Notion's angel investors are eyeing 'beautiful' returns after the startup just took its first institutional check at a $2 billion valuation: 'This is basically a company that skipped venture capital'
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- Notion, a startup that is notoriously shy about taking venture capital, just raised funds at a $2 billion valuation.
- The deal terms were good news for early investors, who put in only a small amount of money for their ownership stake. The company sold off only 2% of total ownership.
- The existing shares are less diluted than is typical at a late-stage startup. It means that, in the event of a sale or an IPO, early investors in Notion could see unparalleled returns.
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The new venture capital flowing into Notion brings an end to a years-long chase for a select group of investors.
The startup just raised $50 million in a round led by Index Ventures, which won over the founders by offering its assistance with hiring and strategy before the firm ever put a dollar into the high-flying productivity startup.
But new investors aren't the only ones with reason to celebrate Notion's monster round. It's also good news for early investors, who put in only a small amount of money for their ownership stake. They could see unparalleled returns in the event of a Notion exit.
The math works out for early investors in Notion
Notion's most recent fundraise had very favorable terms for existing shareholders like founders Ivan Zhao and Akshay Kothari. They took in $50 million at a valuation of $2 billion, which works out to 2.5% of the startup.
"The dilution was very minimal," Zhao told Business Insider on a call last week. "We didn't give up any control."
The deal terms mean that existing shares are less diluted than is typical at a late stage. The investors that wrote checks into Notion's seed round still own a sizable chunk even after Notion reached unicorn status. And if it has an exit someday, through a sale or an initial public offering, the shareholder can sell off at a much higher price.
"For a seed investor, the return is beautiful," said Naval Ravikant, the cofounder of AngelList.
Ravikant wrote a check into Notion's seed round alongside a few other angels in 2013. There wasn't a product to demo at his first meeting with Zhao, only pages of notes and sketches in the founder's Moleskin notebook. Notion released a public version of its software suite in 2016 and has been profitable for several years now, Ravikant said.
"I don't know of any other company that hit this high of a valuation while raising this little money and being profitable," he said. Notion has raised $70.85 million in total funding, according to PitchBook data.
Ravikant said he doesn't expect the startup to raise mountains of venture capital, unlike some of his investments. This strategy would help maintain the value of his stake and give him better returns in the event of an exit.
"I was a seed investor in Uber, and I got diluted 10 ways to Sunday," Ravikant said. "That company raised $30 billion over its lifetime. What's Notion going to raise? It's going to raise like $100 million total, and of that, $97 million they didn't need but it was on their terms."
"The stake that I bought at the beginning is almost going to be the stake at the end," Ravikant said.
Large institutions of venture capital are the only losers here
Notion's funding history is brief. It took in $2 million from angels like Aydin Senkut, an early Google employee, and startup founder Matt MacInnis in 2013. Ravikant said he also wrote a check into a seed extension around the time Notion released its first product in 2016. Last year, Notion put together a $10 million round from just three angel investors at an $800 million valuation.
If the strategy continues, Ravikant said that few big institutions of venture capital will have the opportunity to buy into Notion. Its self-sufficiency means it doesn't need to raise outside funds.
"The real story here is like, venture don't get to play," he said.
"Every venture capitalist in town has been chasing Notion since 2016, and nobody was able to get a stake. So, think about how it went: It went seed round, add-on to the seed round, then a bunch of angels. And now Index coming in at $2 billion valuation and having to take whatever terms are handed to them and begging for a stake. They're not getting to put in that much. This is basically a company that skipped venture capital."
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