Marketing Automation Venture Funding: Profitable or Profligate?

by Lauren Carlson

CRM Market Analyst,


I’ve talked to a lot of marketing automation vendors in the last year, and the topic of venture capital comes up often. Some vendors are proudly announcing new rounds, while others are deriding the fundraising as reckless and unsustainable.

I’m not exactly a Silicon Valley insider, so I decided to dig a little deeper into the topic.

On one end of the spectrum, you’ve got Marketo, which has raised $58 million to-date and $35 million of that in the last twelve months. They position these venture rounds as validation of their momentum in the market. They say the capital will be well-spent on product development and building an enduring company. Time will tell, but they seem to be doing very well.

On the other end of the spectrum are a dozen or so vendors who claim to be struggling with the VC math. Why do you need that much money to build a software company? Does it really cost that much to acquire a new customer? Wouldn’t a more “organic” approach to corporate development make sense?

VCs invested over $396 million in marketing automation vendors since 1998.

VC Funding of Marketing Automation by Year

While marketing databases, data mining, and campaign management tools have been around for decades, the modern marketing automation market really started attracting venture funding during the dot com era (1). Of course, that bubble burst and there was little funding for a few years (2). However, activity picked up in a big way in 2005 as the economy recovered and investors became smitten with all things cloud (3). The financial crisis of 2008 and 2009 slowed funding again, but that was short lived (4). 2010 saw the largest flow of dollars into marketing automation vendors, including two sizable rounds by Marketo (5).

Why are VCs investing?

VCs recognize that marketing is changing rapidly. The Web has dramatically changed the way businesses market and advertise, and it has greatly improved the ability to measure these activities. The stories that marketing automation vendors are pitching to VCs – optimal execution and measurement of marketing in the Internet era – are matching with what those investors hear from marketing VPs at their other portfolio companies.

Second, VCs are enamored with all things cloud. Almost all of the marketing automation vendors are cloud-based and they have made great use of the cloud architecture. The subscription business model that most marketing automation vendors follow is also extremely attractive.

Is this money well spent?

A half dozen companies have taken in the majority of marketing automation venture funding. Below, I break them down, showing funding in relation to their revenue and customer base. In addition to detailing who took how much capital, we also attempted to analyze how effective they have been in turning this capital into revenue and customers.

Biggest VC Funding Recipients

Certainly, we don’t have all the data we would need to perform a detailed internal rate of return (IRR). In fact, these revenue and customer numbers are our estimates, so we might even be wrong in some cases. However, I think we’re in the right ballpark on each vendor and we can see some interesting information come to light.

First, Aprimo and Unica lead the chart by raising $76 million and $66 million, respectively. Both established pretty decent customer bases and revenues. During the past couple years, both firms had decent exit events of roughly $500 million. Neither was a home run, by VC standards, but they were the kind of double or triple that can make a fund look pretty good. I’d say the venture route worked out pretty well for these guys.

Eloqua and Marketo are the two market leaders that remain independent, and they have raised $41 million and $58 million, respectively. Both of these vendors are enjoying good market momentum and have built customer bases and revenues that are on track to rival those of Aprimo and Unica. I would expect that either could be on track for a half billion dollar exit, but both companies’ executives claim to be aiming for >$1 billion IPOs that will support a long-term, standalone company.

Siverpop and Genius have both raised significant amounts of venture capital, but it doesn’t appear that they have gained the same market momentum as Eloqua or Marketo.

What does a home run look like?

What makes Eloqua and Marketo think they can pull off billion dollar IPOs and knock it out of the park? We suspect that these companies' executives and investors look to a small set of publicly traded cloud application companies for precedent. Specifically, Salesforce, SuccessFactors, and NetSuite have all executed successful IPOs and traded up to attractive valuations – an extraordinary valuation, in the case of Salesforce.

As of May 8th, Salesforce trades at $17.6 billion, Successfactors trades at $2.6 billion, and NetSuite trades at $2.2 billion. While they’d love to get a Salesforce valuation, I think any marketing automation software vendor would be excited to reach a $2 billion market cap.

What will it take to get there?

We went back and looked at these three public companies’ historical financials to get a sense of what type of performance market automation leaders would have to pull together to earn a similar valuation.

SaaS Income

Note: SFDC reports on a January fiscal year; NetSuite and SuccessFactors report the calendar year, hence the funny alignment of years in my table.

Clearly, all three of these cloud vendors have built substantial revenues through consistent growth. However, what we find most interesting is the bottom line. SuccessFactors and NetSuite are still unprofitable, and is only marginally profitable with a 6% operating margin. Compare that to SAP’s operating margin of 32% and Oracle’s 36%. What gives?

