99designs snaps up German rival and gets ready for Europe push

Australian crowdsourcing pioneer 99designs is expanding overseas. While other companies are steering clear of Europe right now, 99designs has just acquired Berlin–based crowdsourcing designer 12designer for an undisclosed amount.

It is 99designs’ first acquisition since it received $35 million in funding from US venture capital firm Accel Partners and a group of prominent angel investors including Flickr co-founder Stewart Butterfield, Survey Monkey CEO Dave Goldberg and former eBay executive Michael Dearing in April last year.

The acquisition is strategically important for 99design’s growth plans. Germany is 99designs number one non-English language market and its fifth largest overall. It is also one of the fastest growing.

More significantly, Berlin is a gateway to other markets around Europe, from Amsterdam to cities in Eastern Europe. It is a base for 99designs to expand into broader Europe. European customers already account for about 15% of the 155,000 design contests that 99designs has held since its launch in 2008. That’s despite minimal marketing and it being an English language site.

The firm is now expecting more to come in with 12designer’s community of 20,000 European creative design professionals working on contests in German, French, Spanish, Italian and English.

99designs chief executive Patrick Llewellyn would not be drawn on the purchase price, only adding that “it certainly wasn’t insubstantial for us”.

Despite Europe’s problems, he says the deal makes strategic sense. “It was a logical step for us. While Europe at a macro level is not performing that well, it’s still equal to the size of the US in totality and it’s one that we have enjoyed a fair bit of success in,’’ Llewellyn says. “For us, it’s potentially doubling down on a market that’s proving very fruitful for us.

“Berlin is the start-up capital of Europe right now. It’s a very exciting city, there’s a lot of entrepreneurship developing in that market. It’s also a very young market and it’s always been one of Europe’s design centres.

“Also, some of the economies like Spain and Italy are under significant duress. The best and brightest in those countries are flocking to Berlin, it’s a major melting pot now of international talent.”

Llewellyn would not disclose the company’s turnover but said it was doubling every year. The amount the company is paying its designers might give a hint.

“We are paying out over $1.5 million a month for our community. It’s double what we were doing last year,’’ he says. “We have already paid out $38 million in total. You can see it’s ramping pretty quickly, business is good. We are going from strength to strength and this acquisition for us is further cementing it.”

Accel has been critical for 99designs growth ambitions. The firm has never disclosed how big a stake it has in 99designs but Llewellyn suggests it’s substantial.

“They are a significant shareholder. They have two members on the board. They have been an awesome partner for us,’’ he says.

“We could have grown our business without their investment but they are accelerating it. They make looking at significant acquisitions possible. If you’re funding yourself through cashflow, it makes it a lot harder.

“A transaction like this is certainly something Accel helps with. Their investment helped facilitate it. With Accel as a backer, we are much more likely to do a deal like this.”

He said Melbourne-based 99designs had attracted investment from Accel because it was already growing in the United States.

“The reason they invested in us in the first place is we managed to grow the fastest market place in the US from Australia. Globally we are the number one player in the design market place space and they saw that,’’ he says.

“We can expand internationally under our own steam and that’s what we’re doing but they certainly encouraged us to look at opportunities.”

That said, he says the firm would have to expand globally, with or without Accel’s backing. “We would have expanded into Europe anyway, we’re already in 120 countries,’’ he says.

“If you only focus on the Australian market in technology then it’s tough to build a large business. You are always thinking about global opportunities.”

Llewellyn, who is based in San Francisco, says the company now employs close to 70 people with 40 of them in the US.

“The Australian pool is where our engineering team sits,’’ he says. “A chunk of the folks in San Francisco are doing customer support and design support. They are young college graduates who are helping us support our market place and are on the phone or on chat or answering email queries whereas the Australian team are engineers, designers and managers.

“While by sheer number, there are a few more bodies here in San Francisco, Australia is immensely important. That’s where all the development of our platform and applications start.”

He says the company is now hiring more managers to handle the rapid growth. “We have hired five people in the last five weeks in Melbourne and we are continuing to look,’’ he says.

“We feel like we are getting a good blend so we can take on some young kids out of school and some seniors as well.

“The trick is to get that mix right, and bring on people who can help you manage things and help provide leadership as well as bring on people who just want to get shit done.”