Replit is raising capital via a SAFE with a valuation cap of $979 million. This is a massive valuation for a company raising via Regulation Crowdfunding (Reg CF). For context, only one Reg CF company, active or closed, in the KingsCrowd database has raised at a higher valuation. Replit brought in just over $297,000 in revenue for 2020, making for a revenue multiple of 3,294x. In order to make approximately a 5x return on an investment in Replit, the company would have to reach decacorn status (a valuation of around $10 billion). Replit has priced itself out of consideration for many investors at this nearly $1 billion valuation.

Replit brands itself as a “global distributed operating system.” Given that the integrated development environment (IDE) is in fact browser based and users span 200 locations across the world, the global cloud IDE market is most applicable. In fact, Replit reports 80% of users come from outside the United States. In 2022, the global cloud IDE market sat at about $1.4 billion with a low 2.5% compound annual growth rate. 

Despite this being a decently sized market, research indicates that the majority of the market share is targeting large enterprise solutions. With the COVID-19 pandemic, many large corporations are looking to enable mobile, autonomous development of software with tools that are universally accessible. While Replit has a pricing model for teams, the company appears to be focused on individual coders and educational institutions. This target audience removes a major share of the addressable market from Replit’s radar, but the company could shift its focus to larger corporate partnerships and contracts in the future. In fact, the site suggests that the technology is trusted by Google, General Assembly, Facebook, and Stripe. It is unclear the extent to which these big names are incorporating Replit environments. 

The market for cloud IDEs could also be impacted by the no-code revolution. Many new startups are empowering those with no programming expertise to create software with user-friendly, nontechnical development interfaces. Soon, browser-based IDEs, including Replit, could prove obsolete. Though this is unlikely in the immediate future, no-code platforms appear to be the next big thing in software development. 

Overall, Replit’s target market is decently-sized but slow-growing. External trends like no-code platforms could also negate the need for the company’s product in time. Replit’s market potential does not look strong.

Replit was founded by Amjad Masad and Haya Odeh, who serve as CEO and vice president of design, respectively. Masad has more than 18 years of experience as a software and web developer. He was a founding engineer at Codecademy and was on the engineering teams at Facebook and Yahoo!. Replit is his first venture. He holds a bachelor’s degree in computer science from Princess Sumaya University for Technology, a top institution in Jordan. 

Odeh has primarily served in graphic design roles in the past, most notably with the Clinton Foundation. Replit is also her first venture. She holds a bachelor’s degree in graphic design and fine arts. Vice President of Engineering Dan Stowell was an engineer for Spotify and Canopy before joining the Replit team.

At the time of this raise, the team consists of roughly 54 total employees. The current staff has a very complementary set of skills, specifically at the C-suite level. It does not appear, however, that many (if any) have entrepreneurial experience. Replit is the first venture for both founders. That said, both have had an inside look at how major corporations, including Facebook, run their engineering teams. With deep engineering and industry knowledge, the co-founders could easily leverage networks and quickly identify pain points of potential customers.

There is no shortage of browser-based integrated development environments (IDEs), and not much is special about Replit’s product offering. JSFiddle is free to use and supports a variety of languages. It is, however, solely a front-end editor. StackBlitz is also comparable and has the same Github integration that Replit does. Tools like AWS Cloud9 also provide debuggers. Other browser-based IDEs include Codeanywhere and CodePen. Many also support live collaboration. In sum, very little about Replit is different from what already exists. 

Replit offers a tiered subscription model, beginning with a freemium model, which is again similar to competition. Browser-based IDEs promote accessibility by nature, making that differentiator somewhat of a moot point.

Replit’s strategy to overcome a lack of differentiation could just be to establish hegemony. Interestingly, Replit also requires investors to be users of the product. With several hundred thousand dollars in venture money already captured, this raise could ultimately be a marketing tactic to establish dominance amongst active users. That said, at a $979 million valuation, management is not giving users a great deal.

