Freepik: Its Business Model and Acquisition

Bernat Farrero interviews Manuel Fernandez, COO of Freepik, to explore the business model and one of the most relevant acquisition of Spanish startups, being acquired for more than 250 million euros by EQT.

Freepik is a Malaga-based startup, dedicated to the distribution of graphic content. The company has had incredible growth being an unfunded company, started by three founders from Malaga, and has been sold for more than 250 million to EQT, one of the largest funds in Europe.

How does Freepik work? What’s the product?

The founders’ vision when they created this company was focused on making graphic resources more accessible to all users. From there, Freepik’s different lines of business began to emerge.

There are three products: one is Freepik as such, in which there are graphic resources, you can find illustrations, vectors, photographs, mock-ups. Then we have another vertical which is Flaticon, which is a vertical exclusively focused on creating icons. And lastly, this is Slidesgo, which is focused on providing comprehensive presentation templates for everyone from the education sector to the business sector.

What people, on many occasions, seek is to add value, create that content. People, like me, who are no design experts, don’t want to waste time thinking about how to make a more beautiful presentation and be able to focus more on creating that value.

What’s Freepik’s value proposition? How does it compete with all the other content platforms like Canva or ShutterStock?

That is a good question. In fact, now, every time we are going to create a new product and Slidesgo was born that way, we always wonder how to find that click, with that idea that makes you different. What made Freepik different? The freemium model set it apart. Until now, until Freepik was born, that freemium model, it sure existed somewhere, but it wasn’t that relevant. Freepik was the first site that offered a large volume, in this case of high-quality resources, with a freemium model. And that was what made them different in the market. You can work with Freepik, initially, you can try it, you can download resources without making absolutely any investment and when you see the quality of the resources, the investment is safe.

The freemium model was the initial model with which the company started and from there it evolved to the mixed model that there is now, in which you have a freemium part and a premium part. And that is the model that is currently making the company successful. Initially, the company started as simply a repository of resources that existed within the network, totally free. From there it evolved to that freemium model and from that freemium model it evolved to the premium model and currently, there is a mixed model between freemium and premium.

Also, if you download a resource within Freepik, it will know that you are downloading and that you have a. The file, or what the content is, comes in formats already prepared for the classic professional design tools, such as Adobe Photoshop or Adobe Illustrator. So that is not easy to find on other sites and that is why users pay. We work with content produced by ourselves, with a wing of the company that produces this content. And furthermore, we work with contributors, users who upload content, and get paid for it.

How much does a contributor make per year?

We would be talking about cents per download. But, we are already talking about millions of euros distributed among some 11 thousand contributors. It depends, obviously, it depends on the number of resources that go up. That is, you have contributors who have uploaded very few resources and you have contributors who have uploaded tens, hundreds, or even thousands of resources. And we even have production companies that have pages within our site where they have all their resources posted. And there the income is much higher, obviously.

How many clients does the platform have?

We have more than 350,000 subscribers. That’s the people who pay. We have more than 23 million registered users and we have more than 350,000 subscribers. People who are paying a subscription either monthly or annually. We pay contributors for user downloads. Customers always have to pay by subscription or monthly or yearly, but we are studying new models. In the end, we are constantly evolving and it is something we are learning both from the market and from the feedback that subscribers give us.

It is also different if we are talking about graphic resources within Freepik and we are talking about a vector or we are talking about a photograph, or if we are talking about Flaticon, which what it does is that you download an icon pack. Obviously that icon pack gives you to carry out a project and therefore it is not something that you visit daily. The type of subscriber in Freepik and Flaticon have different personalities, they have different types of behavior.

What’s the client retention rate? How long does a client last?

The average time they stay with us is more than three years and it is something that we are aware that is obviously fine, but it is something we are putting a lot of focus on, we want to create more value. And that creation of value we are, let’s say, diversifying in several areas.

On the one hand, the increase in the quality of the resources, that is, we get to the point where we have a blog, we have different webinars. I always say that quality is increased in two ways. On the one hand, is that you can train or help train the people who provide you with these content. And there is another fundamental part for me, which is receiving feedback from both the market that uses you and the market that it creates for you. And the contributors there is part of the ongoing training that we are doing.

To have 350,000 subscribers to stay for three years or more on a platform, that’s a moneymaker!

Well, I don’t know if it’s because of self-criticism, but we think we still have a lot of room for improvement. That is, in the end always if the users, if the users find a site where the resources are of quality and find what they are looking for.

I am convinced that surely there are other platforms that have subscribers for more than three years with them for us. I’m not going to tell you to stay with us for life. This sounds very old and also, as you said before, there are platforms that are coming out. Our imaginary goal is that in the end users are with us during their professional lives.

What is Freepik’s annual turnover?

We have three lines of income, one line of income that is the subscription. Then we have another very small line of income and that we also strive to keep it that way, which is advertising. And then we have a third line of financing, which is membership. Until last year we had Shutter Stock as a partner and last year we changed and closed an important agreement with Adobe.

Last year the turnover was over 30 million euros, growing at 65% annually. Maintaining this growth rate is difficult.

Obviously and we are aware of this, that is why I tell you that we, within the company, always have two lines of work. One line is the consolidation of what we currently have and how to increase, for example, both the quality and coverage of the content we have. And the other line is what we can do to make more users come to us. And we always maintain that double vision and that double development.

How was the acquisition process?

Well, joining in May, I practically came to congratulate the team. It is true that we had had conversations before, but without a doubt, the merit they have had has been spectacular. It was not so much sought after as they were sought, that is, offers began to arrive that at the beginning they did not contemplate until a moment came when they said “how do we manage to level up the company?” The founders thought about what we need to be able to make that leap in quality. They decided to attend these offers because they saw in them the possibility of having that capital, that executive level within the Board of Directors, which is the one that gives you the contacts and the one that gives you those clues to be able to develop.

The founders have a history of creating small businesses that have exploded and been acquired by other larger companies. That gives you a brutal push, a brutal knowledge on how to grow something out of nothing. But then, obviously, we have certain shortcomings when we are talking about taking a company public or placing a company in billions of dollars. So the solution was to find a partner, someone who is not a partner, to accompany us and to put us at the same table. At that executive level, the company is sure to grow.

From here several offers arise and there were more than ten offers inside, on the table, mainly two types of offers. Offers from companies in the stock sector. And on the other hand, we had offers of financial funds. The choice that was made for a financial fund was based on which partner is going to allow us to continue leading the company and that we can continue to take it along the path that we think is the best, with the help of people who are experts in large companies. Within the financial fund, there were still different offers, and the fund that gave the founders the best feeling, that put more expert resources into the offer and the valuation that for the founders was fundamental.

The sales process has been one of the most learning processes within the entire development of the company. That is, they ask you questions in those processes that otherwise in other places they would not ask you, or that they are questions that maybe you have never questioned yourself or they are looking at numbers that maybe you had never paid attention to before. When you talk to the team they tell you that it was a process in which they learned a lot.

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This post is also available in: Español (Spanish)

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