year-old company had more than doubled its valuation after closing a Series E funding round led by Sequoia Capital. Calm, another 2019 unicorn, grew its valuation to $2.2 billion during the course of the pandemic, likely driven by increased venture interest in mental health apps amid the global health crisis. According to CB Insights, mental health start-ups saw an increase in VC deals in Q1 and Q2 of 2020.
Each new unicorn of the pandemic has capitalized on the newfound urgency of online integrations, but most recognized the growing need for their digital tools long before the health crisis ushered clients, and investors, into their network. Robert Vis founded MessageBird nearly a decade ago, and for him, the recent universal pivot to online has simply been part of an ongoing evolution.
"We believe our business is on the forefront of something that's going to take a very, very long time to actually fundamentally change. If you think about it, 80% of the world is still on hardware, not on software," Vis told CNBC in a recent interview.
MessageBird is often characterized as the international, younger answer to U.S. powerhouse Twilio, another work-from-home stock play with an impressive streak since the markets' March lows. In an interview with Jim Cramer on Mad Money this month, Twilio CEO Jeff Lawson said of his platform, "The trends that have already been going on in our society around digitizing those processes, streamlining them with this technology and turning so many interactions into digital ones, those trends all got accelerated by Covid."
Lawson estimates the pandemic has sped up the process by six years.
"Six years sounds about right," said Vis.
For already profitable unicorns like Klaviyo operating in the e-commerce arena, the pivot from bricks to clicks was well underway prior to the pandemic, but Klaviyo still saw huge customer growth in the last 10 months as retailers turned to online integration tools for survival.
"Between March and the end of the year, the number of customers, the number of brands building on Klaviyo doubled," CEO Andrew Bialecki told CNBC this week. Venture capitalist Ping Li led Accel's investment in Klaviyo's Series C round and joined the company's board of directors this year. In doing so, he is adding the marketing tech unicorn to a VC portfolio known for investments in Spotify, Slack, Etsy, and Facebook, and he's making a big bet on retailers sticking with a guided marketing software to help drive sales.
"If you look at the trends behind e-commerce, they've been very durable, lasting for a long period of time already," Li said. Li's highest profile unicorn investment to date: Cloudera.
Unqork is riding a slightly different digitization wave. The three-year-old company helps clients across financial services, insurance, and health-care sectors, as well as government entities, to build custom software without using a single line of code. "No-code" software is part of yet another long-arching trend toward all things digital, with Forrester Research finding that 84% of enterprises have already begun using low-code (limited coding required) and no-code software. Unqork counts Goldman Sachs, Liberty Mutual, and the City of New York among its clients, and Deloitte, KPMG, EY, and Accenture have all partnered with the start-up.
"Demand for digital transformation within legacy companies has reached a peak," says Laela Sturdy, general partner at Alphabet's independent growth fund CapitalG and board member at Unqork. Historically, building custom complex software has been a costly process, but that is changing. "We're suddenly seeing more pressure from the C suites of these companies," she said.
Unqork founder and CEO Gary Hoberman is no stranger to the C suite demands and pressures; he was previously global chief information officer at MetLife. Sturdy's own track record backs up her bet. She counts nine unicorns in her portfolio since joining CapitalG in 2013. Two of the highest profile: language app Duolingo, which saw its valuation double during the pandemic, and the $10 billion-plus valued robotic process automation company UiPath, which recently filed confidentially for an IPO.
Even insurance is riding the pandemic's tech tailwind. Hippo, an AI-powered home insurance start-up, closed a mega round of funding in July and attributed its 60% sales growth year-over-year to the widespread coronavirus lockdowns. On the public markets, insurtech Lemonade went public the same month as Hippo's raise; the stock is up 69% since its NYSE debut.
Heading into 2021, the wave of digitization is likely to continue growing. From the pure cloud plays like the $1 billion Cato Networks, to the $3 billion platform as a service (PaaS) MessageBird, the tech unicorn stampede is picking up pace rather than slowing during the pandemic.
Correction: Faire is not profitable. An earlier version of this article misstated its profitability.