Squarespace gets $38.5M infusion

Venture capitalists making big bet on a Web innovator Squarespace, a one-stop publishing platform for small businesses that want to create their own websites.

It's too early to say whether Squarespace is the Web's next big thing. But the Silicon Alley startup has been attracting attention since July, when it raised a total of $38.5 million from two funds, Accel Partners and Index Ventures. It was the largest venture capital investment in any New York startup in the third quarter and the second-largest so far this year.

Squarespace, launched in 2004 by Anthony Casalena while he was an undergraduate at the University of Maryland, aims to become the one-stop publishing platform for small businesses that want to create their own high-quality websites. The software integrates disparate services—for example, Flickr's photo gallery and Google's analytics—into one affordable, easy-to-use platform.

The capital infusion let Squarespace move from a cramped office into a two-floor headquarters in SoHo. Much of the cash will go toward marketing.

“It just struck me that the best thing for the company moving forward would be to become something really big,” says Mr. Casalena, 28, who has brought in new managers to help run Squarespace. “We were able to grow up and attract a new level of talent and executives. It's about getting it to that next phase.”

Other Web publishers are also getting noticed. New York-based Tumblr recently received a total of $5 million from Spark Capital and Union Square Ventures; and Posterous got $4.4 million from a collection of angel and VC investors, according to research firm CB Insights.

Ride the wave

CB Insights CEO Anand Sanwal says these firms are “riding the wave” created by the successes of Facebook and Twitter.

Bruce Niswander, director of innovation and entrepreneurship at the Polytechnic Institute of New York University, says VCs are betting that “no one has properly valued self-publishing software,” which is “still getting sorted out.”

Unlike large competitors such as Wordpress and Blogger, Squarespace has created a business model based on paying customers. It has signed up 50,000-plus users, who pay $12 to $36 a month for various service packages. Mr. Casalena says Squarespace—started with a $30,000 investment from his father, a former sales executive at Hewlett-Packard and Cisco—has been profitable since 2005. It was on Inc. magazine's 2010 list of fastest-growing small companies, with 713% growth between 2007 and 2009 and revenue of $5.4 million last year.

Mr. Niswander says the latest funding indicates that Squarespace could be valued at more than $140 million by 2015.

Andrew Braccia of Accel Partners, now on Squarespace's five-member board, says the stellar performance is what sparked his interest, especially when free alternatives exist.

Quick transition

With deep-pocketed investors now behind it, Squarespace is quickly transitioning into an established company. It has doubled staff in the past year, to 42 employees, most of them software engineers. Mr. Casalena has stepped away from overseeing tech work to focus on the programming challenges he describes as a “ridiculous chess game.” Dane Atkinson, 36, who at 18 started SenseNet Inc., has assumed day-to-day responsibilities as CEO.

As part of the VC deals, Mr. Casalena sold an undisclosed portion of his Squarespace stock but remains the majority shareholder.

Mr. Atkinson says, “One of the reasons we wanted to do this transaction was to make a company that helps power the Internet as a whole.”