By 2010, Anthony Casalena was seven years into bootstrapping his start-up Squarespace, which he’d grown from a dorm room project at the University of Maryland into a business with $10 million in revenue.
That’s when Getty Images approached him to see if he wanted to sell.
Casalena considered the offer long and hard, but he didn’t want to give up control. Instead, he opted to stay independent and bring in outside investors for the first time, allowing him to accelerate hiring and product development and also sell some of his stock.
He didn’t know it at the time, but in raising a $38.5 million financing round, Casalena was making a billion-dollar decision for himself and a highly lucrative one for venture firms Index Ventures and Accel Partners.
Squarespace, which sells tools for easy website creation and publishing, debuted on the New York Stock Exchange on Wednesday with a market value of $6.6 billion. Casalena, the company’s biggest stakeholder, owns shares worth $2.4 billion, while Index and Accel control holdings valued at $944 million and $750 million, respectively.
Because Squarespace went public through a direct listing rather than raising capital in an IPO, insiders can start selling right away and don’t have to wait for a lock-up expiration. Their stakes listed above include some sales that they registered to trade right away, including 6.2 million registered by Casalena.
“A direct listing fit for us because Squarespace has been a profitable company for a number of years and we don’t need to raise money in this event,” Casalena told CNBC’s “Squawk Box” on Wednesday. “Our thinking was pursue the direct listing, give people the option to buy if they want to buy, sell if they want to sell. What’s great about the direct listing is no one’s suffering unnecessary dilution today.”
Squarespace had a rough debut, opening at $48, below its $50 reference price on the NYSE. In March, the company raised a private round at $68.42 a share, valuing the business at $10 billion. Stocks were broadly down on Wednesday, and cloud software stocks have been badly underperforming the market this year, as investors rotate out of risk.
Still, at 38 years old, Casalena is the latest tech entrepreneur to join the billionaire ranks as high-growth companies that had filled up the IPO pipeline in recent years hit the market with big valuations. The founders of Affirm, Roblox, Coinbase, Bumble, UiPath and AppLovin have all entered the three-comma club this year.
Revenue last year rose 28% to $621.1 million. Net income narrowed to $30.6 million from $58.2 million a year earlier as the company boosted spending on sales and marketing by 40% “in light of the accelerating trends in the amount of time and money consumers are spending online during the COVID-19 pandemic,” Squarespace said in its prospectus.
From college to CEO
The Squarespace story began in 2003 at a student apartment complex called South Campus Commons in College Park, Maryland. While in school, Casalena was looking for a website that enabled easy online publishing, but he found the existing services like Blogger insufficient. He coded together his own and soon found that someone wanted to pay him to use it.
“The blog was the anchor but it was always about doing more with it,” Casalena told the NPR podcast How I Built This with Guy Raz, in 2019.
Casalena eventually convinced his dad to give him $30,000 so he could buy a couple servers and house them in a data center in New York. After college, he drove to Manhattan and took up residence in a fourth-floor walkup apartment that he’d found on Craigslist.
Over the next few years, Squarespace grew steadily with a skeleton crew and little structure. In 2007, Casalena started trying to professionalize operations and even hired a more seasoned executive as CEO. He realized that approach wasn’t going to work.
“I learned a lot of lessons the hard way, by literally making, I think, pretty much every possible mistake one can make,” Casalena told Raz. “I didn’t know what I was getting into.”
Meanwhile, Accel had been keeping a close eye on Casalena. The firm, which was best known for an early bet on Facebook, had begun looking for internet and software businesses across the globe that were gaining significant traction without venture funding. Someday, Accel’s thinking went, these founders may want to raise money to make an acquisition or seek funding to hire some more expensive talent.
“In those situations, we want to do our best to build a relationship and try to be there when perhaps they evolve their thinking,” said Andrew Braccia, the Accel partner who ended up leading the Squarespace investment, in an interview.
Accel used a similar approach to invest in Atlassian, an Australian software company whose products were popular with developers, and Qualtrics, a family-run cloud software business in Utah. Atlassian now has a market cap of $54 billion, and Qualtrics was acquired by SAP in 2018 for $8 billion, before spinning out this year into a publicly traded company worth $17 billion.
A decade ago Accel’s growth investing strategy was just a thesis, but Braccia said it’s now clear that “you can create venture-style returns out of later-stage bootstrapped businesses.”
Braccia, who’s based in Silicon Valley, flew out to meet Casalena in 2010. He and fellow Accel partner Ryan Sweeney had breakfast with the Squarespace founder at Mercer Kitchen downtown and then spent a couple hours at the Squarespace office, where Casalena walked them through his vision for the next iteration of the company’s publishing system.
“I remember watching Anthony take us through the new version of his product,” Braccia said. “He was maniacally focused on the smallest of details.”
A lucky eruption
Around the same time, in July 2010, Index’s Dominique Vidal was in New York to meet Casalena. He was introduced by Jonathan Klein, Getty’s CEO at the time, and flew in from London to try and land the deal. Vidal, who was also friends with Braccia from their pre-venture days working at Yahoo, ended up stuck in New York for much longer than expected because of the volcanic eruption in Iceland that spewed ash across much of Europe and disrupted international travel.
Vidal wasn’t available for an interview, but Nina Achadjian, another partner at Index, relayed the story to CNBC on his behalf.
“Dom’s flight was canceled, and he hung out with Anthony a ton more,” Achadian said. “The more time he spent with Anthony, the more he was blown away.”
Casalena told Raz on his podcast that he wasn’t sure how Index and Accel heard that Getty had made an offer, but somehow they “caught wind of this,” he said. They had a counter proposal for him.
They said, “you don’t have to do that. You don’t have to sell it all if you want some liquidity,” Casalena told Raz. “Why don’t you accept an investment from us? We’ll put some money into the company. You can sell some of your shares to us. You can keep running it. We’ll put a board in place, we’ll help you recruit executives and all that. I liked that.”
Vidal and Klein joined the board along with Braccia. Casalena resumed as CEO.
Squarespace went on to raise another $40 million in 2014 in a round led by General Atlantic, which is now the biggest outside investor with a $1.9 billion stake. The company raised $200 million at a $1.7 billion valuation in 2017 and $300 million in March ahead of the direct listing.
By waiting so long before raising his first outside capital, Casalena maintained a bigger stake than many founders of venture-backed companies.
He also has an outsized amount of control over decision making. Squarespace has a dual-class voting structure, and Casalena owns most of the Class B shares, giving him control of about 68% of the total voting power.
While that structure has become common in Silicon Valley among founder-led companies, critics say it creates poor systems for accountability and limits the ability for the board and shareholders to take action when necessary.
IPO research firm New Constructs, in a report this week, said the corporate structure is one of the reasons that investors should be cautious of investing. The firm said Squarespace is worth “at best $4.2 billion” in part because it operates in a highly competitive market with cheaper alternatives.
The consolidation of power doesn’t help.
“A risk of investing in Squarespace’s direct listing, and other recent IPOs, is the fact that the shares sold provide little to no say over corporate governance,” the firm wrote.