Analysis of Workday's capital infusion

Yesterday, Workday announced it had raised $75 million in Series E venture financing. The investors in this round included company founder Dave Duffield, Greylock Partners (a firm Aneel Bhusri joined after his PeopleSoft days), as well as VC firm NEA Ventures. NEA is the new player in the mix.

A Series E round implies that four prior rounds of venture monies had been raised. Many of the specifics on this deal (e.g., pre-money valuation) and their prior venture financing are not public.

There's a great interview with Aneel at

PEHUB

. Some of the data points in it suggest that:

- total capital raised in all five rounds is approximately $150 million - current capitalization may last and negate the need for future venture rounds - Dave still owns over half of the company

Let's do a bit of math. When you launch a new software firm, you probably have no customers and the ratio of capital per customer is infinite. Once the product is launched, the capital per customer number begins a high ratio and keeps diminishing over time. Early stage firms probably have million dollar/customer ratios but they quickly lower that ratio.

Workday has approximately 80 customers and has raised, if the PEHub numbers are correct, almost $2 million in capital for each customer. That seems like a lot of money for that number of customers. Granted, these funds will fuel future growth and, if Aneel's financial projections are correct, they will fuel all future growth. If so, then this is an appropriate capital raise. But, if the customer acquisition flow does not accelerate, then capital will get consumed over a smaller number of customer acquisitions.

One implication of this financing though is clear: the pre-money valuation on this transaction must have been very, very high. To grab $75 million in financing and not dilute Dave and Greylock's investment much mean that either NEA didn't put much in this deal or that the pre-valuation valuation was very high. That said, this deal is a remarkable deal in that so much money was raised with a likely high valuation in this very tough economy.

While only speculative, I would guess that NEA hopes to make this late stage financing and reap a solid ROI when Workday goes public. That public offering though could be a ways off as Wall Street must recover and Workday will need a lot more customers and revenue to support the trading volumes and business valuation that the big stock exchanges require.

Bottom line: This appears to have been a good deal for Dave, Aneel and Workday. In this market, the size of the round and the implicit valuation regarding are also impressive. The only concern is whether Workday can accelerate the signing of customers in the near-term.