Business software company Atlassian, now a $6 billion publicly-traded company, has been profitable since 2005. Better yet, Atlassian did it without doing a traditional round of venture capital investment.
So, in hindsight, it’s kind of weird that Atlassian took a $60 million “secondary” round of funding from Accel Partners, a move that brought Accel partner Rich Wong onto Atlassian’s board of directors.
On a recent episode of Kara Swisher’s “Recode/Decode” podcast, Atlassian co-CEO Mike Cannon-Brookes explains just why Atlassian took the money – and why Atlassian would have actually preferred to have taken a lot less cash, especially since it had $55 million in the bank at the time.
“It was a very strange negotiation, in reverse,” Cannon-Brookes told Swisher.
Getting the band together
The reason Atlassian took the investment at all was simple, Cannon-Brookes tells Swisher: As they looked towards the long road to an IPO, Atlassian’s leadership decided it was time to build out its board of directors.
But the fact that Atlassian hadn’t taken any outside investments at all, in a time when startups were raising millions upon millions, made it “strangely very hard” to recruit board members, he says. It made people suspicious of whether or not Atlassian was legitimate, he says.
“People would look at us and say, “Oh, well how come you have no funding?” and “I’m not sure about this company …,” Cannon-Brookes says.
And so, Atlassian ended up negotiating a funding round that it didn’t actually need, just to smooth the path to bringing Wong on board. Atlassian tried to keep the round small, around $5 million, says Cannon-Brookes, but Accel wanted more equity in the company and tried to ratchet up its investment.
- Flickr/JD Lasica
Atlassian ended up accepting $60 million from Accel. But an Atlassian spokesperson confirmed to Business Insider that the lion’s share of that investment ended up being used for employee liquidity. In other words, Atlassian brokered the sale of stock options from its employees directly to Accel, with the cash going straight into its employees’ pockets.
Accel got the equity it wanted; Atlassian’s leadership didn’t give up control; Atlassian employees got to cash out their shares almost 5 years before the 2015 IPO; everybody was happy. And Atlassian never again took venture capital.
It’s a nice position for a startup to be in, with investors literally negotiating to try to give you more money and you trying to take less. But Cannon-Brookes warns startups not to try to repeat Atlassian’s path.
“So it’s not a typical process, and I tell all Australian startups, ‘Don’t try and copy it.’ It was just a thing for the time,” Cannon-Brookes says.