VCs dish on why they backed Notion, the productivity startup that just raised $50 million at a $2 billion valuation during a market meltdown

VCs dish on why they backed Notion, the productivity startup that just raised $50 million at a $2 billion valuation during a market meltdown
Sarah Cannon

Index Ventures


Sarah Cannon is an early-stage investor at Index Ventures.

  • Notion, a productivity startup aiming to unseat Google Drive and Microsoft Office, announced a $50 million funding round on Wednesday that valued it at $2 billion at a time when many startups are struggling to gain funding or are going out of business entirely.
  • Index Ventures led the round and partner Sarah Cannon was instrumental in convincing the skeptical founders to take a large amount of funding from a single venture firm, which they had previously avoided doing.
  • She won over cofounder and CEO Ivan Zhao with a shared appreciation of art, specifically Dadaist Marcel Duchamp.
  • The latest fundraise is a boon for early investors since their stake has less dilution than is typical at this stage.
  • Visit Business Insider's homepage for more stories.

Startups are facing the biggest crisis in a generation as the coronavirus wreaks havoc on the global economy.

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Still, not every business is flailing: Productivity startup Notion just closed a new $50 million round of financing at a $2 billion valuation. The whole process, from the initial email to the public announcement on Wednesday, took about two weeks - with less than two days between when the parties agreed on terms and the deal was signed, - and saw Notion's valuation jump 150% over its latest round.

The startup, which aims to unseat Google Drive and Microsoft Office with cloud software to help people - especially remote teams - work more efficiently, had previously only raised small amounts of funding from many individual investors in what VCs typically refer to as "party rounds." For its latest funding, though, it broke tradition and signed on Index Ventures as the lead investor.


Notion's 33-year-old cofounder and chief executive, Ivan Zhao, told Business Insider that the company didn't need to raise money. It's already profitable, he said, and the funding was simply meant to reassure customers and employees that it has enough runway to weather the current economic uncertainty.

"Right now so many companies are doing layoffs," Zhao said on a call Thursday. "Our customers want a company that is stable that will stick around for a long time."

For a select group of new investors, the deal brings to a close a years-long chase. Here's the backstory of how a small group of venture investors won over the notoriously VC-shy startup.

The art of the deal

After Sarah Cannon joined Index Ventures in 2018, she became a board observer at Slack and started researching other early-stage productivity startups. She stumbled on Notion casually, but knew right away it was special.

"The first time I saw the product, I was like, 'This is it,'" Cannon told Business Insider.


As she started reaching out to the startup's handful of seed investors, it became clear that investing - let alone leading a round - was out of the question. The handful of other investors, which included Sequoia Capital and First Round, made it very clear that Zhao and his cofounder Akshay Kothari were not interested in taking gobs of funding from the Valley's vast network of venture capitalists. Still, Cannon added Notion to the top of her whiteboarded list of "global convictions." A colleague at the firm described Notion as her "white whale."

"I wasn't giving up," Cannon said.

She started plotting ways to convince the company to at least meet with her. She found out Zhao was an artist, so decided to try to convince him to attend a friend's gallery show in San Francisco. She delivered the invitation to Notion's well-hidden office in the city, complete with a postcard of artwork by Dadaist Marcel Duchamp.

Zhou was a no-show the night of the event, but Cannon remained determined, taking inspiration from Duchamp's work.

"I wrote them this letter about why the product was so good. You know, Marcel Duchamp is my favorite artist because he reduces it down to the fundamentals, and questions what art can be. That's what they did with Notion," she said. "I am very interested in art in my life and I had not realized that I could combine my love for art and economics, but this was it."


It took weeks for Cannon to hear back, but when she finally did she began offering her expertise to the team over email. She introduced key hires, provided strategic guidance gleaned from her roughly ten months with Slack, and essentially became what she describes as a "shadow board member." Over the months she fed the founders advice, she only brought up investing once. Kothari said he would call her if and when that became a possibility.

