UPDATED 13:30 EST / DECEMBER 22 2021
by Maria Deutscher
Retool Inc., the maker of a low-code software development platform used by companies such as Amazon.com Inc., today said that it has closed a $20 million funding round at a $1.85 billion valuation.
The Series C round was provided by a group of returning backers. The participants included Sequoia, prominent tech investor Elad Gil, Stripe Inc. co-founders John and Patrick Collision, former GitHub Chief Executive Officer Nat Friedman and former Atlassian President Jay Simons.
Retool’s latest round is notable not only because of the high-profile investors who took part but also for the investment’s unusual structure. Usually, startups raise considerably more than $20 million when they reach a valuation exceeding $1 billion in a funding round.
The decision to raise a smaller sum than would be expected under such circumstances is part of an effort on Retool’s part to reduce stock dilution.
It’s common practice for venture-backed tech companies to issue stock to employees. The stock issued to employees represents a certain percentage of a company’s shares. This percentage declines when a startup raises venture funding, a phenomenon known as dilution that can lower the value of employees’ stakes.
“If you look at companies that consistently raise large amounts of capital, you’ll see that employee returns suffer, because their ownership stake will get diluted substantially from their initial ownership position,” Retool founder and CEO David Hsu wrote in a blog post. To reduce dilution, Hsu explained, the startup “raised the smallest Series C we could, at a valuation substantially lower than most offers we received.”
San Francisco-based Retool provides a low-code software development platform used by big names such as Amazon, DoorDash Inc. and Philips NV. Retool’s platform is optimized for a specific use case: helping companies build custom applications for their employees.
Large enterprises often develop custom software to help their workers become more productive. A retailer, for example, might create a tool that allows the supply chain team to centrally track inventory levels across different stores. But though customized software can help increase productivity, it’s not always practical to use because a new application can take a significant amount  of time and effort to write. 
Retool’s platform promises to reduce the time it takes to build internal applications. According to the startup, software that may take days or weeks to write manually can be created in as little as 30 minutes using its platform. Retool provides pre-packaged software building blocks that developers can assemble into a working program through a visual interface.
Retool provides building blocks for creating buttons, lists, forms and other common application elements. For displaying data, Retool offers a collection of pre-packaged charts, as well as a tool that can visualize information such as store sales in the form of a map.
One of the most time-consuming development tasks that Recode promises to ease is bringing information into an application from external sources. An application that generates sales forecasts, for example, must pull information from a company’s sales database to generate predictions. Developers usually have to write complex custom code to manage the process of retrieving information from external systems. 
Retool’s platform provides integrations that the startup says makes it easier to connect an application with systems of record. The startup supports popular databases, data platforms such as Snowflake and  other solutions. To simplify development further, Retool also offers features to help with related tasks, such as responding to any data errors that may emerge when an application attempts to retrieve information from an external system. 
Going forward, Forbes reported, Retool plans to raise “stepped” funding rounds every six to nine months to support growth initiatives. The startup expects to reach a $5 billion valuation with additional stock dilution of only 3%.
Retool is said to be generating annual revenues in the mid-eight figures. Moreover, Retool is reportedly cash-flow positive, an unusual feat for a fast-growing enterprise software startup that could smooth its path to a $5 billion valuation.
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