When Atlassian buying your start-up for $1.5b is a mixed bag
In The Breakdown this week, we put Aussie tech giant Atlassian’s $1.6 billion purchase of US video-messaging firm Loom under the microscope. Was it worth it?
The news | Last week Atlassian bought a start-up called Loom, which makes software to capture short video memos and presentations, for $US975 million ($1.5 billion). But that wasn’t all it paid for it. Atlassian shares slid 6.5 per cent on Thursday (Friday AEDT), when the Nasdaq-listed company announced the purchase, stripping just over $US3 billion from its value, even as the market was basically flat.
Investors appeared wary of betting on a start-up tied to remote work at the same time as many employees are being called back into the office (why make a Loom video when you can just … walk to your colleague’s desk?) On the other hand, Atlassian is all in on remote work itself anyway, with staff allowed to live anywhere in any country it has a legal presence.
And despite the headline figure, the deal was a mixed bag on Loom’s side too.
Its early investors and founders made a lot of money on the transaction, but later investors, including Silicon Valley investing royalty Andreessen Horowitz and Mark Zuckerberg-backed ICONIQ Growth, took a hit. They had put money in at a $US1.5 billion valuation in 2021, effectively overpaying by 35 per cent.
Why it matters | Atlassian’s appetite for a deal of this size shows the company feels it ought to go external for fresh growth as it chases its goal of 100 million cloud users. That’s the only way it’s going to get anywhere close to being truly “Big Tech”.
In Australia, where it is a big deal, it is easy to forget how small Atlassian still is compared with the household-name tech firms. The company is worth about 2 per cent of Microsoft, for example.
The deal also shows that while IPO markets are closed, tech investors are willing to take the cash from a merger, even if it delivers poor results for some of them. Mr Yum and Me&U, the two QR restaurant ordering code companies, were a local example of that.
What they said | Atlassian says it has bought Loom because it can put videos in its existing tools. Software engineers could explain their code with a video in Jira or a user could show exactly where a fault was occurring.
Videos could work in Confluence, Atlassian’s knowledge base tool, too, and Loom makes its overall suite of workplace communication tools stronger as a package.
Atlassian co-chief executive Mike Cannon-Brookes said Loom let people communicate in a “deeply, deeply human way” but also had advanced AI.
On the hard metrics, Loom has 25 million users, but more importantly, 200,000 customers, who might now start buying Atlassian products.
Our take | Loom’s growth has been impressive, but is plateauing, and it is doubtful whether the company was profitable.
It had a reported 700,000 users in 2019, which shot up to 10 million users in 2021. By 2022, it had 18 million and 25 million today. The company’s last reported capital raise, according to data from the industry statistics provider PitchBook, was a loan from the collapsed Silicon Valley Bank.
All that would have made an exit attractive for Loom’s backers, and even those ruing the final funding round will likely get back what they put in due to the structure of tech investing deals.
From the Atlassian product side? Well, journalism is a career with some blessings, and one is that we are seldom required to do interminable video calls.
Phone, yes. Email, sure. Text, WhatsApp, Slack, Signal, carrier pigeon, but no video calls.
Absence has not made the heart grow fonder and the appeal of anything that eliminates video calls is obvious.
But Atlassian has a mixed record of acquiring companies. It bought the workplace messaging app HipChat in 2012, renamed it, relaunched it and ultimately sold its assets to Slack in 2018 after falling behind.
The company will be hoping it can avoid repeating that mistake, but the bigger risk is that almost $US1 billion is just too much to pay for such simple recording software, even if it has a sprinkling of video-editing AI dust.
The Breakdown is a new weekly column that will unpack and explain a big story from the tech world.
Introducing your Newsfeed
Follow the topics, people and companies that matter to you.
Find out moreRead More
Latest In Technology
Fetching latest articles