Bellevue- and Hyderabad-based software-as-a-service (SaaS) firm Zenoti has raised $160 million as part of its Series D round led by private equity firm Advent International, through Advent Tech and affiliate Sunley House Capital, at a valuation of more than $1 billion.
Existing investors Tiger Global and Steadview Partners also participated in the round.
With this, Zenoti, founded in 2010 by Sudheer Koneru, a person of Indian origin, joins other Indian SaaS unicorns such as Zoho, Freshworks, Druva, and Icertis.
The startup, which was formerly known as ManageMySpa, helps close to 1,000 spa and salon brands across 50 countries manage and digitize appointments and point-of-sale operations, and helps with payment reconciliation and inventory management, through its cloud-based software suite.
It also provides integrated customer relationship management and built-in marketing solutions, which allows 12,000 offline store-fronts to digitize operations globally.
The funding will be used for expansion of the business across European and South American markets, as the company aims to almost double its employee count from 550 to 900 by 2022, said Koneru, the chief executive officer (CEO).
The funding comes a year after Zenoti raised close to $70 million from Tiger Global Management and Steadview Capital. It will allow the company to make acquisitions of similar SaaS businesses operating in the spa and salon segment, as it looks to take an inorganic route for new customer acquisition. Zenoti aims to acquire two or three companies in the space over the next fiscal, as it also aims to enter newer segments of physical therapy, fitness and pet spas. The startup’s India office counts for almost 70% of its workforce, with close to 400 employees.
“The thesis behind this investment was that there will be a consolidation opportunity, where we can acquire smaller players who get revenues of $5 million. Apart from ramping our marketing spends, we will also significantly ramp up our research and development capabilities to bring in more algorithms and artificial intelligence-led support for our clients. This will include voice-based booking management modules for customers and chatbots to reduce dependence on offline receptions during the ongoing pandemic,” Koneru said in an interview. The company also plans to go public in a few years.
With a burn rate of $1 million monthly, Zenoti will also look to boost its product stack to beauty and wellness outlets by partnering with financial service providers to provide insurance and lending capabilities to these businesses as well as customers, at point of checkouts.
With overall gross margins for the business at 74%, the company aims to be profitable by the second quarter of the 2022 fiscal. “SaaS businesses have a gross margin of 70% to 80% which is unlike any industry. There is also high predictability of revenue growth in the business, making it an exciting space for capital investments. With covid, wellness as a space is heating up and total spends run as high as $200 billion in the US for the industry, Hence, Zenoti is a promising company in the space,” Shekhar Kirani, partner, Accel, said. Accel was the first institutional investor in Zenoti in 2015.
“What Zenoti did right was go behind the biggest clients when entering different geographies. The company built a generic solution, which can be adopted in multiple other segments without much tweaks,” Kirani said.
The US market makes up for 60% of Zenoti’s revenue, followed by the UK, which contributes 20%. India and West Asia make up almost 5%.
“As interest in SaaS businesses continues, we will look for an initial public offering. SaaS continues to be a highly profitable business and we continue to grow at a 100% year-on-year,” Koneru said.
“We are seeing businesses embrace Zenoti’s technology to help pivot and strengthen their offering and we are impressed by the company’s growth over the last year, particularly among some of the most established brands in the industry,” said Eric Wei, managing director at Advent International’s technology practice.