Company Overview

DocuSign, the leading cloud-based e-signature platform, filed for a $100M IPO. The company plans to trade on the Nasdaq under the symbol, “DOCU.” Morgan Stanley is leading the IPO. There has been a flurry of SaaS companies filing this year and DocuSign is now the 7th behind Smartsheet, Pivotal, Dropbox, Zscaler, Zuora, and Ceridian. The companies that have started trading, Dropbox and Zscaler, are up 43% and 72% from their IPO price, respectively. DocuSign is the #1 e-signature solution with more than 350,000 customers and hundreds of millions of users. Since 2003, when the company was founded, their customers have completed over 650 million transactions on the product. DocuSign in most cases is replacing a paper-based and manual signing process and enables their customers to sign documents from a mobile device or computer, drastically increasing efficiency and reducing errors. Given the nature of the problem they’re solving — signing documents — DocuSign’s product is applicable to any company — large or small. The company also talks about the broad range of use-cases for the product, including sales, HR, legal, etc and as an example mentions one customer has implemented them for 300+ use-cases across their company. DocuSign has 2,255 FTEs (full-time-employees) and is based in San Francisco, CA. Below is a company timeline output.

Summary Metrics and GTM

While DocuSign discloses some annual metrics, they disclose no quarterly financial data or metrics. Moreover, their last disclosure date was January 31, 2017, so we don’t know how they performed over FY’18. I would imagine they’ll release FY’18 results and potentially quarterly metrics in S-1 amendments as the current results are over a year old. DocuSign did $381M in total revenue in FY’17, up 52% from $250M in total revenue in FY’16. Subscription revenue accounted for 91% of total revenue in FY’16 and FY’17. Given they don’t disclose quarterly subscription revenue we don’t know what their implied ARR (annual recurring revenue) would be. The company has significant losses, but they are declining as a percentage of revenue. Their GAAP operating margin was (30)% in FY’17, up from (48)% in FY’16. Other relevant stats below;

• Net Promoter Score of 63 as of October 2017.
• In 2017, 83% of all Successful Transactions were completed in less than 24 hours and 50% within 15 minutes compared to days or weeks for traditional methods.
• The number of customers with greater than $300,000 in ACV has increased from approximately 30 as of January 31, 2013, to ~140 customers as of January 31, 2017.
• Based on a 2015 third-party study, DocuSign’s enterprise customers realized an average of $36 of incremental value (with a typical range from $5 to $100 per document depending on use case) per transaction when they deployed DocuSign versus their existing paper-based processes.
• For top 100 global customers as measured by ACV for the year ended January 31, 2017 that placed their first order in, or prior to, the year ended January 31, 2014, their ACV has increased by a median multiple of 4.4x their initial purchase.
• ~85% of aggregate ACV for the year ended January 31, 2017 was attributable to enterprise and commercial customers, with the remaining amount attributable to VSBs.
• 17% of total revenue was from customers outside the United States in FY’17.
• Nearly 60% of transactions on the platform are processed via the DocuSign API.
• Dollar-based net retention rate was at or above 115% at each of January 31, 2016 and 2017.
• 7 of the top 10 global technology companies, 18 of the top 20 global pharmaceutical companies, and 10 of the top 15 global financial services companies are DocuSign customers.
• Their largest customer accounted for less than 3% of revenue in both FY’16 and FY’17.
• Offers 300+ pre-built integrations with applications like Google, NetSuite, Oracle, Salesforce, SAP, SAP SuccessFactors, and Workday.
• Since inception the company has invested over $300M in research and development to build their solution.

DocuSign charges subscriptions based on functionality and “Envelopes”, which they describe as a digital container used to send documents for signature or approval (many documents can be put in one envelope). Subscriptions generally range from one to three years and most customers pay annually in advance. The company also has a free 30-day trial that is focused on individual users and VSB (very small businesses). Sales cycles are typically 3 to 9 months (for enterprise and commercial segments) and the company sells through a direct sales force (inside and field) and partnerships for enterprise and mid-market companies, and VSBs (>10 FTEs) are pushed into self-serve.

Website Pricing

‍Product

DocuSign offers 5 tiers to their product.

• Trial; can send documents for signature with basic fields, audit trail, and integration with Dropbox, Box, etc.
• Single-user; same functionality as Trial but with reusable templates.
• Multi-user; same functionality as single-user but with reminders, notifications, personalized branding and other features.
• Business Pro; same functionality as multi-user but includes payment collection, advanced fields, bulk send, advanced authentication and other premium features.
• Enterprise Pro; same functionality as Business Pro but also includes partner integrations, SSO, enterprise support, advanced admin tools and companies can build their own workflows through the DocuSign API.

