Why the ‘subscription economy’ could change the way you do business

The founder and chief executive of Silicon Valley start-up Zuora has revealed how the company completed four rounds of funding totalling $82 million, and how the subscription economy is transforming business models.

Zuora, founded by Tien Tzuo, provides cloud-based billing and payment solutions, allowing companies to offer services via subscriptions. Zuora refers to this as the subscription economy.

Tzuo founded Zuora in 2007 after working for Salesforce.com, where he built the company’s original billing system. He also served as chief marketing officer and chief strategy officer.

Today, Zuora employs around 250 people, and has offices in the Bay Area, London, Sydney, Beijing, Atlanta and Chicago.

The company has more than 500 customers, including Fairfax, Ninefold, ServCorp and Quotify. It has also raised a total of $82 million, including a $36 million Series D round 18 months ago.

Tzuo, who is currently in Australia, told StartupSmart the company has been fortunate to raise such a large amount of money.

“Benchmark Capital led our A round, Shasta Ventures led our B round, Redpoint [Ventures] led our C round, and Greylock and Index Ventures led our D round,” he says.

“We’re fortunate that the market we’re trying to capitalise on is one that people believe in. People see that the world’s moving towards a subscription economy.

“They like us in the sense that, from an investor’s standpoint, they don’t have to bet on who has the best marketing motivation product, who has the best storage product, [etc.].

“A bet on us is sort of a bet on the sector, and so if you believe [in] the whole sector, like SaaS and cloud… then we should be able to grow with it.

“They like us because we’re a diversified bet.”

Tzuo believes the Series B round, rather than the Series A round, is the most challenging.

“It’s one of those things where the A round is sort of all hopes and dreams, whereas… the D round is where you’ve got a bunch of history, you’ve got customers, the business model is starting to form,” he says.

“The B round is kind of this tweener thing, where you don’t really have a business model yet and you haven’t figured everything out yet.”

According to Tzuo, start-ups are among the companies leading the subscription economy.

“We’re seeing a once-in-a-century transformation going on in business models and this is all stemming from the internet,” he says.

“There are a lot of start-ups in the commerce space now that offer different things as a service, [such as] the Dollar Shave Club.

“We’ve very involved in the start-up innovation space, not just in Silicon Valley but here in Australia… as well as in the UK.

“We’ve got start-ups in Berlin, start-ups in Madrid and Barcelona. We’re even talking to a company in Iceland – our first customer in Iceland.”

Zuora is also tapping into the concept of “B 2 any”, says Tzuo.

“In 2006, 2007, 2008, we saw a lot of start-ups thinking they’re going to sell to consumers and then realising the money was with businesses,” he says.

“The whole point is companies are no longer B2C companies or B2B companies… A lot of our customers now are mixed.”

This article first appeared on StartupSmart.

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