How UiPath found the model for scaling faster than everyone thought possible
UiPath has been called the fastest growing enterprise software company ever. The company has grown from ca. $1M revenue in 2015 to around $200M in Annual Recurring Revenue today! OpenOcean (OO) considered investing in UiPath in Q3 2015 on an invite to join fellow VC Earlybird, who had invested in July that year. OpenOcean decided not to invest, mainly because we failed to see that the company could scale rapidly. On the contrary, we felt that despite inbound interest for the solution, the direct sales model and long piloting by customers made an unpredictable and unlikely efficiently scaling business model. How wrong we were!
In this first blog post of two on the growth of UiPath, Tom Henriksson, General Partner at OpenOcean, interviews Dan Lupu, General Partner of Earlybird, who was the first institutional investor in the company and (still) member of the Board of Directors. Let’s find out the state of the company in 2015 and learn how they found their unique growth model:
Before Earlybird invested
Tom: Dan, please tell us what was Earlybird’s thesis for investing in UiPath and what triggered your decision to join the company?
Dan: I was very taken by the product, as I understood macros from Excel. UiPath works like this, and for enterprise applications — this totally blew me! Screen scraping had never really delivered benefits in the past though, and we were unsure if the market was ready, or perhaps still 3–4 years away. But we thought Robotic Process Automation (RPA) will eventually become a large opportunity.
CapGemini and other early adopters were already raving about UiPath. At this time the solution was not yet fully deployed at customers (rather still in pilots), but the signals were promising. So we took them in front of large LPs (investors in Earlybird funds), for instance an insurance company. And we found out it was just what the customer needed. Further, we now understood it was not only for cost reduction, but actually enhancing white collar work.
Tom: Did it quickly become clear for you to move forward with the investment, and how did you build the syndicate with other investors?
Dan: We started looking at the company already in April 2014, and invested in July 2015. So we took our time, and really needed to be convinced about a few things first. Last we started building an investment consortium to make sure there would be enough capital for the next phase of growth. We approached around 15 tech- or software investors, including OpenOcean, and only Credo had the foresight to join us at the end. Many investors had similar thoughts as OpenOcean about the business model, and/or were skeptical of market readiness. Besides, at that time it still seemed difficult for most VCs to believe a big winner could come out of Romania.
UiPath´s evolution post investment
Tom: How did the company develop in the first year after you invested?
Dan: The company was initially struggling to get recognition in the market. Blue Prism and Automation Anywhere were the visible leaders, but luckily none of the Gorilla enterprise software vendors had really entered the market. The main credit must go to Daniel (Dines, founder and CEO)! He was a one-man sales show, really doing everything from product management, to demos and pre-sales, to negotiating and closing of deals, while leading the whole company. Here a superior attitude really won, as competitors were not as flexible. Customers and partners were very happy to speak to someone humble and responsive, someone who really cared about customer success.
UiPath’s technical architecture is also favorable. The modularity allowed to be flexible and integrate with other solutions, like Microsoft workflow — which is a slick and much used design. This became an advantage for the company. It is more than looks though. The speed of implementation is very good and a key factor to success. You still need developers, but it is easy to use. To this day, the market demand for RPA developers is larger than the available pool.
Tom: What were the early signs of the market picking up?
Dan: When the market really took off already healthy inbound demand from end-customers accelerated further, and clients became more open to performing more rapid Proof-of-Concepts (POC). At the same time the UiPath product matured, including delivering the first enterprise/server version. As a result of these developments, the sales cycle decreased to 3–4 months and UiPath achieved an 80% POC win-rate. Now adding sales (personnel) capacity became the biggest bottleneck to scaling.
Another strong signal was that great people proactively wanted to join the company. For instance, in Japan the country leader Koichi Hasegawa approached us with the promise to make UiPath the leader in the market. In Japan all major corporations are now customers, just a few years later. India is another market with a similar story.
Business model and strategy
Tom: What were the key strategic decisions the board took in the 2015–2016 time period?
Dan: Daniel was adamant about building local sales teams, which was a risky strategy and big upfront investment for a company with limited capital (still in 2016). The company already had a partnering strategy with integrators who really liked the solution. But we decided to invest in the direct sales force also to make a dent in the market. Fortunately we achieved rapid pay-back times on this investment in key markets.
In late 2016, the company also released a community edition — a free version for developers. This enabled broader market access, as developers started to tinker with it. Further, the UiPath Academy was started around the same time to educate the market further about the power of RPA. This has been critical to get more RPA developers to the industry, necessary for scaling also UiPath.
Tom: When did the business start growing really rapidly? Did your investment start feeling “safer” then?
Dan: Despite good cash-flow from customers’ upfront payments, money was definitely an issue all the way until Accel invested in early 2017. We had realized the company will require 30M$ to get to a “positive place”, so nothing was clear even if the company now had around 5MARR$
Then Luciana (Lixandru, Accel General Partner) decided to lead the Series A, financing, with exactly the amount we had envisioned the company needed. At this stage of the company this was very courageous, indeed! This time around it was also much easier to convince investors to join the ride, even in a Romanian company.
In the second blog post we interview Kulpreet Singh, UiPath’s first hired Sales Chief, and dive deeper into the strategies and methods for achieving the company’s stratospheric revenue growth during 2017–2018.
