Zuora Raises $20M to Grow Its ‘Subscription Economy’

After a two-year break from raising venture capital, Redwood City, Calif.-based subscription-billing startup Zuora has closed a $20 million Series C round, bringing its total to $41.5 million. The new money, combined with Vindicia’s $20 million last week, suggests we’ve just seen the tip of the on-demand billing iceberg as organizations of all types attempt to monetize their various web services.

Between Zuora and Vindicia, the broad spectrum of industries is covered. Vindicia focuses on online merchants, whereas Zuora has customers spanning the media, telecom/mobile, consumer Internet, SaaS and cloud computing sectors. Zuora Founder and CEO Tien Tzuo sees the potential for an “explosion of telecom services” in the next few years, stemming from the advent of mobile technologies, although its cloud computing partnerships with Microsoft and VMware could prove profitable, as well.

The sheer amount of activity in what Zuora calls the “subscription economy” is what brought new investor Redpoint Ventures on board, and founding partner Tim Haley to Zuora’s board of directors. As the initial investor in Netflix, Haley has seen the effects of a successful subscription strategy. The activity is also what has Tzuo confident in Zuora’s decision to take so much money despite the success it and other SaaS startups, like New Relic, have had prior to recent funding. Zuora became cashflow positive in the first quarter of this year, during which time it brought in more than a billion dollars in recurring contracts, and New Relic had amassed 5,600 customers before its recent $10 million round.

Tzuo’s strategy is to go big when you have a big idea, which he adamantly believes subscription billing is. “Now is our time to step on the gas,” said Tzuo. “We want to triple our staff, we want to open national offices in 15 different countries. Our customer base is demanding even more innovation, and we’ve got 10 new applications that we would love to launch in the next two years.”

If Zuora can pull off these plans, it will look a lot more like an established vendor than a relatively new startup, which could make it all the more appealing to large software providers looking to round out their cloud or SaaS portfolios with a billing component while adding a profitable, and growing, line of business. Of course, several dozen customers and billions in contracted revenue will command a high price tag.