Cloudinary, a nine-year-old digital media startup, has become a unicorn in a secondary funding round that values the company at $2 billion. Investment giant Blackstone’s growth equity arm, Blackstone Growth, is providing financing for the round and the money will be used to purchase some shares held by the cloud company’s employees and founders. Blackstone is investing over $100 million, with the final sum dependent on the amount of equity staff choose to sell.
According to research firm CB Insights, there are now 1,000 private companies around the globe with billion-dollar-plus valuations. What’s striking about Cloudinary is the fact that its founders have bootstrapped it from birth to the point where it generated $90 million in revenue in 2021 and hit a $100 million annual recurring revenue (ARR) run rate by the end of the year.
That makes the company, which has been featured multiple times on theForbes Cloud 100 list, stand out in the herd of unicorns, which is packed with businesses that have relied on outside investment from a relatively early stage in their development. “To get to $100 million ARR without any external funding shows they’ve done an amazing job and have a strong team already in place,” says Ramzi Ramsey, who led the deal for Blackstone Growth. The new transaction more than doubles the valuation of the business from a previous secondary deal backed by Salesforce Ventures in 2020.
Santa Clara, California-based Cloudinary, which also has a large team in Israel, has prospered by selling software that helps almost 10,000 customers, including household names such as Nike, Tesla and NBC, automate the drudgery of tailoring and delivering images and videos online at scale. It has benefited from the massive expansion of e-commerce-related marketing and now boasts 60 billion digital assets under management, up from 25 billion at the end of 2018.
The personalization touch
The company uses artificial intelligence to suggest the best way to present visual material to catch people’s attention, with its algorithms processing between 500 and 2,000 pieces of content a second. These smarts are key to winning over both CIOs and marketers. “Customer experience strategy now demands that everything has an aspect of personalization and intelligence to it,” says Liz Miller, principal analyst at Constellation Research.
Although Cloudinary competes with giants such as Adobe, it hasn’t filled its coffers with money from investors to take them on. The company’s three cofounders—CEO Itai Lahan, chief product officer Nadav Soferman and chief technology officer Tal Lev-Ami—don’t have an aversion to venture capital. Lahan says they simply haven’t seen a need for it, other than to enable Cloudinary’s 408 employees to sell stock if they want to via secondary transactions that have occurred several times since 2015. Blackstone’s investment takes outsiders’ cumulative stake in the business to somewhat over 10% according to Lahan, with the remaining equity still held by the three cofounders and staff.
With over a million developers worldwide now using its products, Cloudinary is building more capabilities in-house to offer them. It’s also on the lookout for acquisitions and last month announced its first deal, buying Indivio, whose software lets users edit original videos into millions of variations, such as short clips for services like Twitter and longer ones for YouTube and other platforms. Lahan says the deal was a modest one—“in the $10 million range”—and was paid for with a combination of cash and Cloudinary stock.
Although no other acquisitions are imminent, Cloudinary is keen to find more targets. Among the fields it’s monitoring closely are virtual and augmented reality, as well as blockchain applications and non-fungible tokens. “The moment there’s a huge opportunity in front of us and we need a cash injection, we have financial partners who know us well,” says Lahan, who told Forbes last year that the company is open to executing a primary funding round if it makes sense to do so. That would likely mean setting up a board, which it currently doesn’t have.
Blackstone Growth, which has made around half of its investments in bootstrapped companies, is encouraging Cloudinary to think bigger. “The plan is to push forward and look for larger M&A [deals],” says Ramsey, who lauds the pragmatism of Lahan and his colleagues as they consider how to fund future growth. “They’re very proudly bootstrapped as a company, but it’s not because they are anti-capital.”