(Bloomberg) -- Melanie Perkins remembers when her boyfriend and startup co-founder used to cook lunch for employees in the early days at Canva, their graphic design software business. The company has since become one of the most successful tech unicorns to emerge from Australia, but its staff still break together for lunch — although Cliff Obrecht, now her husband and chief operating officer, is no longer doing the cooking.
It’s an oft-told narrative meant to convey the down-to-earth values of the founders whose self-proclaimed goal is to democratize design with user-friendly software. It’s also a reflection of a quirky company where employees call themselves Canvanauts and is, at $26 billion, the world’s most valuable female-led startup.
“When we started Canva, and still today, we set out to serve a huge gap in the market,” Perkins said in an interview with Bloomberg. “I think if we can just continue the same trajectory that we've been on, I'd be pretty happy to do that for the next decade.”
But as Canva prepares for a hotly anticipated IPO, the company needs to show it can step beyond its feel-good ethos and compete on the same playing field as the best of Silicon Valley. To earn a bigger slice of the $15.4 billion creative software market, it’s focusing on the high-margin enterprise market currently dominated by Adobe.
It’s also betting on artificial intelligence to turbocharge its growth. It announced the acquisition of generative AI startup Leonardo.Ai in July, a few months after it bought Affinity, a rival to Adobe’s Photoshop and Illustrator.
“If Canva really wants to get into the fullness of the market where there are fewer seats but higher dollars available to them, they have to figure out how to go after Adobe,” said Jonathan Curtis, the chief investment officer of Franklin Equity Group, which first invested in Canva in 2021.
It’s a David and Goliath battle. Adobe, worth over $230 billion, commands more than 70% of the creative software market and its applications are deeply entrenched in the workflow of professional users.
Canva’s market share is just 4%. Its graphic design tools and templates have won over everyone from social media influencers and teachers to couples making wedding invitations, helping to double its monthly users since 2022 to 190 million. But many users opt for a free, basic version, and one of its goals is to turn as many users as possible into paying subscribers.It’s also going after professional clients including big corporate accounts. Investors will also be watching to see if the company, known for its eccentric office culture, is ready for serious business and has robust governance.Canva’s Chief Financial Officer Damien Singh quit in February and hasn't yet been replaced. He left amid allegations by other employees of inappropriate behavior, although he had already agreed to step down for unrelated reasons, according to a person familiar with the situation. The company declined to comment on the circumstances of his departure and said it hoped to soon appoint a replacement. Singh’s representative said media reports about his departure were inaccurate.
Perkins and Obrecht met while she was studying at university in Perth in Australia’s remote west. Still around 19 and 20 years old at the time, the two created their first venture, offering easy-to-design tools for making school yearbooks. Perkins says she got the idea after teaching design programs to other students and seeing how complicated existing design software could be.
After some success, they started Canva, building on the idea of making design and publishing more accessible. Using its software and ready-to-use templates, people were able to make professional-looking wedding invitations and sophisticated presentations more easily. It was a hit with everyone from teachers making classroom posters to shop owners creating flyers.
“There were no tools that offered an easy online collaborative experience,” said Perkins, now 37. “We don't believe you should have to go and learn a different tool from a presentation or a document.”Initially, Canva was roundly rejected by investors, many of whom were wary of its distance from Silicon Valley. But Perkins persisted with a determination built from her younger days of training for competitive ice skating. She even took up kitesurfing, at the time popular with venture capitalists, in an attempt to get face time with potential investors. Through Bill Tai, an avid kitesurfer who became a seed investor, she was introduced to others from the Bay Area — along with Hollywood stars Owen Wilson and Woody Harrelson, who took stakes.
“It’s quite funny looking back. Over the past decade I’ve had to learn about venture capital and angel investors and the whole vocabulary, the whole world,” Perkins said.
The business gained further credibility when former Google executive Cameron Adams signed on as the third co-founder. It earned $3 million in seed funding in 2013, including a grant from the Australian government. It has since raised around $580 million through multiple rounds of fundraising, backed by investors including Goldman Sachs Group Inc., Ontario Teachers’ Pension Plan, several Australian pensions, and venture capital firms.
The company now has offices around the world and is headquartered in Surry Hills, a Sydney surburb popular with young professionals and dotted with wine bars and galleries. It has more than 4,500 employees, but it’s retained an offbeat culture. Guy Kawasaki, a former Apple Inc. alumni and marketing specialist, is Canva’s Chief Evangelist, while a former chef serves as Head of Vibe, overseeing communal meals with the company encouraging employees to have lunch together. Perkins and Obrecht, who together own about 30% of Canva shares, have joined dozens of other billionaires in the Giving Pledge started by Warren Buffett, Melinda French Gates, and Bill Gates, promising to donate more than half their fortunes to charitable causes.
