HubSpot Gets $16 Million to “Put Mass Behind SaaS”; Marketing Automation Company Has Plans to Go Public, CEO Says

It’s a big day at HubSpot, the Cambridge, MA-based marketing technology startup founded three years ago by local investor-entrepreneurs Brian Halligan and Dharmesh Shah.

The company announced that it has raised a $16 million Series C financing round, led by new investor Scale Ventures, with existing investors General Catalyst Partners and Matrix Partners also joining in. That brings the company’s total venture pot to at least $33 million.

At the same time, a new book co-written by Halligan and Shah hits bookstores today. It’s called Inbound Marketing: Get Found Using Google, Social Media, and Blogs, and according to the website for the book, it’s all about the ideas that drive HubSpot’s own Software as a Service (Saas) offerings: that the best way for companies to generate sales leads and win customers is to optimize their websites and their social-media activities to attract “inbound” traffic, rather than marketing to potential customers directly through e-mail, telemarketing, and other “outbound” or “interruption”-based methods.

Halligan, HubSpot’s CEO, announced the funding round in a posting on the company blog. According to the post, the company was able to raise the C round on the strength of its recent revenue growth (350 percent over the last year) as well as the spreading conviction that outbound marketing methods are “fundamentally broken.”

The company has grand plans for the new funding: Halligan told me this morning that the goal is to go public, just as other SaaS companies have. But while there’s a common myth that Web-based companies can be built on the cheap, it actually takes serious money to amass a customer base large enough to justify an IPO, Halligan says.

“When you look at companies like and NetSuite and Constant Contact and OpenTable, the average amount they raised [before going public] was $40 million,” says Halligan. “And there’s a reason for that: It takes real R&D, and you are essentially funding your customer with the SaaS model, so there are some big investments up front.”

SaaS businesses, Halligan points out, typically collect small subscription fees over time, rather than selling boxed software for a fixed price that would bring in big chunks of revenue up front. (HubSpot’s own services cost about … Next Page »

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