What the Airtable acquisition of Airplane means for software M&A
Technical co-founders from two different >$500m startups…solving a problem they both faced first-hand…backed by $40.5m in capital from best investors in Silicon Valley: on paper, this looks like one of the most promising startups.
Yet, earlier this week Airplane.dev announced that they were going to be acquired by Airtable and that they will be sunsetting their product on March 1.
This post is about what Airplane’s team set out to do, the math behind why they had to sell, and what it means for the broader software M&A landscape.
Airplane: internal tools built with code
Airplane is a developer platform for internal tools. Basically, they made it easier for developers to write code that creates apps for other members of an organization to read, analyze and change data. From TechCrunch:
“Runbooks enables engineers to compose tasks and built-in integrations, like SQL, REST APIs and Slack, into workflows that run JavaScript code, can feed that into a SQL database or combine data from Stripe and be accessible to non-engineering team members.”
Their website provides a few case studies that illustrate the product use case and winning features.
Their most popular template is for an Admin Panel. In this case, Airplane’s tools make it easier for a developer to link a SQL database (where there might be customer information like name, email, phone, as well as order information like order ID, shipping addresses and package size) to an app where a Customer Support Rep could easily look up that information. This enables the Customer Support Rep to access the data without having to learn SQL, and it also prevents them from having edit access to the database (or limited edit access, if that’s what’s required).
Their case studies highlight some of their advantages over alternatives, including having built-in UIs, being code-first, being able to automate manual tasks, having both read and write functionality, and easily managing permissions and access.
They seem to win against patched together solutions because they can automate workflows and enable non-technical users to perform technical tasks. They seem to win against no-code workflow automations because engineers have greater comfortability, flexibility, and time-to-value with a code-first platform.
From what I can tell, this was a pretty compelling product (although not compelling enough to grow at venture levels…).
Pedigreed co-founders and investors
Airplane was co-founded by Josh Ma and Ravi Parikh. Ma was previously the CTO of Benchling (biotech software last valued at over $6b) and Parikh previously co-founded Heap (acquired by ContentSquare in Sep 2023, after raising $230m over several rounds). Airplane was founded in 2020, and in December 2021, they publicly revealed their product and announced an $8.5m fundraise led by Benchmark. Given the reputation and quality of their founders, it’s not surprising they were able to raise a large Seed round from a top tier investor.
Less than a year later, in September 2022, Airplane announced a $32.5m Series B led by Thrive Capital with participation from Benchmark and others. They didn’t publicly share any revenue numbers, but mentioned they had “almost 100 paying customers currently, including startups Vercel, Panther Labs and Flatfile”.
Where Airplane went wrong: cash burn?
During this Sep 2022 fundraise, Airplane also said that while they weren’t profitable, this fundraise gave them several years of runway.
When Airplane announced it was being acquired by Airtable and subsequently shut down the product, a Hacker News thread received a lot of attention. Notably, CEOs of competitors Windmill.dev and Retool both made lengthy comments on the thread.
Retool CEO David Hsu made the claim that the reason Airplane sold was because they ran out of cash. On LinkedIn, Airplane shows 61 employees. At $300k/employee -- and an estimated $1m ARR -- that’s a burn of around $17 million. Given their last raise was $32 million, it shouldn’t be shocking that they needed to sell less than 18 months after their fundraise.
However, diving deeper into LinkedIn, Airplane wasn’t anywhere close to 61 employees. The 61 employees includes:
5 investors / board members
45 profiles that are some form of “pilot”, “flight attendant”, “--” and related
This suggests that the team was actually a lot smaller than suggested. It wouldn’t surprise me if Airplane never got above 25 or 30 people.
Even so, they may have gotten to a point where they had <12 months of runway and faced a roadblock. They likely tried to raise funds and either couldn’t, or couldn’t raise at a valuation that was acceptable to them.
Instead of completely folding the company, they sold to Airtable (also a Benchmark portfolio company), sunsetted the product, and kept jobs for at least some of their employees. I don’t have any proprietary information, but it’s likely that the deal was all or nearly all stock (IE, no one received cash).
Airtable’s M&A angle
For those following Airtable in the news, they should be familiar with the two rounds of layoffs that Airtable went through in the past 13 months. In December 2022, they laid off 254 employees and then in September 2023 laid off an additional 230 employees. This followed a $735m fundraise in December 2021 that valued the company at $11 billion.
On one hand this acquihire is strange: why bring on more team members after just making two large layoffs?
On the other hand it might make sense. The Airplane team is small, focused and talented, and they were likely acquired with very little or no cash upfront. From Airtable’s perspective, it’s better recruiting then they could do on their own, and perhaps the Airplane team aligns more with the organizational changes that Airtable has made.
What’s next for the software M&A market
In M&A, cash will only be given to profitable companies. Again, we don’t know the details of the deal, but it’s likely the Airplane/Airtable deal was all stock. It doesn’t surprise me given Airplane was significantly unprofitable. This is what we at ScaleView are seeing in the market as well: the appetite to purchase an unprofitable company is very low. And the tricky thing with unprofitable companies (in contrast to profitable ones) is that when the market isn’t hot, it’s not that the valuations just go down, it’s that buyers completely disappear. When profitability is king, there’s no use for unprofitable companies.
From VC, we’ll see shut downs, acquihires, and a few middle-of-the-road exits. Expect the venture world to produce more of these kinds of exits: stock-based deals, some layoffs, maybe keep the product, maybe kill the product. High quality teams will find homes, more teams won’t.
Profitable software companies are M&A targets to cash-burning large strategics. As much as unprofitable companies don’t have buyers, profitable companies do. The math makes sense on both the top line and bottom line here. On the top line, if you can buy a $10m ARR business for 5x and your business trades at 10x, you’ve just doubled value. But equally as important, if large strategics can improve their margins by spending a bit of cash, that’s also worth it. It could be because the profitable company improves their margin profile, or it could be because the product prevents churn, thus increasing the metrics that matter to investors (retention). Regardless, profitable companies are going to be targets for strategics.