Digital marketing software companies have long stayed away from big-shot IPOs. Yet the biggest stock market year, 2020, reshuffled the cards.
In late March 2021, Semrush filed for an IPO at the NYSE (SEMR). At around the same time, other digital intelligence and marketing tech brands also went public.
Unlike some bootstrapped startup IPOs that can prefer to use more risky IPO paths (think special-purpose acquisition companies, or SPACs as they’re called), Semrush, a well-established digital marketing platform already prominent within its niche (and the darling of the SEO and martech awards scene), decided to go public the traditional way.
They managed to get to some solid and sustainable growth numbers before deciding to file for an IPO.
Oleg Shchegolev, one of the Semrush co-founders, shares his story towards success and a company valued at more than $2 billion.
The Background Story
Back in 2008, Oleg Shchegolev and Dmitry Melnikov founded Semrush, initially an SEM-focused tool for scouting competitors’ online marketing strategies.
They started with building a tool for themselves. Later, the founders shared it with a circle of friends, who shared it with their friends – that’s how Semrush’s functionality started getting greater recognition among the digital marketers’ audience.
Always very community-driven and user-friendly, Semrush started to get serious about business somewhere around 2013, when both Oleg and Dmitry realized that they had a solid brand and decided it was time to get to targeted product development, growth, and expansion.
As Oleg puts it, “marketing is about insights, experiments, trends, and research. We have always focused on helping clients find or develop new, dynamic ideas. It’s true that when we started 13 years ago, we offered services that allowed you just to analyze other sites. Still, even then, we were focused on market research and analysis as means to a greater, more comprehensive marketing strategy”.
By 2021, Semrush had grown into a versatile platform that enabled its users to deal with every key aspect of online visibility — from SEO, content management, and advertising to social media, market analysis, and competitive research. This comprehensiveness, full marketing workflow coverage, and an all-in-one approach differentiate Semrush from other more fragmented marketing solutions. With 50+ tools across its product suite, Semrush now has more than 72,000 paid users, including giant brands such as Tesla, Apple, P&G, and more.
Business-model-wise, Semrush’s revenue growth is supported by a freemium model enabling the company to acquire new customers cost-effectively. Semrush’s effective pricing model was designed to address all user levels from free to small, medium, and large businesses – and encourage customers to upgrade their subscriptions and purchase add-ons.
Over the years, Semrush has built a large and diverse user base with customers of all sizes and industry verticals, from retail to finance to ad agencies to software and media companies.
Semrush has seven offices around the globe across a few continents. The company’s annual revenue in 2020 was $125 million.
How Semrush Found the Money to Grow Its Brand
Oleg and Dmitry always saw Semrush’s growth as internal-driven. With a big emphasis on community-building and a product/customer-centric approach, the company grew at high yet sustainable rates.
A big dream led the two co-founders: they believed that marketing would become a skill everyone would acquire with time.
The pandemic only strengthened this belief, with many businesses turning to accelerated digitization – a trend they saw long before it was a thing.
With their “everyone’s a marketer” approach, Oleg and Dmitri realized that the platform had tremendous audience potential. If they wanted to deliver the product to everyone, they might have to raise external capital.
Up to 2017, Semrush was growing at its pace without any investors. Operating as a bootstrapped startup not only allowed the brand to laser-focus its resources and efforts on strategies and products that mattered, it also enhanced employee engagement and overall performance. The startup ambiance tends to promote and encourage incredible company-wide drive and motivation.
In 2017, though, the founders started to consider attracting some external cash to supercharge the company’s growth.
“Extra money was the least important objective during our investment rounds. We wanted investors who had the same vision for the future of online marketing, who understood that it’s a fast-changing overarching process (rather than simply a field) that has the utmost importance in today’s world. We are a product-led growth company, and it was crucial to find someone who believed in the same ideas,” says Oleg.
In 2018, they raised $37 million in capital from investors such as Greycroft and e.ventures.
“Years later, I can say that this was the best decision we could make at that time. Our investors were invaluable in helping us manage and navigate through the incredible growth we’ve experienced over the years since the very first investment round. We got way more than just money – we got advice, feedback, connections, and real engagement,” says Eugene Levin, Chief Strategy Officer that was one of the headliners of the investing process.
Finding the Balance Between Bootstrapped Development and External-Driven Growth
The journey towards investment was a lengthy one. It took around ten years to build such a comprehensive platform, ensuring that every feature and functionality compares to, and even goes beyond, the top solutions across all key digital marketing aspects. So even before investment, Semrush was already growing at a reasonable scale.
Unlike Semrush, some founders rush into investment deals and start the company with an “I’ll build a promising brand just to take it to a big-shot sale” mindset. Some startups go down this path, but this can only be the case for founders who aren’t looking to build a sustainable business.
Yet this way, you can lose your leverage over the investment deal and end up losing control over the company’s future.
This is what Semrush’s founders were wary about when they started thinking of attracting external investment. The decision not to raise money until the company had reached a point where it was seeing sustainable traction helped Semrush preserve its long-term vision without necessarily being tempted by short-term gains.
One way to build a sustainable global brand is to find the perfect balance between bootstrapped development and external growth drivers. Some may think of it as a choice between staying small and being fully independent and expanding your reach with the help of investors. Yet Semrush’s example shows that you can reconcile both by targeting particular investors who pass the cultural fit and share your ideas about the company’s future.
Oleg shares that “it was certainly possible to remain a bootstrap. But at some point, it became clear that investment could serve as a trigger. By remaining a bootstrap, it was challenging to look at our business globally. It seems like we understood everything about the market and users and the future, but it was all somehow without getting out of its shell. We needed to see the big picture to develop further. Hypothetically, we could have done this without raising money, but it would simply take longer, and we were already growing out of our shell pretty fast.”
The path to IPO is never something you just decide on today and go for tomorrow. It’s generally a well-thought-through course of events, and sooner or later, it had to happen for Semrush.
Semrush felt confident in its decision to go public, and its growth numbers only supported the timing of Semrush’s decision:
- Semrush’s compounded average annual growth rate between December 31, 2016, and December 31, 2020, was over 50%.
- Semrush achieved $6.8 million ARR from a single add-on product in 8 quarters from launch.
- Semrush’s dollar-based net revenue retention rate during the year ending December 31, 2020, was 114%. In other words, this shows that the revenue from clients at the end of 2019 had grown by 14% in 2020.
As Eugene Levin shares, “an important metric we track is revenue by cohort, and we have consistently seen each cohort expand purchases over time. This confirms the quality of our product and the value we deliver to our customers”.
Given the strong performance and consistent growth, in March 2021, Semrush went up to NYSE to ring the opening bell.
The IPO was also an effort to promote the idea of marketing becoming a widespread thing, which every person should be taught in the same way as Word or Excel, and through Semrush events such as Global Marketing Day, is becoming a reality. We’re living in an era of digital brands, startups, and ecosystems, and each person should be ready to navigate in this digital ocean, with marketing becoming a mariner’s compass. That compass is Semrush.