Yet the company also knows it needs to keep innovating if it wants to avoid the fate of other tech unicorns that have failed to soar.
While sales surged more than 50% in 2023, powered by its fast-growing user base of young, tech-savvy customers, most of the revenue still comes from individual subscriptions rather than high-margin business accounts that could give it scale and profitability. The company recently raised monthly prices for many individual subscriptions, and the impact on user growth is unclear.
It’s betting that generative AI will help take it to the next level, even with risks such as privacy and copyright issues. There’s also the fear that unless it harnesses the technology, someone else like Google, Apple or Microsoft Corp. will, eventually making Canva’s software irrelevant.
Danny Wu, Canva’s head of AI products, recalls tinkering with a rough prototype of an AI text-to-image app a few years ago and getting a call from the co-founders. “They were all like, ‘This looks awesome. How can we just get this into our users’ hands as quickly as possible and how can we do this safely?’” he said. The company is working on a ChatGPT-like feature and already offers a range of AI-powered tools called Magic Studio which includes the ability to generate video and images based on users’ descriptions of what they’re looking for. The images can then be edited and used for presentations or ads. Technology from Leonardo.Ai, the generative AI company it bought in April, is expected to eventually be integrated into Magic Studio, improving the quality of its image creation and design, it said.
Canva’s AI technology is expected to help it better compete against Adobe by catering to large companies’ needs. AI-enabled editing tools can help marketers create professional content more easily and at scale. For example, companies looking to replace logos or marketing copy can do so quickly rather than hiring professionals to implement the changes throughout their organizations.
“Canva is showing the positive tailwinds of artificial intelligence and they’re proving that they can expand beyond their initial buying center into more commercial opportunities,” said Franklin Equity’s Curtis. “That’s going to screen very, very well for investors when Canva decides to go public.”
Canva is closing in on 12 years as a private company, a long stretch for a startup whose investors will want their payday. Its valuation fell to $26 billion in 2022 from a peak of $40 billion in 2021 after some investors cut the value of their stakes amid a global tech downturn. The company engineered a $2.5 billion secondary sale earlier this year, allowing existing shareholders to sell part of their holdings.
An IPO would likely bring in fresh capital that could be used for product development and acquisitions, although it's not clear the company can debut at its previous, peak value. The founders remain tight-lipped on timing or their target valuation.
“It just becomes logistically sound to list, but we’re in no rush,” Obrecht said in May on the sidelines of its first-ever global product launch event in Los Angeles. When he took to the stage to address potential investors at a Morgan Stanley summit in Australia the following month, however, he joked that it might happen as soon as year-end.
The Federal Reserve’s recent shift to an easing cycle is expected to help the US IPO market recover further in the year ahead. But an empty CFO seat has raised questions over whether Canva is ready, and some bankers don’t see it going public until 2026.
Competition from Adobe also remains formidable. In 2021, it created an easy-to-use software called Express which allows casual creators to make graphics, social media posts and videos and is widely seen as a competitor to Canva. Obrecht, on LinkedIn, has groused over their similarities.
The creative software behemoth, which charges $60 per month for a bundle of desktop programs called Creative Cloud All Apps aimed at creative professionals, is investing in generative AI, adding tools such as Firefly and Gen Studio. Adobe has the advantage of already working with large corporate customers like IBM Corp. and Mattel Inc., and the company presents itself as the commercially safe option amid worries about AI and intellectual property rights.
Corporate users already accustomed to Adobe may also find that “switching from one software to another is extremely difficult,” said Anurag Rana, a senior analyst at Bloomberg Intelligence, noting that people may be wary of losing photos, videos and other work.
But there are signs that Canva is making headway. It recently signed multi-million dollar deals with customers including Airbnb Inc. and Coca-Cola Co. in addition to Walt Disney Co., according to people familiar with the matter. Canva has also been scaling up its sales team, and in April hired Adobe veteran Rob Giglio as Chief Customer Officer.
Part of the battle may be getting clients on board with Canva’s somewhat cultish culture. During its LA event, the company attempted to persuade more big businesses to defect, via a pitch delivered as a now-viral rap written in part by AI. Top executives from Google and Morgan Stanley watched on while Obrecht – in lighted chrome sneakers and an electric blue suit – twerked on stage and performers launched into a mock rap battle.
“You’ve opened up my eyes, to Canva Enterprise, now we are on the rise,” a performer rapped. The response from Canvanauts and fans in the audience was enthusiastic. But as the performance made its way from YouTube Theater to all corners of the internet, it was mocked as one of the most cringeworthy presentations ever made by a tech company.
Obrecht, in a later LinkedIn post, defended the performance watched by millions of viewers.
“We decided to be ourselves, do something different and not take ourselves too seriously,” he wrote, adding a crying-with-laughter emoji. “Haters gonna hate.”
--With assistance from Brody Ford.
©2024 Bloomberg L.P.