The company also has standalone products that include things like vertical real estate workflow, eNotary and the ability to collect payments and sign documents in one step.

Acquisitions

DocuSign has made a number of acquisitions in the past few years which isn’t uncommon for a company of their scale. During FY’16 the company made 3 acquisitions totaling ~$60M in cash:

• May-2015. Algorithmic Research; e-signature company based out of Israel. Total consideration of $35.1M in cash.
• Sep-2015. Estate Assist; solution for managing account info and documents. Acqui-hire with a total consideration of $3.9M.
• Nov-2015. OpenTrust; solution for cloud trust services. Total consideration of $21.4M in cash.

Market Opportunity

DocuSign has a simple product but its applicability is wide — anyone who needs to sign documents. The company believes their TAM to be $25B globally. DocuSign does not cite 3rd party research but instead applies an appropriate ACV (annual contract value) to companies from the Global 2000 to SMBs, based on current internal spend data from customers. The company also states that their current 350,000 customers represent less than 1% of the companies in their target market across large enterprises to small companies.

Competition

DocuSign calls out Adobe as their primary competitor, which started offering e-signature capabilities after they acquired EchoSign in 2011. Their product is called Adobe Sign. They also compete with various other niche players and emerging companies like HelloSign.

Investors and Ownership

DocuSign has raised $551.3M to date from investors including Sigma Partners, Scale, Ignition, Frazier Technology Ventures, Kleiner Perkins, GV (Google Ventures), Greenspring, Bain Capital Ventures, and many others.

5%+ pre-offering VC shareholders include Sigma (12.9%), Ignition (11.7%) and Frazier Technology Ventures (7.2%). Chairman and former CEO, Keith Krach, is at a 6.3% pre-offering stake. According to Pitchbook, their last round was a $303M series F led by Brookside and Bain Capital Ventures at a $2.77B pre-money valuation in October 2015.

Financials and other Metrics Outputs

Given DocuSign has only disclosed annual financials and only included results from FY’17 and not FY’18, there isn’t as much detail as usual in their S-1. The company does have impressive revenue growth at a large scale and ARPU (average revenue per customer) appears to be growing given total revenue growth was faster than total customer growth. Their subscription ARPU was $1,167 in FY’17, which is calculated by averaging subscription revenue and customers. Net dollar retention was at or above 115% for FY’16 and FY’17. We don’t know implied ARR or payback periods given the absence of quarterly disclosure. The company has $191M on their balance sheet and given they raised ~$551M, they have burned through roughly $360M. A few outputs below of available information

Annual Historical P&L & Metrics (000's)

FTE Breakdown

The company has 2,255 FTEs and the department breakdown is below.

‍Annual Cash Flows (000's)

Successful Transactions

‍Valuation

DocuSign is a fast-growing SaaS company and like other high-growth SaaS businesses NTM (next-twelve-months) revenue is a likely primary valuation metric. Although, given the lack of recent financial performance, finding a valuation range is more difficult. We don’t know how the company grew this past fiscal year, so have to imply a range for both this past year and for next, making the valuation output below much more hypothetical. Additionally, because we don’t have quarterly financials I can’t derive an implied ARR figure so can’t use an ARR multiple either. The valuation output below assumes a range of growth rates for FY’18 as well as NTM from today. While the numbers below have two unknown variables, based on current multiples and the assumed revenue growth range for the next two years below, DocuSign would trade above their last private market valuation of ~$3B.

DocuSign is a great example of a seemingly “light” product that has vast applicability across a wide variety of industries and company sizes, and their TAM is massive addressing any company that wants e-signature capabilities. Moreover, the product is viral in nature and similar to a Dropbox; hundreds of millions of people get DocuSign-powered signature pages, even if they aren’t customers, and the company owns massive end-user/consumer mindshare. DocuSign is still losing money (at least as of FY’17) and will need to show a path to break-even and still maintain growth. Assuming the company releases more recent metrics (that are similar in nature to their FY’17 results) in their S-1 amendments, I think they will trade well.

Lastly, it’s nice to see DocuSign add workplace awards and publish their net promoter score in the S-1. They were ranked 22nd on Glassdoor’s Employees’ Choice Awards for Best Places to Work in 2018, Business Insider’s Top 25 Tech Companies to Work For 2017 and were ranked 4th on the Forbes Cloud 100 in 2017. Their NPS was 63 as of Oct-2017; high NPS for enterprise software companies is becoming more and more important as users demand great product experiences not just from the products they use in their personal lives, but also from the software they use at work.

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