There is very little to say about Replit’s performance when it comes to revenue. With $297,143 in revenue for 2020, it is unclear whether or not the current business model is sustainable. With no user data, the team cannot turn to an ad-based model. Numbers like churn and conversion rates are not provided on the raise page, but it could be assumed that conversion rates for paying customers are low with such a strong freemium offering. Freemium users have little to no incentive to switch over to a paid subscription. At this point, management reports 10 million users, though it is unclear how many of those users are active. Investors have inquired about a full pitch deck on the Wefunder page, which, at the time of this writing, has gone unanswered. 

Despite the weaker revenue numbers, Replit has managed to raise funds from big-name firms, including Andreessen Horowitz. To date, Replity has more than $120 million in funding. In all, the raise page is sparse and void of crucial performance metrics that could lend insight into the company’s success in raising outside funds or sustaining its operations.

Outside of the terms, an investment in Replit has relatively low risk. The product is built out and has paying customers, the founders are dedicated to the venture full-time, and the market is widely accepted. The company has no long-term debt and less than $500,000 in short-term debt, mitigating any financial risk. The major risk factor here is the nearly $1 billion valuation. Replit would be an appealing offering if it weren’t for the overpriced valuation. 

The most obvious con to the Replit offering is the price. The company is hugely overvalued. An investment in this round would perhaps not yield a 5x return should the company reach a $10 billion valuation. Many startup investors take on the risk of early-stage investing for the potential of huge returns, which an offering like Replit seems unlikely to achieve. 

The company’s revenue numbers are also weak. Replit only brought in $297,143 in 2020. It is unclear how the team plans to monetize the product further. Conversion rates are likely low, considering management claims the product has 10 million users. It may be that the freemium users have no incentive to move onto a paid plan. Finally, browser-based integrated development environments (IDEs) are a dime a dozen, and customers have a number of other free options with Github integration, collaboration capabilities, and broad support of programming languages. Very little sets Replit apart from the existing solutions.

Co-founders Amjad Masad and Haya Odeh have strong complementary skill sets and experience at large corporations, including Facebook and Yahoo!. The two without a doubt have an expansive network of potential customers and investors. They have built out a functional product offering that is often referenced in lists of top browser-based integrated development environments. Their mission to make coding more accessible is admirable, if unoriginal. They have also managed to keep debt numbers low and have strong overall financials despite the lack of revenue. The pair has successfully raised more than $120 million dollars for Replit. 

Finally, backing from Andreessen Horowitz is no small accomplishment. The firm is one of the leading venture funds in the country, with more than $28 billion in assets under management. Andreessen Horowitz is known to pick winners, having invested in Airbnb, Pinterest, Facebook, and Coinbase. Replit has also received backing from Bloomberg Beta, an early-stage fund tied to Bloomberg. Having both of these names on the cap table will likely make future financing a walk in the park.

Replit is a browser-based integrated development environment, or IDE, that allows developers to write and test software. The “global, distributed operating system” has live collaboration features, integrates with the popular software hosting site Github and supports more than 50 programming languages. Browser-based IDEs are not hard to come by, and many offer free services, collaboration tools, and Github integration. Not much about the Replit product is novel. Management has brought in just $297,143 in 2020 revenue, suggesting that the conversion rate from a free to paid model amongst Replit’s 10 million users is weak. Market growth is slow, and trends may threaten the relevance of Replit altogether in the future. The company is valued at $979 million, making the offering grossly overpriced. This round is also limited to users of the product, suggesting that the raise may be a marketing play more than anything. With more than $120 million in existing backing, the founders are likely trying to establish crowd loyalty with this raise before implementing a stronger monetization tactic.

On the other hand, the co-founders have strong and complementary backgrounds, with experience at Facebook and Yahoo!. Both co-founders likely  have deep networks they can source talent and investors from. Perhaps most impressively, the company has been backed by Andreessen Horowitz and Bloomberg Beta, two renowned venture funds. Andreessen Horowitz, specifically, has an impressive exit portfolio including Facebook and Airbnb. Therefore, Replit is a Neutral Deal.

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Analysis written by Olivia Strobl, April 14, 2022.