A whirlwind week for Notion and Index Ventures

That day finally came on Tuesday, March 17, as the grim reality of the coronavirus crisis had finally started sinking in across the United States.

Kothari emailed Cannon, asking for a meeting the next morning. It wasn't an uncommon occurrence for their relationship, but once Cannon was on the phone, Kothari conferenced Zhou in, and she realized that this was it.

"I knew if it would happen, it would be like this," Cannon said.

She sent a memo detailing the investment to the other partners at Index. Many had met Kothari at a meeting months earlier, but none had met Zhou. Both agreed to go over data and metrics in a pitch meeting on Zoom.


By Friday, Index and Notion had agreed on terms. Although it may have looked like a quick turnaround to outsiders, Cannon and Kothari had been negotiating and discussing the terms non-stop. The deal closed another week later, in what Cannon quipped might be a record for the investing community.

"I think there are a limited set of exceptional businesses, and if you are fortunate enough to invest in those companies you have to pursue the opportunity when it is available," Cannon said. "We had to be ready. The right time was when Notion was open to raising."

Mark Goldberg, another partner at Index who joined around the same time as Cannon, said it's not unusual for the firm to spend so much time getting to know a company before there's an opportunity to invest. That way, it can move fast when the round starts to come together and investors are scrambling to get in.

"The idea is, if we get that call and we have to make a decision in 36 hours, we've already lost," Goldberg said. "There's no way that we're going to be able to make the timeline."

The biggest point of contention among the firm's partners, Cannon said, was whether the valuation and market opportunity made sense given the current economic uncertainty. Could the firm justify leading such a large round when some businesses were seeing a 90% decline in revenue? Would there be a market for Notion when employees headed back to offices? When the markets shook out and what could be an entirely new economic reality became clear?


"This was certainly the hardest possible time because we are heading into a recession and there's so much uncertainty," Cannon said. "To do a transaction in that market, the bar was higher. If I hadn't been talking about it for years, I don't think it would've happened."

Notion is still on top of Cannon's "global convictions" list, partly because she's been sheltering in place with the rest of California's Bay Area and left her whiteboard in the office, but also as a reminder that her work with the company is just starting.

"I was doing the best I could from the outside, but now it's like my number one priority for the next quarter and many years after," Cannon said.

A boon for early investors

While new investors like Cannon are clearly thrilled, the latest fundraise may be even better news for early backers.

Notion's latest fundraise sold off only 2% of the company, and because the early backers had only put in a small amount of money for a small percentage of ownership, their stake has less dilution than is typical at this stage.


Naval Ravikant, a startup investor and the cofounder of AngelList, wrote a check into Notion's seed round in 2013. The company wouldn't launch its product publicly until 2016.

"I was a seed investor in Uber, and I got diluted ten ways to Sunday," he 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 and the other investors that Business Insider talked to declined to discloses the startup's total current funding. Pitchbook estimates it at $70.85 million.

"For a seed investor, the return is beautiful," Ravikant said. He expects that for the bigger funds that come in later and "the people who need to deploy massive amounts of capital" Notion is "bad news."

While Ravikant describes Notion as "the future," the company's own prospects weren't always so obvious.


Aydin Senkut, an early Google employee who started his own venture capital firm, Felicis Ventures, met Zhao through a mutual acquaintance in 2013. The founder of Inkling, a company Senkut had previously invested in, described Zhao as his "best engineer" who had just left to start his own company. After their first meeting, Senkut said he was blown away.

"He was literally like both a product mastermind and a true artist," Senkut told Business Insider. He invested in the startup's seed round that year.

Senkut credits the product's popularity to its elegant, "no-code" design. The user doesn't need to have any programming skills in order to customize "templates" of documents, checklists, calendars, and databases.

"You're using really complex software, but you don't even realize all that complexity because it's behind a beautiful user interface," said Senkut.

His firm did not participate in the recent fundraise that valued the startup at $2 billion, though Senkut said Thursday that Felicis is still vying to get in, sending an email to the company stating that it "would very much like to follow up on this round."


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