Marketo’s New $25 Million Funding Round Likely To Have Ripple Effect On MA Category

Last week’s announcement that Marketo had secured an additional $25 million in funding had the blogosphere buzzing as analysts and competitors alike chimed in with their take on the latest financial infusion into the marketing automation category.

The latest round of funding led by Institutional Venture Partners (IVP), the company that’s backed brands including Netflix and Twitter, shifted the spotlight back to the marketing automation category, and likely turned up the heat on competition in the space.

Although it was overshadowed by Marketo’s latest round, Act-On Software also announced that it had raised $4 million in a second round of VC investment, led by Voyager Capital with US Venture Partners. The Beaverton, OR-based marketing automation solution provider pointed out that it has already reached 160 customers with only $2.5 million prior funding.

While the traditional perception of young companies who raise big sums of money in the early stages of their development has been that they are burning through cash, Marketo CEO Phil Fernandez was quick to point out that to date it has only used approximately $20 million of the $57 million in had raised through previous rounds of funding. That would leave Marketo with roughly 60% of its funding left for working capital, in a category where many of the solution providers are still generating less than $10 million in revenue.

The latest round of funding puts Marketo in a comfortable position financially to bankroll expansion into new markets and continue to invest in developing new products. “We will be using the new funding to expand our marketing and sales activities, continue to strengthen our essential product innovation, and enhance our customer services, operations, and overall infrastructure,” Fernandez said.
“Our goal is to build a truly great and profitable SaaS company, and this new investment will help us accelerate our efforts in getting there.”

Marketo’s VP of Marketing Jon Miller added the company will be investing in its own sales and marketing operations, including international expansion as well as investments in Marketo’s product and operations, training, support and service.

The likelihood is that IVP, as well as previous investors InterWest Partners, Storm Ventures, and Mayfield Fund, are going to expect Marketo to further distance itself from the rest of the marketing automation/revenue performance management vendors and stake a dominant claim.

It has been estimated that more than $150 million in venture funding has already been invested in the space, and apparently there is still strong interest in increasing this amount. Joe Payne, CEO of marketing automation vendor Eloqua, said investors “are beating down our door.” Ultimately, Payne said, the investment is good news for the automation category. “VCs like to put their money into promising markets,” he said. “There is tremendous interest from investors of all sizes to put money into our space.”

However, while venture funds have been flowing into the market because it is a hot space, industry analysts point out that going forward bankers will be looking beyond revenue and customer counts and scrutinizing metrics such as customer acquisition costs and attrition rates.

After bringing in $4.5 million in revenue in 2009, Miller said Marketo is on pace to more than triple its revenue in 2010. He also said Marketo is planning to be in the same class as other successful SaaS vendors such as salesforce.com, NetFactor, NetSuite and Omniture, many of which have either been involved in high profile acquisitions or public offerings.

Payne compared Marketo’s current position to Eloqua’s at the point when Eloqua took its last round of funding. “They are where Eloqua was about three years ago, in late 2007,” Payne said. “At that time, when Eloqua was a $21M GAAP revenue company, we took a $23M investment. Although I think Marketo is a little smaller than that, the size of the round does not seem abnormal to me.” Eloqua has projected the company will grow from $41 million in 2009 to $53 million in 2010.

Prior to this recent round of funding, most of the speculation had been focused on which of the marketing automation vendors would be acquired by a larger CRM provider or digital services agency. However, with $60 million in the bank there is also the possibility that Marketo could become a consolidator and acquire one of its competitors.

In the current climate, even the vendors that are not announcing new rounds of funding are still accentuating their financial health and expansion. Genius.com recently announced that it saw impressive revenue growth, with nearly 100 customer wins for the quarter ending Oct. 31, 2010 and a monthly customer renewal rate of 97.5%. The company said it continues on a “trajectory toward overall profitability, resulting from the combined effect of high revenue growth, low customer churn and streamlining of operations.”

Genius attributed much of the quarter’s success to the introduction of the company’s new, instant-on, free product offering — accounting for nearly 20% of new business revenue. With over 400 active free-accounts and nearly 3% converting to paid customers, Genius.com said it has uncovered “a steady stream of new deals, driven from upgrade and professional services revenue.

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