Well, Wall Street clearly likes the cloud computing model as much as their VC peers. By assigning premium valuations to unprofitable or marginally profitable companies, they are telling cloud executives, “Nevermind today’s profits; go for the big leagues. Invest in R&D, sales, and marketing to own cloud computing.”

The chart illustrates that each of these vendors are indeed investing a very large percentage of their revenues into sales & marketing and research & development. They are betting that if they invest enough money, in the right places, they can lock up the cloud computing opportunity before SAP and Oracle can turn their ships.

What does this all tell us?

Basically, it’s go big or go home. Marketing automation vendors that want to own their market, emerge as a cloud computing leader, and earn a ten figure valuation need to invest a lot of capital today to ensure their vision. They have the support of venture capitalists and Wall Street investors. Moreover, there is adequate precedent set by Salesforce, SuccessFactors and NetSuite. Raise a lot of money and execute well.

We don’t doubt that we’ll see some spectacular flame outs, but raising a lot of capital and investing aggressively is the most likely strategy to produce another cloud computing home run.

We want to hear what you think. Provide your responses in the comment section below.



Great post and facts. However, one thing that most people don’t understand is that the VC game is about making up phony numbers. Its a game of trying to get someone to pay a higher price that you did and not so much about organic growth. This is also known as a ponzi scheme.

Comment by Jeff Cohn

Excellent article. There is always a difficult trade-off between pace of growth and profitability in enterprise software, and clearly these companies (and their investors) reckon that growth is the important thing, with profits to follow at some later point. History tells us that market leadership is worth fighting for and will eventually allow profits to come, but of course the risk is that if growth falters then you end up with an unsustainable cost structure. Let’s hope the economic conditins remain favuorable for a while yet.

Comment by Andy Hayler

Detailed post with cogent insight. I agree that Eloqua and Marketo appear to be doing well. They’re both creating quality software and are signing on real customers. I’ve spoken with Phil Fernandez, CEO of Marketo, and I can confirm he’s a very smart man who knows how to do this. His team is sharp and focused. VC money isn’t overly easy to get, and they’re no dummies either. There’s a race and you’ve summed up the big players nicely. The small fries will get left in the dust.

Comment by Greg Jordan

There’s something wrong with your math. The bar chart that says “VCs have invested $3.96B in marketing automation” isn’t consistent with the bars — which eyeball-sum to around $400M. Frankly, I find the $3.96B figure too high and I tend to believe the bars, not the caption.

In terms of why VCs invest: there’s always one reason — to get a return and they obviously believe (and I agree) that there is a large market in automating the marketing department. I would further agree that VCs like all things cloud and to the extent a marketing automation vendor is cloud-based, they should have an easier time raising money.

In terms of absolute money raised, you should see Bruce Cleveland’s post on how much money it takes to create a SaaS company:


Comment by Dave Kellogg


Thanks so much for pointing that out. I have updated the number, per a recalculation.

Comment by Lauren Carlson

Good reporting and analysis, Lauren! I agree with your go big or go home point. It also made me think about an important (and ongoing) USE for a lot of that VC funding: market education to help real marketing practitioners cross the divide from marketing 1.0 to 2.0.

I wrote about it on our blog:

Comment by John Common

Thanks for this post, Lauren.

You’re right that SaaS firms will spend a lot on sales & marketing relative to annual revenues, though some companies – Taleo, Concur and others – have succeeded without taking quite as much risk as SuccessFactors.

Succeeding with a strategy to spend very aggressively on customer acquisition while waiting for revenues to catch up requires deep pockets, skillful execution, and a good amount of courage.

FYI, I’ve written recently on the hazards of using sales & marketing/annual revenue to determine a SaaS marketing budget:


Nice insights Lauren. There is a (exciting) growth in interest in MA – even as far downunder as Australia. We seem to have jumped the chasm and into the early majority. We still need to explain MA (or Marketing 2.0 as John calls it above) to some but generally marketing execs we speak to understand the problem that MA helps solve.

Whereas 2-3 years ago, it was ‘educate me’ it’s now moved to ‘I’ve done my research – talk to be about the process reengineering I need to do and how to get started …’.

I make this comment as insightful VCs should not only be attracted by the Cloud/SaaS but also the product lifecycle stage of MA. Wait till the mid-market/SMEs get onto it.

Comment by Andrew Haussegger, CEO Green Hat

Thanks for the analysis, Lauren. It certainly is a crowded field which will likely consolidate over the coming years as marketing automation becomes more mainstream as a brand category. I have a more thorough take in an article I wrote:

I appreciate your insights.

Comment by Don Dalrymple

The better the software, the easier it will be to achieve the results you want.

Comment by Market Automation Software

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